MIDWAY through the prolonged and often contentious privatization, the Privatization Commission (PC) scored a major triumph by selling 26 per cent of the shares of the Pakistan Telecommunications Corporation for $2.598 billion.
The PC is rejoicing over that and planning its next moves to dispose of major enterprises like, the Pakistan State Oil, Pakistan Petroleum and eventually that white elephant—the Pakistan Steel.
The PC has been able to achieve that major triumph despite the opposition of the unions to the privatisation which had gathered some political support as well. But the government handled the situation sternly, and made the soldiers man the telephone exchanges and keep the system going.
After the largest single privatization deal in 14 years, this is time to pause and reflect on the next moves which may eventually include the National Investment Trust (NIT) and several other financial entities under government control.
After about 14 years of privatization it is now obvious that it is not a simple process of transferring the ownership of public sector projects, including financial enterprises like the banks under its control, but a complex one with a variety of modes.
To begin with it can be a simple process of transferring or replacing public capital in such enterprises with private capital foreign or domestic or a mixture of both. The second mode consists of replacement of capital along with addition of new capital and expansion of the enterprise.
The third mode has the replacement of capital along the new company raising far more capital locally as the UBL did recently to the extent of over Rs8 billion.
The fourth variety has replacement of capital and additional investment plus bringing in new technology and management style.
It is the fourth variety of privatisation that is ideal and can meet the real future needs of the country — its economy as well employment needs. That is what Etisalat the enterprising UAE company that is to take over the PTCL, signifies.
We need more such companies to boost the economy of the country. But it is not easy to attract such investors to Pakistan in these tumultuous times regionally and of political uncertainty at home.
The PTCL is a far different case from other entities when it comes to privatization. Telecom is a high-growth industry anywhere in the world now with the companies lowering their tariff rates a result of intense competition. Hence famous companies like Singtel of Singapore and the Chinese giant- the China Mobile— were the two other finalists in the race for PTCL.
Another problem about getting the best technology promoting company interested in our privatisation is they may not offer the best bid for a company. Their prices will be lower.
If to add to that there are political uncertainties or complexities in a country offering its projects for sale, the foreign company may lose interest or offer a low bid.
The process of privatization in the developing countries today signifies more of a buyer’s market than a seller’s market. The drawbacks of many of the developing countries for investors are common, beginning with lack of law and order, poor infrastructure and pervasive corruption and multiplicity of taxes. All that discourages Western investors even when some of their governments offer proper cover for the capital invested abroad. The US for example protects the investment of the capital of its citizens in case of revolution or political upheaval.
A desirable outcome of foreigners coming up with new technology is that it forces the local producers as well to update their technology. The need for larger exports to sustain the high economic growth also make it imperative for exporters to employ the latest technology.
Officials talk of peace and tranquillity in the country when they meet foreign visitors. But if even local body elections can cause considerable convulsions and violence that will not attract foreign investors. There is the fear now for example, there might be attacks on ministers during the local body elections in Sindh.
Despite such deterrents, the financial year ending on June 30 has recorded foreign investment of $1billion and after the year closes, the figure may actually be $1.1 billion. A great deal of that went into the oil and gas exploration. And quite a bit of that is the sale proceeds of privatization.
If the sale proceeds of the PTCL were included in the foreign investment this year, the total would be $3.6 billion. But that the bulk of the figure would form part of the investment in 2005-06 when the payment is made.
The energetic privatisation minister Dr Hafeez Shaikh has again called for the setting up of a separate fund for poverty reduction using the sales proceeds of the privatisation. He is doubly encouraged to do that by the PTCL sale proceeds of Rs155 billion. Ten per cent of that, which can go towards poverty reduction, is Rs15 billion. Add to that the sale proceeds of other privatisation. The total is bound to be very impressive and all that can be usefully employed for reduction of poverty.
Will the prime minister agree to a separate fund which is not part of the budget, but under a separate committee that is autonomous? It functioning should be transparent and be properly publicised. Such a step can make the privatisation popular and less open to criticism.
In fact, the total poverty spending needs better accounting and fair publicity so that the people can know where these large amounts have gone. Anyway 10 per cent of the sale proceeds of privatization is a large sum that keeps on growing and the people ought to know how well that is spent, particularly for the poor.
Those who talk in terms of the family silver being sold at throw away prices are wrong. It was family silver some 25 years ago. Soon after the companies under group of basic industries were taken over by the government in 1972-74, they were family silver. There after the bureaucrats who managed those companies and banks exploited the enterprises to their advantage and made the companies lose very heavily.
Eventually, over a hundred billion rupees had to be spent annually to subsidise those units. Wapda, the KESC, and the Pakistan Steel are among the best examples. Following the privatisation of a number of units, the amount of subsidy has come down and many loss-making units have begun making profits.
But if these units are allowed to continue to run under bureaucratic management, the companies will become poorer and the subsides larger, and national debt higher.
In such a context it is better to pursue the process of privatization. Selling them to domestic buyers has several advantages one of which is that large profits will not go out, while the foreign companies make and send 50 to 100 per cent of their capital as profits abroad and strain our balance of payments and lower the foreign exchange reserve. But the local investors are often reluctant to opt for the latest technology, and that stuns the industrial growth and hurts the exports.
Foreign capital can come in a big way if the conditions at home are more attractive and if the law and order situation improves, the infrastructure is adequate, or is likely to be soon and we have a more open society than we have.
But along with privatisation, the regulation of the privatized sector as well as the other enterprises should be diligent, firm, transparent and even-handed. The privatised sector should not be allowed to violate official policies.
