Privatisation to fund fiscal deficit

The federal government is likely to commence privatisation with the objective of funding its rising fiscal deficit subsequent to the stock exchange crossing the 13,000 points mark. This statement is attributed however to market players and not to government sources. While on the face of it this reflects a viable policy yet there are three major elements that may act as a stumbling block to its speedy implementation. First and foremost, historically, the PPP has been opposed to a policy of privatisation. This is reflected in the slowdown of privatisation proceeds in the budget post-2008. The budget for last year envisaged zero revenue from privatisation, while in the current year the government identified 70.4 billion rupees from privatisation proceeds. Sources in the Ministry of Finance indicate that this amount is inclusive of the 700 million dollars due from PTCL now for over two years with little indication that the company's genuine concerns regarding transfer of various landholdings have been dealt with, and awarding the very lucrative 3G contract that is still to materialise. In short, if revenue is realised from these two sources it does not reflect privatisation in the more traditional sense, namely privatising state-owned entities (SOEs). Secondly, the current environment is not considered very conducive to attracting serious investors for mega sale of big ticket items due to: (i) continuing law and order problems as well as global recession (which would act as a dampener in terms of foreign private interest); (ii) continued focus on bailout packages without the submission of appropriate business plans - a case in point being the Pakistan Railways (PR); and (iii) the commencement of the process of privatisation must be preceded by appointing a Board of Directors comprising mainly of eminent and known business leaders with full empowerment to restructure these SOEs and appoint chief executive officers and other senior personnel ie a team of professionals in these SOEs with a proven relevant successful record and requisite qualifications. Additionally, the government in an effort to ensure that the SOEs attract serious prospective buyers would need to allow the management to take independent pricing and hiring/firing decisions without interference from their line ministries. Public offering of shares in the oil and gas sector does hold a promise. Government-managed companies capitalisation is in the excess of dollar 30 billion. Attracting liquidity into the bourses would be very desirable. Be that as it may, Khurram Shahzad, head of research InvestCap revealed that a roadmap has been approved by the Cabinet Committee on Privatisation (CCoP) to initiate 8 initial public offerings (IPOs) and the government has wisely not included any of the losing concerns such as: PIA, PR, Wapda/NTDC or Pakistan Steel. He added: "as far as the amount to be raised to fund the fiscal deficit goes, we expect proceeds in the range of Rs 30-35 billion depending on the final size of Parco's (largest refinery with 41 percent market share) with price levels (with the government already expecting price premiums ranging from 0-17 percent on planned SPOs and GDRs)." This newspaper has always supported privatisation as a means to not only significantly improve SOEs' productivity and profitability but also to ensure that their pricing decisions are taken in the context of costs as well as an appropriate margin of profit. To disallow SOEs these critical rights would simply defeat the very purpose of privatisation. For privatisation to have the overarching objective of funding a fiscal deficit that is neither backed by equitable and non-anomalous tax structure, nor on an expenditure criterion that seeks to end current non-development expenditure reflective of profligacy, cannot be supported. The government must seek to first ease public concerns with respect to its profligacy and its failure to bring fairness in its tax structure, wherein all kinds of income are taxed irrespective of its source. The structural obstacles in the way of equitous taxation need to be overcome so that the government uses its tax and non-tax revenue to pay for its operational and development expenditure. Revenue earned from public offerings should be utilised only for retiring public debt, so that sustainable economic policies can be perused in the future. Copyright Business Recorder, 2012