The government, immediately on taking over, has declared to "completely reverse" the economic policies pursued by the previous government and to formulate new pragmatic policies. It will, however, continue with the privatisation of the state-owned enterprises as cornerstone of its economic agenda, with reprioritisation and possibly making privatisation programme more worker-friendly.
The pace of privatisation has remained very slow in the last two years or so, since the Supreme Court of Pakistan aborted the moves to privatise Pakistan Steel, and transactions for divestment of a number of state enterprises, in particular industrial units, could not materialise within the scheduled timeframe.
The inordinate delay has caused loss of production, sales, productivity and efficiency, resulting in lower profitability, besides other negative socio-economic impacts. Thus there is a need to review, on priority, status of these units and to accelerate privatisation process if at all divestment of the units on privatisation list is in the national interest.
A case in point is that of Hazara Phosphate Fertilisers (Private) Limited. The Privatisation Commission (PC), though planned to initiate action by the third quarter of 2005, had invited the Expressions of Interest (EOIs) for the acquisition of minimum 90% shares of Hazara Phosphate Fertilisers, in January 2006, while its privatisation process is still going on, without any decision. Until February 13, 2006, the last date fixed for receiving the EOIs, 9 prospective investors had presented their documents.
This was fairly a good response, given the conditions of investment climate and law-and-order situation in the country at that time. Nonetheless, PC, in its best wisdom, decided to scrap the process, which was re-started after losing eight months. Thus, on October 30,2006 the Cabinet Committee on Privatisation (CCoP) gave afresh go-ahead to completing transactions for company's divestment.
This time PC also asked the interested parties for the Statement of Qualifications (SOQ) along-with the proposals for managing and operating the Hazara Phosphate Fertilisers. Only the qualified investors could participate in the bidding process that was to be disclosed to them later. Last date of receiving the EOIs was fixed as January 15, 2007. Eight EOIs were received almost from the same prospective investors. But only two parties were considered eligible, on the basis of evaluation of the Statement of Qualifications, who were asked to bid on June 18, 2007.
Somehow, no decision was taken on the bids received and another round of EOIs was arranged by the PC, last date now fixed as December 22, 2007. In response, a total of 9 parties showed their interest to buy the company. The PC Board, in its meeting held on January 29, 2008, constituted a transaction committee to formulate its recommendations, which were not available until February 15, 2008 when the CCOP reviewed the progress of on-going privatisation of various state enterprises including Hazara Phosphate Fertilisers.
The other state-owned SSP producing fertiliser plant, namely Lyallpur Chemicals and Fertilisers Ltd, had met similar fate in the past. After having been on privatisation list for long the company was put on sale in 2002 without success, again in April 2006 and was finally sold to a private sector company in February 2007, at almost a throwaway price. PC did not learn lesson, however.
It will be recalled that in December 1992 Hazara Phosphate Fertilisers was sold to a group of private parties at $5.50 million, but the deal was quashed later. Privatisation proceeds of this factory are not likely to be close to this figure any more, even though major rehabilitation and re-commissioning of the plant was done in April 1999 at substantial cost.
Hazara Phosphate Fertilisers project was completed in 1988-89 at a total cost of Rs 281 million. It has two main production units; sulphuric acid, which is required for SSP production, and Single Super Phosphate (SSP) Plant. Technology and process employed is modern - production of sulphuric acid by double contact, double absorption method patented by Monsanto Enviro-Chem, USA and process know-how of SSP by CDF Chemie AZF, France.
The process employs a 3-stage scrubbing system to wash reaction gases in order to achieve environmental pollution control standards. Heurty Industries of France had provided basic plant engineering, whereas major machinery and equipment was designed and manufactured by local engineering companies in public sector. The company has authorised share capital of Rs 200 million; whereas paid up share capital is Rs 191.43 million.
This is the time PC should consider revising its modality for selling-off this fertiliser unit, which has peculiar characteristics. The plant, located in Hazara, was designed to process local phosphate rock of Kakul and Tarnawai (District Abbottabad) origins, to produce 90,000 tons of granulated SSP fertiliser per annum. But delivery of raw material could not fully meet the annual demand of the fertiliser plant, which was originally committed. Due to inadequate and irregular supply of local phosphate rock the company had to resort to large-scale imports from Jordan and Morocco.
This has resulted in huge transportation cost for raw material, rendering it uneconomical for a private owner to operate the plant at existing location, which is a major condition put by the PC to the bidders, though the unit is offered on "as is, where is" basis. The plant, therefore, would need to be relocated by the new owners, somewhere near Karachi or in the southern Punjab, as it would continue to depend on imported rock phosphate.
Alternatively, the Hazara Phosphate Fertiliser plant should be integrated with Kakul-Tarnawai mines that are owned by the government of the NWFP, before its divestment, allowing a single ownership and management in the private sector.
(The writer is former Chairman of State Engineering Corporation and Heavy Mechanical Complex.)
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