Privatisation is the process of transferring ownership of a publicly owned business enterprise, agency, service, or property to the private sector. The true owners of the public business and its assets are the citizens of the country who delegate to the government the responsibility to execute the privatisation deeds in a fair and transparent manner in the best interests of all segments of the nation. The people reserve the right to monitor and challenge the privatisation process in case of non-compliance with the set rules of fair play and transparency.
History of privatisation dates back to ancient Greece where the government contracted most essential tasks to the private sector like tax collection, military supplies, construction, and others. The Roman Empire too created state-owned enterprises. Scholars suggest that the cost and inefficiency of the Roman bureaucracy was one of the reasons for the fall of the Roman Empire. The first ideological movement towards privatisation came during China's golden age during the Han Dynasty.
Moving on modern times, it was in the 1980s under Margaret Thatcher in the UK and Roland Reagan in the US that privatisation gained world-wide recognition and backing. The UK privatised nearly all its public businesses and assets like automobiles and steel industry, airways, shipbuilding, railways, oil and gas, and telecom. Emerging markets too followed the lead towards privatisation with the support of global funding entities like the World Bank. Former USSR and Eastern Europe also adapted to the doctrine of privatisation in late 1980s after the collapse of their economies, which led to the collapse of their political systems. China, around this time, also opted to join in the global free economy while faithfully protecting their authoritarian system of political and social governance and perhaps presented the most successful model of economic governance and excellence. Over decades, it has sustained unprecedented GDP growth of average of 8 percent. It is projected that in the next three years it will be the world's largest economy surpassing the US.
These above examples demonstrate that nations embracing a free and transparent economy prosper. Pakistan started well with a great blend of private enterprises to venture into small and medium businesses and public enterprises to venture into larger businesses. In the 1960s, Pakistan's economic model was a benchmark for the emerging markets. Organisations like PIDC, Wapda, fertiliser, steel and chemical plants were established in the public sector to eventually privatise them once the private sector achieved maturity. This never happened.
Legacy organisations like Pakistan Steels, PIA, PSO, Pakistan Railways and many more are bleeding and limping disgracefully on the crutches of subsidies for years. Over the last six years, more public enterprises have joined this club. This trend is likely to continue, which will eventually lead to the collapse of Pakistan's economy if not arrested well in time.
State monopolised organisations are prone to corruption; decisions are made primarily for political and personal reasons, and personal gains trump the organisations' overall benefit. The public in their innocence pledge their trust in their leaders, which is like trusting a goat to guard the garden.
The same mindset prevails in Pakistan. Over the last four decades, no ruling regime made any determined and sincere effort to privatise public enterprises. Instead, they all shamefully used the public entities as a channel to excel in nepotism, cronyism, and corruption. With this non-ending cycle, no public enterprise has had any chance to stand on its own feet. It is no wonder then that hardly any political party has considered this serious drain on our economy as a key part of their agenda or as a downright priority. They appear wanting to retain this channel for political and personal gains. Any public vote against privatisation is a vote in favour of corruption, nepotism and cronyism.
The PML-N government intends to privatise the business entities in the public sector. On the face of it, this is a commendable initiative in the public's interest. It is in line with the global trend to enforce efficiency, competitiveness, quality and increased revenue, which means an increase in GDP, tax collection and job opportunities. Alas, their commitments will be judged by their actions.
Privatisation in some countries has involved large-scale corruption. Those with political connections unfairly gained at the expense of the public, which discredits the entire process. This further led to the formation of a business mafia and cartelisation. The sanctity of the privatisation process must at all times be made transparent to the people of Pakistan. In addition, it is equally important that the utilisation of the proceeds of the privatisation must be put to good use. It is expected that they be utilised for public welfare like education, poverty elevation, and healthcare. Utilising the proceeds to provide political leverage to the rulers is not an acceptable option. It would thus be wise for civil society to monitor closely the whole process.
