Privatization in Pakistan
Bilal Akbar
The author is a student of LL.B-III. He is a very hard working student. He has devoted his
best efforts towards QLCian.
Privatization is the act of reducing the role of government, or increasing the role of
private sector, in an activity or in the ownership of assets. Privatization has been
prescribed as a means of improving the efficiency and profitability of public enterprises,
which are not performing well. The privatization of government owned enterprises is
nowadays a large-scale process for the transfer of state owned enterprises to the private
sector. Privatization, as an instrument for development is finding significant currency in
industrial and developing countries throughout the world and is one of the important
components of socio-economic reform programmes being implemented around the world.
The major aim of this policy is to reduce the drain on the government resources, caused
by the persistent losses of public enterprises, and to create greater opportunities for
private investors to expand and modernize these enterprises with the aim of liberalizing
the economic environment for rapid industrialization.
The concept of privatization is not new to the policy makers of this country. It may be
traced as back as in 50s, when Pakistan Industrial Development Corporation (PIDC) was
established in 1952 to boost up the industrial development in the country. This premier
Corporation established over 50 industrial undertakings in the length and breadth of the
country and after their successful operation and management; these units were transferred
from the public to the private sector. The tide of nationalization, which swept the whole
economy in the first half of 70s, was reversed in 1977. The privatization of State Owned
Enterprises (SOE) became an important instrument of economic policy of the
government in late 80s. However, it was in 1991 that privatization process in Pakistan
became effective.
The privatization process in Pakistan has passed through different phases and it has been
very instrumental to redefine the relationship of private and public business with the
government institutions. A large-scale privatization effort was launched in November
1990, the government declared privatization as its primary economic policy objective,
when the Disinvestments and Deregulation Committee was established to identify the
enterprises to be privatized and to make recommendation on how this process should take
place. The agenda of privatization announced by the Government covered a wide
spectrum of fields like industries, banks, development finance institutions,
telecommunications, energy sector, and electricity and infrastructure facilities for the
stimulation of private sector.
In the early phase of privatization, the programme was unsuccessful with few bidders for
the targeted firms. Since privatization was a cornerstone of the government's economic
policy, the government revised its strategy and accelerated the process. It improved the
legal and administrative procedures, and while it had decided initially to adopt the policy
of offering only few units for sale at a time. Attempts were also made to make the entire
privatization procedure more transparent and effective, that is why the creation of
Privatization Commission on January 22, 1991. The Commission was required to
pinpoint and identify the industrial units for sale purpose. It identifies 115 units in three
phases:
All the nationalized Banks and Insurance Company were to be privatized.
In addition to banks, many other units, which were the monopoly of the Public
Corporations, were to be privatized.
It included power generation, Transport (aviation, railways, ports, shipping, road
construction), Pakistan Steel Mills, Oil & Gas and Telecommunications etc.
During January 1991 to June 2005 the Commission completed 151 transactions for Rs
177.328 billion. In the financial year 2005-2006, the Commission has successfully
completed privatisation of 8 transactions including privatisation of PTCL, CTI, KESC,
UBL (IPO), United Industries Limited (additional shares), Bolan Textile Mills Ltd.,
Mustehkam Cement and Pak American Fertilizers for Rs.196.231 billion, which is 356%
higher than the previous year. The Commission, during the year, has remitted Rs. 97.259
billion to the Government of Pakistan for debt retirement and poverty alleviation program
and Rs. 24.540 billion to entities whose shares were sold1.
Banking Sector: Privatization is expected to lead to a sounder and more efficient
banking system with the capacity to mobilize savings and allocate them to the most
economically productive uses. Private banks facing competition are likely to more closely
respond to customer needs, improving the quality of services and introducing needed new
financial products.
National Bank Of Pakistan: Divestment of 13.2% shares of National Bank of
Pakistan for Rs. 1.386 billion.
Bank Al-Falah: Divestment of 30% shares of Bank Al-Falah for Rs. 620 million.
Habib Bank Limited: Sale of 51% of GOP stake in HBL for Rs. 22.409 billion.
United Bank Limited: Sale of 4.22% shares of UBL through Capital Market for Rs.
1.040 billion.
