In my earlier article on Pakistan Steel published in this esteemed newspaper I had said 31st March 2006 was another dark day in the history of Pakistan when 75 percent shares of Pakistan Steel were sold out for a partly sum of Rs 21.680 billion rupees to Al Tuwariqi led consortium.
The sale of Pakistan Steel Mills has been severely criticised by the people and public representatives and also by the employees of Pakistan Steel who have been staging regular demonstrations against its privatisation, but it had no effect on the Privatisation Commission and they went ahead with their programme and disposed of this costly asset like the PTCL in spite of the fact that it was generating a huge revenue for the national exchequer.
As anticipated the people of Pakistan stood against its sale at a throughway price and went to the Supreme Court for saving this costly asset, the only integrated steel plant in Pakistan.
23 June 2006 will be remembered as a historic day in the history of Pakistan when the Supreme Court of Pakistan with a nine-member bench, headed by Chief Justice Iftikhar Muhammad Chaudhry, declared the letter of acceptance issued to the Arif Habib Consortium by the Privatisation Commission on March 31 as void and of no legal effect.
This historic decision has been hailed throughout the country by people at large and especially by the employees of the Pakistan Steel who have been agitating against its privatisation. It is incorrect to suggest that the government has lost this case or the employees of Pakistan Steel have won it. The fact that has emerged is that when you break the laws nature takes its own course and ultimately the truth prevails.
There is no harm in privatisation and the government can formulate policies and implement them. Accordingly the Supreme Court has held that the Privatisation Commission Ordinance 2000 was not against the constitution and the process of privatisation will go on unhindered as the decision pertains to only the Pakistan Steel Mills.
The Supreme Court in its short order has also held that "it is not the function of the court, ordinarily, to interfere in the policy-making domain of the executive," however, the process of privatisation of the PSMC stands vitiated by acts of omission and commission on the part of certain State functionaries reflecting violation of mandatory provisions of the law and the rules framed thereunder which adversely affected the decisions qua pre-qualifications of a member of the successful consortium (Arif Habib), valuation of the project and the final terms offered to the successful consortium which were not in accordance with the initial public offer given through advertisement."
Much before the privatisation the people from various walks of life have been voicing views against privatisation of the Pakistan Steel on the media and various television channels. It was being advocated that Pakistan Steel, being one of the strategic assets of Pakistan, was the backbone of our defence industry and mother industry and, therefore, should not be privatised, but no attention was paid to these protests and this strategic asset was sold at a throughway price.
Truly speaking privatisation anywhere in the world continues to be a controversial issue. Nobel Laureate Stiglitz describes it as "briberization" and gives examples of colossal damages caused due to privatisation in Russia under Yelstin and in other East European countries.
Privatisation of Pakistan Steel was considered essential for the expansion and enhanced capacity which required fresh investment of $1.2 billion to achieve a minimum of 3 million ton capacity while another Rs 12 billion were required for renovation of coke oven battery and other areas as stated by Dr Hafiz Sheikh, ex Minister for Privatisation.
He had further said that it would be beneficial for both the employees and the company. This assumption was factually incorrect as we have seen in the case of PTCL. 1900 daily wagers have been laid off whereas it was promised they all would be absorbed and regularised.
Similarly a handsome package had already been prepared and circulated amongst the employees of Pakistan Steel with the sole aim to cut down the existing strength by at least 5,000 force, adding to further unemployment in the country.
The question arises as to why the financial wizards and the consultants, who were engaged at a very high cost to assess the price, failed to peep into the past history of Pakistan Steel. How on earth they could justify an estimate of Rs 21.680 billion in the year 2006 of 27 billion assets of 1985. The price calculated was totally out of context.
Their conduct also needs a thorough probe and calls for detailed investigations in the wake of the Supreme Court decision. Before privatisation if we look at the sale proceeds of the last three years the sale saw an increase by 35 percent, and the net sale proceeds during the year 2004-5 have been around 32 billion rupees and the profit ratio in three years has been 559 percent.
The year 2005 saw profit of over Rs 6 billion rupees. This could further be increased with the proposed expansion had the government released the required funds of around 300 to 400 million dollars.
The Privatisation Commission has yet to explain the procedure how the reserve price is fixed and what is the mechanism for pre-selecting the bidders.
