The governments privatization plans to date have been merely restricted to disinvesting from the blue chips. Privatization is good especially when it is of changing management of sick units, which have less room to go further down as against selling profitable companies.
Although some reports suggest that Pakistans early privatization programs have had limited success, the debate whether privatization is good or not emerges only when the managements change hand.
Government has such plans but most of companies are white elephants and loss-making entities. You possibly can not do much wrong with the Pakistan Steel Mills now - so might as well just privatize it. Same are the sentiments for PIA and a few other high loss-making discos. The critics have apprehensions regarding privatization of good discos like FESCO and IESCO which are likely to find buyers.
Yes, it is cherry picking but we have seen dividends of giving KESC to a smart and innovative operator - Abrajs management has really turned around K-electric despite opposition from political parties on its retrenchment of redundant, inefficient and corrupt human resource. One hopes, Mian Mansha and the likes would come up with a win-win formula for relatively better discos.
The strategy of inculcating a culture of privatized discos by changing hands of better companies can find owners of worse entities. Mind you, the term etter companies is a relative term as most discos have poor management. Concurrently, Privatization Commission should not further delay the offloading management plan along with 26 percent shares of PIA and needs to come up with an out of box solution for PSM and Pakistan Railways.
On the flip side, it should slowdown its pace on disinvestment of best companies. The deregulation and privatization of banking demonstrated its benefits of building banks asset size, profitability and employment.
The privatized banks profitability skyrocketed in deregulated and privatized era. Government sold 51 percent of strategic share of UBL in 2002 for Rs12 billion ($200mn), 12 years later government offloaded its remaining shares at eight times the value in rupee terms (5 times in dollar terms). Isn it a handsome gain? Similarly it has disinvested chunks of Allied Bank and Pakistan Petroleum in the last few months. It has so far earned Rs68 billion ($680 mn) from disinvestment in blue chip companies this fiscal year.
The next inline is HBL which is budgeted to raise $1.2 billion by completely offloading the hefty 42 percent share in a couple of months.
Thats too fast Sir! Yes, the fiscal house is not in order and Dars ministry desperately needs fund to be within the IMFs permissible limits. But don sell all your eggs just now as you would be left with nothing in years to come as the structural weaknesses will keep fiscal balance in stress.
Additionally, phasing out of HBLs disinvestment may reap higher returns. Eleven years down the line, when HBL was privatized, its market value was Rs22 billion ($389 million), now the banks market capitalization is Rs308 billion ($3.1bn) - having increased sevenfold. A better strategy could be to offload half of its share now to gain $0.5-0.6 billion and leave the remaining for years to come.
The Chairman Privatization Commission is going to Dubai to talk to the IMF and he should press the fund to renegotiate on HBLs GDRs target to half.
Although the OGDCs transaction could not take place, the foreign exchange reserves situation is better and the government is meeting all of its quantitative targets. And if the government has the will, the fund may revise down HBLs disinvestment target.
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