Industry: The vast majority of industrial companies on the privatization programme are
making losses. Keeping them afloat requires fiscal support in the form of loans and
bonds, or frequently, explicit or implicit guarantees. The sale of such companies will
stem the fiscal hemorrhage. Even when companies are profitable, such as Pak-Saudi
fertilizer, National Refinery Ltd and Kohat Cement etc.
PakArab Fertilizer: Sale of shares of Pakarab Fertilizers Rs. 14.125 billion.
National Refinery Limited: Sale of shares of National Refinery Ltd for Rs. 16.415
billion.
Rohri Cement: Sale of Associated Cement, Rohri for Rs. 255 million.
Thatta Cement: Sale of Thatta Cement for Rs. 794 million.
Mustehkam Cement: Sale of Mustehkam Cement Limited for Rs. 3,205 million.
Kohat Cement: 10% additional shares of Kohat Cement for Rs. 40.8 million.
Bolan Textile Mills: Sale of Bolan Textile Mills for Rs. 128.0 million.
Sale of Carrier Telephone Industries for Rs. 500.0 million.
Sale of International Advertising (Pvt) Limited for Rs. 5.117million.
Kohinoor Oil Mills : Sale of shares of Kohinoor Oil Mills Limited for Rs. 80.7
million.
Oil, Gas & Energy: The privatization of oil and gas companies will attract private capital
and management and result in higher production of oil and gas, as well as improve the
quality and coverage of services. the Government keeps part of its shareholding in
companies such as OGDC and PPL, the likely higher profits of the privatized company
will benefit the Government both from its share of the profits as well as from the
enhanced tax revenues.
Sui Southern Gas Limited: Sale of 10% shares of Sui Southern Gas Limited for Rs.
1.734 billion through Capital Market.
OGDCL: Sale of 5% ordinary shares of Oil & Gas Development Company Limited
(OGDCL) through Capital Market for Rs. 6.851 billion.
Pakistan Petroleum Limited: Sale of 15% shares of Pakistan Petroleum Limited
(PPL) through Capital Market for Rs. 5.5 billion.
Power Generation: There are two main goals to privatize the power generation companies
that are:
1. To bring good management and new investments that are necessary to provide a
reliable supply of electricity for now and the future and
2. To stop the fiscal bleeding caused by mounting financial losses, stemming in part
from very high line losses. International experience has shown that the new
investors will bring in improved management that will quickly be able to reduce
line losses and the corruption associated with it.
KESC: Sale of GOP share holding in KESC for Rs. 20.240 billion.
Sale of 20% shares of Kot Addu Power Company through Capital Market for
Rs. 4.604 billion.
Telecommunications: The main goal of the PTCL privatizations is to bring in
management and new investment that will be more responsive to consumer demands,
especially with respect to increasing the speed with which new lines are installed and to
meeting the burgeoning needs of information technology. To protect consumers and
abide with the WTO Agreement, the Pakistan Telecommunications Authority commits to
eliminating PTCL's monopoly on fixed lines after 2002 and to ensuring effective
regulation the Government. A private company operating in a competitive market with
the oversight of a regulatory authority is likely to provide better service to customers and
to keep prices competitively low. The Government is contemplating initially selling up to
26% percent of the company along with the transfer of management control to Etisalat-
UAE company for $ 2.59 billions. The balance could be sold subsequently in the stock
market at a higher price.
Sale of 26% shares of PTCL for Rs. 155.0 billion ($ 2.59 billions).
Large units likely to undergo privatization process, as WAPDA, KAPCO, WASA, PSO,
PIA (Pakistan Air Lines), the Pakistan Steel Mill, and Pakistan Railways. It has also been
the stipulation that new projects like airports, infrastructure, roads, seaports, insurance
companies and shipping etc.
The pivotal role of the private sector is to act as engine of economic growth. Corollary to
it, privatization is to be vigorously pursued as an economic creed. Obviously privatization
would greatly assist in the development of capital markets for mobilization of domestic
savings, resulting in greater efficiency and foster quality and quantity in an atmosphere of
competition. But too much attachment with the privatization is likely to land the country
into mire, which seems a real danger. A transparent and purposive privatization process
would help revive animal spirits. Private investment would be attracted to labor-intensive
activities in which our economies have a comparative advantage and would thus promote
growth and alleviate poverty.