The Allied Bank was sold at Rs 11 billion with negative equity and Habib Bank Ltd that was 10 times more than the Allied Bank was estimated by the consultants for just Rs 22 billion. This cannot be termed as transparent deal. Similarly how the consultants estimated Rs 16.18 per share in case of Pakistan Steel.
Another important factor in the privatisation of any asset is that the government tries to get maximum price of the unit. In the case of Pakistan Steel the Privatisation Commission had extended benefits to the purchasers like handing over the stock in trade in the units worth Rs 10 billion and cash worth Rs 8.559 billion lying in its account out of which post-dated cheques had already been issued to clear the liability of loans, which were due from the year 2013 to 2019 has rightly been observed by the apex court.
In a nutshell the total loss to the government works out to be Rs 18 billion. This does not include Rs 15 billion, which the government had promised to pay to the workers under Golden Handshake Scheme. This is a unique deal in the history of the present world where unlimited favours were showered on the buyers at the cost of this poor nation. What a wonderful bargain?
The Supreme Court judgement is going to serve as landmark for the Privatisation Commission and it is hoped from now onwards it shall exercise more caution and care while disposing of national assets. Likewise there is need to review the decision on PTCL that has been sold by violating basic fundamental principles of privatisation. It was a unique deal in the history of privatisation when the terms and conditions were changed for the convenience of buyers after the deal.
By doing so we entered into a new technique of privatisation that is you buy costly asset on your terms and pay off as you earn. The Privatisation Commission deserves appreciation for introducing new trends in this field. This is no way of attracting foreign investment. There is no disagreement on this that the foreign investors be provided all types of facilities to make them comfortable but without compromising on the fundamentals and doing away with the transparency restricted to open auctions without proper evaluation of assets being sold. At the same time in the name of foreign investment we cannot allow a handful people to amass wealth without toiling.
As reported in the Press the import of iron and steel scrap saw a sharp increase in anticipation of large-scale reconstruction after the earthquake and other development activities taking place in the country. It is also true that in our neighbouring country, Afghanistan, there is no steel mill therefore their basic needs are catered to by Pakistan. Had we spared 400 million dollars for Pakistan Steels revamping Pakistan could have saved plenty of foreign exchange?
The steel demand will continue to grow with the passage of time. To err is human. Let us now spare adequate funds for the immediate repair of coke oven batteries so that work goes on smoothly. The issue will now be debated in the CCI as per the directives of the Supreme Court and there is every possibility that its rebidding shall be opposed.
The Privatisation Commission was rushing through the privatisation instead of taking time and adopting a proper approach. It is high time that Privatisation Commission gives a second thought on privatising those assets, which are running in profit like oil, gas and Pakistan Steel. We should compete with other oil giants like Shell, Total and Caltex. A healthy competition will be a source of relief for the common man who continues to suffer under high prices of daily commodities.
We must draw our aspirations from our brotherly country, China, a model of rapid economic growth in the world; they turned down the advice of Washington and did not privatise any industry. A much better solution lies in gradual sale of shares through public on two counts, the asset will remain in the hands of Pakistan and our own people will be benefited. Let us follow the example of our immediate neighbour India, where Prime Minister Manmohan Singh as a matter of policy has decided that no profitable public sector enterprise will be privatised.
As reported in the Press $290 billion so far have been collected on account of proceeds of units already sold, people should be informed how this money has been utilised. Has this amount reduced our external debt. If yes people would like to know the details.
One important lesson that can be drawn from this deal is very obvious that we should not rush for privatisation and it should be thoroughly debated publicly so that a correct decision is taken. All those strategic assets that are on commanding height and are generating huge revenue should remain with the government.
The Privatisation Commission should auction only those units that are causing losses to the State. Since privatisation of Pakistan Steel has been scrapped and the Prime Minister has announced that they will abide by the apex court verdict, the need of the hour is to let this giant unit be run by a team of professionals.
The government should immediately release funds for its revamping and fulfil plan for its expansion within our own resources. Our State reserves are over 13 billion dollars therefore there should be no problem for the government to spare some money out of this reserve.
Apart from generating revenue it will reduce the import of iron and steel and save costly foreign exchange that can be utilised on other important projects.
A committee of experts should be appointed to go into previous deals like UBL, HBL and PTCL that was the backbone of our economy and try to bring the facts and place them before the public. This will have the very positive impact and serve as a deterrent for future deals.
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