The anxiously awaited detailed order of the Supreme Court of Pakistan against the process employed for the disinvestment of government stake in Pakistan Steel Mills has finally been announced. Although the apex court had struck down the Pakistan Steel sale through its short order on 23rd June, 2006, the detailed order was awaited to resurrect the privatisation process that had come to a grinding halt thereafter.
Written by the honourable Chief Justice and unanimously endorsed by the other judges on the bench, the judgement deals at length with the issues and arguments agitated at the bar by the counsel for the litigants. On each of the five criteria that the court set to adjudge the validity/transparency or otherwise of the privatisation transaction, it has found the government and the Privatisation Commission wanting.
According to the court, neither the terms of reference framed for the valuer were in accord with the Privatisation Commission Valuation Rules 2001 nor did the pre-qualification of potential bidders satisfy the requirements of the Privatisation Commission Regulations.
The method adopted for valuation was neither in accordance with the internationally recognised principles that ensure the maximum price to the seller in the case of strategic sale of an asset nor did it comply with the mandate of the Privatisation Ordinance 2000 and the rules framed thereunder.
The court has found the decision of the Cabinet Committee on Privatisation (CCOP) to sell the mill if the bid was above Rs 16.18 per share as flawed and the final terms/concessions offered to the selected consortium at variance with the initial public offering advertised in the media as unlawful and unreasonable.
The Pakistan Steel privatisation had generated an acrimonious controversy. From the court order it is obvious that this controversy was not without basis or valid reasons. The way the whole process was hurried through and corners were cut to speed up the transfer of ownership, rightly termed by the court as "indecent haste," remains inexplicable to this day.
Governments are considered much less efficient than the private sector the world over, primarily because of their decision making process which follows pre-determined and set procedures determining its course in immutable time lines, reconciling differing views and divergent concerns. This is in stark contrast to the private sector where matters can and are accelerated to grab opportunities and maximise profits.
In compliance with the court order, the government constituted the Council of Common Interest (CCI) and at its first meeting held recently it cleared the privatisation of Pakistan Steel Mills amongst other things. The decision on privatisation was not unanimous but by majority because the NWFP Chief Minister, Akram Durrani, was opposed to the sale of any profitable State enterprises, including Pakistan Steel.
Since the NWFP government has not referred the issue to a joint sitting of parliament, as is required under the constitution in case of a difference within the council, it may be safely assumed that the privatisation process can now begin afresh.
Privatisation is indeed one of the cornerstones of the government's economic policy and irrespective of the fact whether a State entity is a profit making enterprise or is incurring a loss, the government needs to divest itself of ownership and control. Privatisation proceeds are also a key element of the FY06 budget.
However in pursuance of this goal the whole process has to be absolutely transparent, open, and consistent and must fetch the highest possible price to the State for its assets. There are various models for valuation and the court's judgement does refer to some of them, but as a report of an exercise carried out under the United Nations states which the judgement also cites, "...resources are better spent developing and strengthening market based mechanisms for price discovery, rather than relying on armies of investment bankers to conduct a valuation."
The Privatisation Commission and the CCOP would do well to use the judgement of the apex court as a guide for all future privatisations to ensure that all elements of transparency and fair play are strictly adhered to and the maximum value for the State assets is realised.
The guiding principles set by this judgement would also call into question some of the past privatisations in so far as issues such as difference in the terms given in the offer of sale and the terms accorded to the buyers, the sale to buyers who were not amongst the pre-qualified bidders and finally the real value received by the State (What the government put in to clean the SOEs balance sheet to make it attractive for sale and the final sale proceeds that the government got), are concerned.
Some of these transactions have been challenged and are before the superior courts. This judgement will surely cast a long shadow on some if not all of these cases.
Finally the disparity in the viewpoints of the Pak Steel management and that of the government was never more conspicuous as in the Supreme Court when the case was being heard. This divergence still persists.
The government has had the Pak Steel privatisation approved by the CCI in pursuance of the court directive and would obviously like to proceed with it, but the management led by its Chairman, Lieutenant General Abdul Qayyum, (Retd) is seeking postponement of its privatisation on various grounds, one of which is that it is an unpopular step and would have adverse political implications for the government in the coming general elections. It is therefore important that the government puts its own house in order and ensure that all members of its team, including the Pakistan Steel management are on the same page before it proceeds with 'round two' of Pakistan Steel privatisation.
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