EDITORIAL: The Caretaker government has reportedly assigned Pakistan Institute of Management (PIM) to re-evaluate the core and non-core assets of Pakistan Steel Mills (PSM) along with legal, fiscal and human resource liabilities.
PSM is said to have inflicted a loss of up to 18 billion dollars on the national exchequer since its closure dating back to 2015 (the country lost that amount in foreign exchange for import of steel products that were once produced by this mega public-sector industrial unit), though all administrations since have disbursed billions of rupees to meet its fixed costs as well as payment of salaries, defined as a variable cost that should not have been incurred when output was zero.
While PSM has been removed from the privatisation list, yet this is certainly not the first time that the exercise of valuation of its assets will be carried out though it may have been considered necessary as the value of assets, including land, has certainly changed over the past eight years.
Be that as it may, this directive by the Ministry of Industries and Production does not provide a comfort level that the PSM will no longer receive annual budgetary injections to meet fixed and variable costs in future.
Successive Pakistani governments have favoured privatisation as a policy for more than three decades - support with the explicit objectives of not only reducing the annual budgetary injections to keep poorly performing state-owned entities (SOEs) afloat, estimated at close to a trillion rupees in the current budget, but to use the proceeds to retire the ever rising domestic debt budgeted at 48 percent of total current expenditure and 44 percent of the total budget for 2023-24.
This policy was prioritised by the Caretaker set-up reflected by the issuance of a notification dated 15 September 2023 appointing Fawad Hasan Fawad as the caretaker federal minister for privatisation – an appointment that many argued indicated PML-N position on privatisation, as the Pakistan People’s Party traditionally has used SOEs as recruitment centres.
Two questions arise. First and foremost, irrespective of Fawad Hasan Fawad’s capacity to undertake the task assigned to him, with the election date set for 8 February 2024, would it not have been advisable to defer all such decisions till the formation of the elected government – decisions that, if past precedence is anything to go by, are challenged in a court of law.
And secondly and perhaps equally if not more importantly, the economy is undergoing a severe economic impasse and in spite of some uptick in productivity in recent weeks there is evidence that Pakistan does not provide an environment conducive to investment or privatisation.
It would therefore be preferable for the current dispensation to defer any decision pertaining to an SOE till after the elections and the impasse is over.
Support for privatisation should not provide a carte blanche to any administration to proceed with a sale without first undertaking an empirical study that takes account of not only the actual sale price of the entity, that must include the future returns, if any, that would be foregone by the government in case of sale today as well as whether the sale would lead to monopolistic conditions for a private party that may, to the detriment of the consumers, lead to a higher price to maximize windfall profits.
Thus the assumption that a private party will automatically reduce losses, increase productivity and public welfare are not always synonymous with privatisation.
It is important to note that the Caretaker setup is no doubt uniquely placed to take decisions that are not politically feasible for an elected government; however, one would recommend that they focus on the much-needed reforms say in the pension system, tax and power sectors and exercise extreme caution with respect to sale of state assets.
Copyright Business Recorder, 2023
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