PML-N-led government has committed to the International Monetary Fund that it will "step up efforts to reform Public Sector Enterprises focusing on limiting poor performance and improving public sector resource allocation". In its Letter of Intent (LoI) the Pakistan government committed that "the strategy for 30 firms will be announced by end-September 2013 (structural benchmark) with plans for the remainder (35 companies) "will be completed by end-December 2013". As a follow-up, Privatisation Commission has issued a list of 32 companies with a disinvestment strategy for each of these companies. They range from issuance of GDRs in the international market and do public offering of shares of some already listed on local bourses and others managed by the government. In addition there are companies that have already been privatised and government holds minority stakes and others that would be managed in future by the private sector. This is a good first step. But it now needs to be graduated to the next stage with a more detailed plan and strategy. We need to be cognisant of the fact that some companies' GDRs or shares were sold in the past on a higher price than their present trading value, eg, HBL's or NBP's. It may be due to extraneous reasons such as: issuance of bonus shares or lesser future profitability. In case these shares are off-loaded on lesser valuation under the present conditions this would be raising of eyebrows. Understandably, privatisation would be opposed by both the trade unions within these institutions as well as the bureaucracy which lords over them. The local media as well as the courts could ask for explanation or the rationale behind reduced valuations. It may also entail providing more concessions to buyers and could also require sinking large amount of capital, more deregulation of markets and reduced protection for labour and worsening employment conditions due to layoffs. The socio-political cost may need to be paid. The alternate ie maintaining the status quo is ever increasing fiscal deficit leading to a rise in inflation - the worst form of taxing the poor as well as other weaker segments of society.
PML-N in its first stint in power in 1990 sold some public sector units to the highest bidder on as-is-where-is basis and quite a few were shut down and also its Chairman PC Lieutenant-General Saeed Qadir (retd) was later subjected to investigation and incarceration. So was his successor Naveed Qamar of PPP. A more proper course of privatisation taking into account: buyers' technical and financial capabilities was done in General Pervez Musharraf's tenure with Altaf Saleem and later Hafeez Sheikh at the helm of PC. But then it was different Pakistan than it is now. According to LoI, signed with the Fund the Pakistan government has envisaged a receipt of 266 million dollars, under the head of privatisation, by end of the current calendar year (2013). And, another 534 million dollars by June 2014. The government would face lesser resistance if it opts to offer GDRs and IPOs instead of selling-off 26 percent management stake. No worthwhile strategic investor is likely to be interested in a 'as-is-where-is' offer. The government has committed to restructuring these companies by June 2014. This is highly unlikely. GDR sales of OGDC and PPL may be possible - at a price which is yet to be determined. All these processes entail time as government has to undertake the challenge in a transparent manner. But the real challenge is what should be government's strategy. If we repeat the mistake we made in the last budget, ie, depending solely on bureaucracy to do it - the work shall be slow and is likely to be marred by inordinate delays.
Two questions need to be addressed: one, do we have the expertise and funds within the country to do it or outside help - such as from the World Bank or ADB - would be needed to fund the golden handshakes to right-size these companies? And second, should the 30-odd companies remain under the control of the line ministries or be removed from their administrative control and placed under the Privatisation Commission? Another way is to create a holding company of these units and take on entrepreneur route prior to divesting them to maximise shareholders' value.
So far, PML-N government has been found to be painfully slow in reconstituting Boards of Directors of these units and as well as selecting new CEOs who have the ability to prepare these companies for privatisation. After all, it was the then and sitting PM Nawaz Sharif who appointed bankers from the private sector in 1997 at the helm of now privatised banks. But it was General Musharraf's government which successfully completed the process in 2002. However, PML-N this time does not have the luxury in terms of both time and money to complete the process as committed to the Fund. Prime Minister Nawaz Sharif has the clarity and the will to privatise and so do his key ministerial colleagues. Nevertheless, in an environment filled with insinuations in media and faced with a pro-active judiciary, the government has become increasingly dependent on civil servants. The civil service has to undertake policy implementations but unfortunately they are now a disgruntled lot. Senior bureaucrats are passing their time - moving files before they retire; and they desire to live in peace free from future NAB and FIA inquiries. They are also fed up with daily 'insults' that they face in courts. In order to reverse economic slowdown the challenge is getting the right environment and removing constraints of an economy beset with shortages and caught in the vortex of poor law and order. Without this change PML-N will never be able to attract any significant investment. Global investors will only look at Pakistan once the confidence of domestic investors in country's future is restored. Which investor would like to be in the shoes of buyers that spent time and money to buy Pakistan Steel or the way we treated operators of Reko Diq in Balochistan? We need to strike a delicate balance. It is perhaps worth recalling the remarks made by British High Commissioner to Pakistan Adam Thomson late last year. He had stated that the verdict in international arbitration on the Reko Diq saga may have chilling effects on foreign investors. According to him, the "Supreme Court of Pakistan's verdict in certain cases whether it relates to Reko Diq or others is a sign of discouragement for foreign investors." However, he was quick to clarify that a strong judicial system will not only uphold Pakistan's interest but was extremely important to foreign companies. In other words, the top British diplomat to Pakistan had presented a subtle solution to country's investment dilemma.