October 27, 2003	Monday	Sha’aban 30, 1424

Privatization of major public enterprises is to be revived with full vigour between now and the end of the year, after a rather prolonged suspension. Along with that public complaints are heard again that precious family silver or strategic assets are being sold at throw-away prices or to foreign companies with small sympathies for Pakistan.

There has been a long pause in the privatization after a hectic spell of disposing of middle-size enterprises due to a variety of valid reasons. They were domestic political reasons, regional military tension, global recession following 9/11, or the travel advisory issued by foreign governments against their nationals visiting Pakistan for security reasons.

The people were also disenchanted with the final sale proceeds of the privatization which had gone by, except in cases like the PTCL shares sold at very high prices. What the country got finally was a pittance compared to what the people had expected.

For the same kind of reasons and because of the strong trade union pressure, India was too slow to privatize its large enterprises, though earmarked. And now the Supreme Court of India has ordered that privatization should be undertaken of the Hindustan Petroleum and the Bharat Petroleum after a Supreme Court order as it had earlier ordered the setting up of these enterprises in the public sector.

Pakistan is now in a hurry to privatize many major enterprises, and the man too impatient to do that is the minister for privatization, Dr. Abdul Hafeez Shaikh. Pressing him to hurry up are the World Bank and the IMF which want the government to be out of as many businesses as possibly quick.

The ministers have been saying the government has been losing Rs100 billion yearly earlier and lately following the privatization of many projects and larger profit making by the PSO and the OGDCL which made a profit of Rs20.67 billion last year the losses had come down to Rs60 billion, due primarily to the power sector haemorrhage, which the international agencies want to be done away with.

To be privatized now are the Habib Bank, the largest bank in the country, the Pakistan State Oil which controls two-thirds of the retail oil distribution, the Faisalabad Electricity Supply Company, and the Jamshoro Thermal Power Station. Shares of the National Bank and the OGDCL too are to be sold to the public through the stock exchanges of Pakistan.

The World Bank, the IMF and the Asian Development Bank want to privatize the public sector units before the politicians gain full control of the government and the bureaucrats share that power to their own advantage, as they did following the nationalisation of the basic industries and headed most of the units, particularly after their retirement.

If the net sales processes of privatization in the past had been too small, there were valid reasons. The banks from which the companies to be privatized has taken heavy loans had to be repaid. The suppliers had to be paid, and staff the dues, including the accumulated gratuity and provident funds had to be paid. And finally the money set apart for the golden hand-shake of the workers so as to lighten their liabilities of the companies. As a result, the net sale proceeds except in cases like the PTCL, whose 12 per cent of the shares were sold earlier, were small.

Some of the companies have remained partially afloat by selling their surplus land. The best example is the Pakistan Engineering Company in Lahore, popularly known as the Batala Engineering Company, which was then regarded more like the General Motors of Pakistan.

But now the company with a paid-up capital of Rs56.9 million is in shambles and has accumulated losses of Rs1,731 million, or losses equal to 36 times the paid-up capital. It is not a family jewel, but a family black hole getting ever deeper.

The companies bought by foreigners are not bought by individuals but by companies with many share holders and collectively they have a very large capital. So they can buy several enterprises offered for privatization if they so choose.

But in Pakistan it is often individuals who are trying to buy the companies offered for privatization. The same may be true of the Arabs bidding for the enterprises here who are more individualistic than collective in their financial action.

If we want to keep large enterprises like the Habib Bank or the PSO in Pakistan rich individuals in Pakistan should join hands and pool their financial resources and bid for those projects. But some of them cannot as they are bank defaulters. Some of them cannot explain to the Central Board of Revenue where that money came from. Some cannot even explain to their family members how they could mobilise so much of money as they had not been fair to them as partners in the existing family business.

They lack corporate behaviour and a willingness for collective action. So many of them do not want to keep their shares in the CDC of the Karachi Stock Exchange for verification to ascertain the real shares from the duplicate and the fake.

It is easy for 40 of them to invest one billion dollars in as many enterprises in the new free zone in Sharjah after investing quite a bit in the free zone of Jubail Ali in Dubai. The Hamriya Free Zone wants more Pakistani investment and will get it.

India’s Minister for Privatization Aroun Shourie has the same background as Dr Abdul Hafeez Shaikh. He too was formerly with the World Bank. And he is in hurry to privatize as many projects as possible. He is not selling majority shares of the Hindustan Petroleum but only 34 per cent for which he expects to get two billion dollars. Wanting to buy it is the Royal Dutch Shell and the domestic company of Reliance Industries. Which say they would set up their own distribution units if they cannot get Hindustan Petroleum or Bharaat Petroleum both public sector units.

The government of India has to take into account not only the opposition of the trade unions and some political parties but also coming provincial and national elections. Delhi and three other states are to go for elections this year and the national elections may be in the spring although Prime Minister Wajpayee can hold the elections any time next year. But in view of the prosperity India is enjoying following the excellent monsoons, the rise of the Sensex - the index of the Bombay Stock Exchange— to 4440 he would hold the national elections early rather than late.

In Pakistan, the trade unions are not strong and the political parties are controlled by General Musharraf in operational terms.

Hence his government can go ahead offering majority share in the major enterprises’ sale instead of being cautious as India is and adopting a step by step strategy.