Pakistan has reassessed its strategy for public sector enterprises (PSEs) and scaled back planned privatization transactions; however the government is continuing efforts to attract private sector participation and putting in place additional measures to contain its losses following legislative constraints, political opposition, and widespread strikes.
This was stated in an International Monetary Fund (IMF) Staff report, "Eleventh review under the extended arrangement and request for modification of performance criteria and extension of the extended arrangement". The government remains committed to the Fund-supported economic policy and structural reform agenda but continues to face significant challenges. These include increasing political polarisation, social and political obstacles to privatization of PSEs, and ongoing legal challenges to tax revenue and power sector measures.
The Cabinet Committee on Privatization initially approved a list of 31 PSEs for auction and subsequently added another 8 PSEs to the list, the Letter of Intent, a prerequisite for the release of a tranche under an ongoing programme, stated. It added that the government is in the process of adding more companies to the list and will update the list by July 2016. The government has developed a plan to sequence the capital market and pre-privatization restructuring for these firms and identified ten companies, Oil and Gas Development Co Ltd (OGDCL), Pakistan Petroleum Ltd (PPL), Mari Petroleum Company Ltd, Government Holding Private Ltd (GHPL), Habib Bank Limited (HBL), United Bank Limited (UBL), Allied Bank Limited (ABL), National Bank Limited (NBP), State Life Insurance Corp (SLIC) for block sales and primary or secondary public offerings.
The federal government also committed to resuming the privatization process for Pakistan Steel Mills (PSM) by mid June 2016, in the event the federal government's offer of transferring PSM's ownership to the provincial government of Sindh should be declined.
Staff noted the additional delay and stressed the need to swiftly conclude discussions since PSM is currently not operating and incurs financial losses. The Fund maintained that government stepped up efforts to contain PSM's losses, including by reducing contractual employees and reducing other costs. In the absence of a positive outcome of the discussions with the provincial government by June 10, 2016, the federal government will resume the process of attracting strategic private sector participation in the company. In the interim, the government is working with PSM management to ensure that ongoing financial losses remain contained, including by continuing to reduce contractual employees and continuing to minimise other expenses.
The country's parliament approved in April 2016 legal amendments to corporatize Pakistan International Airlines (PIA), a necessary step to enable the government to move ahead with seeking private sector participation (May 15, 2016 structural benchmark). However, these amendments require the government to retain a shareholding majority and management control. Options to attract private sector interest in this context are being explored, including through a road show. In parallel, the government is taking measures to contain PIA's losses by strengthening its governance and reducing financial and operating costs, including by improving performance through route rationalisation, fleet modernisation, increasing fuel efficiency, and improving services.
Due to political opposition and social tensions, the government revisited its plans for privatising FESCO and other DISCOs and decided to move ahead with an Initial Public Offering (IPO) for a minority share in FESCO by November 2016 to be followed by IESCO and LESCO. In the meantime, the government will strengthen efforts to improve DISCOs' performance and reduce the system financial losses.
The government also committed to disinvesting Kot Addu Power Company (KAPCO), a large power generation company, and to solicit expressions of interest by July 15, 2016 (new structural benchmark in lieu of completing the bidding process for FESCO by June 2016, which is no longer feasible).
Despite a slight delay, government hired a financial advisor for State Life Insurance Corporation (SLIC) in January 2016 and issued in April 2016 a presidential ordinance for its corporatization aimed at improving its market value. The SLIC bill was subsequently approved by the National Assembly in May 2016. The government will conduct the Initial Public Offering of SLIC by end-March 2017 and will offer the first option for the government's shares in Mari Petroleum Company Limited (MPCL) to the parties who have been MPCL's other shareholders since incorporation, aiming at finalising this process by end-August 2016.
The government has resolved the legal challenge to the cancelled sale of Heavy Electrical Complex (HEC) in May 2015 that arose owing to the winning bidder's inability to provide the funds to close the transaction. Subsequently, the HEC transaction has been reinitiated, and the advertisement for EOIs for financial advisor services published in May 2016. In addition, the government has hired a financial advisor for SME Bank Limited in January 2016; the due diligence process is ongoing with the objective of issuing the expressions of interests by August 2016 and finalising the transaction by end-December 2016.
Aging and shortage of equipment, overstaffing, and large debts continue to weigh on railway operations. However, since April 2014, the government is moving forward with a comprehensive restructuring plan, which includes improvements in business processes and the institutional framework, financial stability, and service delivery.
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