To expand a bit on the issue of cartelisation that occurs from incorrect privatisation, it is important to know that it can cause inefficiency of a different kind; the kind that comes about from legal monopolisation, which is anathema to the fundamentals of the free market. In Pakistan, we have a very weak and politically influenced structure to arrest cartelisation due to which we have flourishing sugar, cement, fertilizer, milk and other cartels that contribute to ever-increasing inflation. A stronger and independent regulatory structure needs to be put in place to correct the wrongs.
The present government of Pakistan as a first step rightly went for the share issue privatisation. They sold their share at a good value in United Bank Limited and Pakistan Petroleum Company primarily for the reason that both are blue-chip companies enjoying high yield share value and effectively managed by professional managers from the private sector. This was an easy one, although some financial experts are of the considered opinion that for UBL the government could have managed a better price.
The real challenge is the selling of large public enterprises to a strategic investor in the private sector. The government will do well if it can manage a bit of facelift if not a turn-around by investing a bit in these organisation's HR and technology before subjecting them to privatisation. One dollar spent in a company's revamp will yield five dollars in its subsequent sell off. It is a mistake when the government is reluctant to invest in the organisation it intends to sell off.
The first priority should be to sell of the public enterprises in the energy sector whose pathetic performance is ripping apart the economy of the country and inflicting pains to the people. The government has decided to first take on the privatisation of Faisalabad Electric Company (Fesco) considering it to be the best of the Discos, hence easy to sell. As per its audited profit and loss account (P/L) of 30th June 2013, it shows a profit of Rs 14.3 billion taking into consideration that the revenue includes a government subsidy of Rs 47.5 billion and with no tax paid to the government. The total assets value is Rs 140.3 billion. The P/L figures of other Discos are far below the mark.
The privatisation of Distribution Companies (Discos) in tandem is not a wise policy. Government will do well if it privatises all the Discos in one go to achieve the true benefits of power sector reforms, for which time is of essence.
Even if the government disposes of the Discos at face value, the public would benefit from the exponential gain each year via the reduction/withdrawal of subsidy and receipt of taxes. The true benefit from the privatisation in the power sector would be achieved when power distribution in Pakistan is deregulated and the dynamics of open competition are at play. The consumer can then select the power provider it wants to subscribe based on price and service quality. This will bring down the prices of the electricity and improve service quality. This is achievable on fast track as all our Discos are feeding one national grid.
The telecom sector in Pakistan also went through the same transformation from a single service provider in the public sector (Pakistan Telephone and Telegraph) to multiple service providers resulting in drastic reduction in prices, phenomenal increase in service quality and equal availability to all segments of the nation
India initiated the privatisation of their power sector in early 2000 with Mumbai Electric distribution awarded to Reliance Infrastructure Ltd and Delhi distribution to Tata Power Ltd. They have two power selling exchanges in which over 20 billion units are traded. Competition has resulted in fall of spot prices of power. It is stated that Delhi city government has saved Indian Rs 30,000 crore in the last 10 years of privatisation.
At about the same time, Pakistan also embarked on the power sector reforms by unbundling Wapda into Wapda, National Transmission Distribution Company and four generation (Gencos) and ten distribution companies (Discos) with the mandate to first corporatize Gencos and Discos and then privatise them soon. Painfully, we lost our way in the very beginning and 14 years down the line we are still struggling to put up a defined road map to honour the mandate of privatisation.
Another sector that needs rapid privatisation is Pakistan's Oil and Gas sector. The recent report published in the press highlights the serious concerns of the public auditors regarding irregularities in Sui Southern and Sui Northern gas companies. Both are reported to be operating on heavy borrowing with high financial risks, escalating receivables, rampant gas thefts, and gross mismanagement. Both the entities were once blue-chip companies and the country's pride. Affairs in other companies like Pakistan State Oil (PSO), Oil and Gas Development Corporation (OGDC) are no different. Government will do good to urgently bring these companies under the hammer of privatisation before they sink to the level where there are no buyers to be found.
The task for the Privatisation Commission of Pakistan is herculean and sensitive, but speed is critical as well as there is only so much the nation can bleed before it is beyond the point of rescue.
(The views expressed in this article are not necessarily those of the newspaper)
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