June 29, 2002	Saturday	Rabi-us-Sani 17, 1423

ISLAMABAD, June 28: The government is still undecided about the mode of privatization of Oil and Gas Development Company Limited (OGDCL) as the petroleum ministry has reservations over certain security aspects of the transaction.

Informed sources told Dawn that the financial adviser on the privatisation of OGDCL had evaluated five options for the transaction structure.

It finally recommended the sale of 51 per cent shares to one investor or a consortium of investors along with transfer of management control on “as is where is basis”. This meant that there would be no repackaging of core assets before the sale.

The Privatisation Commission recommended the sale of 26 to 51 per cent shares keeping in mind the possibility that some investors may prefer to purchase only 26 per cent shares in view of the expected high value of OGDCL, and would provide greater flexibility to package the transaction.

The petroleum ministry was of the view that recommendation of the financial adviser was violative of the strategic plan of OGDCL approved by the government.

The key elements of the strategic plan included separation of non-core assets and businesses, separation of Oil and Gas Training Institute (OGTI), rationalization of the exploration lease portfolio and auctioning of non-core assets separate from the core assets.

The petroleum ministry also believed that there were certain areas in Pakistan where exploration licences could not be awarded to the foreign companies due to security reasons and hence the government should retain the exploration activities of the company.

As the strategic plan envisaged establishing the OGTI as a separate institute outside OGDCL in the public sector, the financial adviser recommended that OGTI be retained as an human resource training and development unit within the OGDCL.

The strategic plan suggested rationalization of OGDCL exploration lease portfolio by relinquishing some or all exploratory leases. The financial adviser, however, recommended that the existing exploration portfolio should be retained by the OGDCL and opposed relinquishing of exploration lease portfolio.

The strategic plan envisaged repackaging of the core business appropriately to avoid creating monopolies or dominant players and selling 26 per cent to 51 per cent of the equity in the repackaged core businesses to the strategic investors along with transfer of management control.

The financial advisers on the other hand believed that there were a number of impediments in repackaging the portfolio pre-privatization. These include time delays and difficulties in managing the repackaging process on account of lengthy regulatory procedures, complex human resource transition issues, risks of any particular package sale being unsuccessful and possibility of retention of government interest in residual assets or the main company.

The financial adviser suggested that pre-privatization repackaging was likely to enhance the value of the sale proceeds there are some benefits of leaving the repackaging to the new strategic investor.

The new investor would be able to better evaluate the upside potential of the assets to be repackaged and realize better value for these assets, which would benefit the government through retained interest in the company.