May 1, 2006	Monday	Rabi-us-Sani 2, 1427

DURING last week’s cabinet reshuffle, in one of the less-talked-about appointments, Sialkot MNA Zahid Hamid was assigned the portfolio of investment and privatisation. He took charge of this important ministry from telecom minister Awais Leghari who had managed it on an interim basis after the end of Senator Hafeez Shaikh’s turbulent but ultimately successful tenure.

Hamid, a member of the PML(Q) and former minister of state for defence, is a Cambridge-educated lawyer of the Supreme Court of Pakistan and has worked both in the Civil Service and as an industrialist.

In his first press statement after being assigned the portfolio of privatisation and investment on April 25, Hamid said the “pace of privatisation would be further geared up.”

He was told in his first briefing by the team at the Privatisation Commission that the transactions of PCO, NIT, PPL, OGDC, Jamshoro Power and Faisalabad Electricity Supply Company were at advanced stage while 34 statements of qualification were received for SNGPL and SSGC.

The new minister takes over at a time when the privatisation programme is at its peak despite the fact that great turmoil has surrounded every major transaction completed.

Since the privatisation programme began in 1991, 160 transactions have taken place generating a total of Rs395 billion. It was during that decade that privatisation in developing countries as a whole picked up pace, peaking in 1997 when revenues amounted to about $170 billion led by large infrastructure transactions in power, telecommunications and transport.

Since then, a decline was seen on account of the Russian and East Asian crises and the completion of the privatisation programme in Brazil. However, despite repeated delays, Pakistan’s privatisation programme picked up pace in 2002 and since November that year, 33 deals amounting to Rs302 billion have taken place.

The sale of 26 per cent of Pakistan Telecommunications Company in late 2005 was the largest transaction ever amounting to Rs155 billion, almost half the total proceeds generated in 15 years. Major transactions such as KESC and Pakistan Steel Mills followed the sale of PTCL although all three of these long-standing, complex deals were marred by severe controversy.

Constant contentions: PriceWaterHouse Coopers identifies five stages of privatisation as diagnosis, valuation, structure, promotion and sale and almost all these steps have seen problems, conflict and crises in Pakistan’s process of selling off state-owned units. Privatisation is of course, almost always a contentious issue. To take just two examples from last week’s news, the dicey privatisation of the Port Authority of Guam was considered by the board and the complex web of hurdles discussed. The process has been rife with protests against due process and objections by employees.

Similarly in India,the proposed privatisation of the airports of Mumbai and New Delhi has been caught up in court proceedings with an Indian company filing a petition in the Supreme Court challenging the government’s decision to award contracts to foreign companies for the privatisation of the airports.

Delays in the process by governments are also far more common than strict adherence to schedules. In Russia, for example, the process of privatisation was expected to be completed by 2007 but authorities said last week the process would go on till 2009-2011. This year 316 billion rubles worth of government-owned assets in the airline, automaker and banking sectors will be privatized.

Pakistan’s new privatisation chief will have to learn how to tackle all manner of contentions and criticisms about delays. However, he will also have a whole host of challenges ahead as he makes his way through this highly politicized and commercialized process.

To start with, he will have to dramatically improve communications with the media and the public about the privatisation process. In general, the government has done a poor job with openness, allowing rumours to make the rounds and remaining ominously silent at critical times.

Likewise, the PC does not have a good record in terms of communicating with the public, despite expensive errors in the past. The commission has always remained reluctant to be more open and clear about the changing status of transactions. They usually take the plea that statements about listed companies can only be issued with care since share prices are affected by related news.

But the very fact that major listed companies are being dealt makes it imperative that the PC provide factual updates and let the market take its natural course rather than obscure information and let the speculators run wild. This openness will only help government manage expectations and his delivery of them.

Small but meaningful steps need to be taken such as overhauling the staid, largely useless website of the Privatisation Commission which provides no useful information for either potential investors or researchers.

Then is the question of the privatisation process itself. Opposition leaders like Naveed Qamar, former head of the Privatisation Commission during Benazir Bhutto’s tenure argue that high bid prices are rendered worthless when post-bid negotiations are allowed as in the PTCL case.

Critics also say transparency in the way the reference price is set is essential not just during bidding when the press is permitted to observe but during the pre-bid and post-bid periods as well. The minister will have to stick to the established rules in terms of process and also go as far out of his way as possible to keep all the stages of a transaction open and transparent.

Labour problems: Another major challenge for the new minister will be effectively negotiating with the powerful labour unions at state-owned corporations. As was seen in the cases of PTCL and Pakistan Steel Mills, poor management of this aspect can significantly cloud the privatisation process.

Employee resistance and unions must be dealt with well in advance and in clear and unambiguous terms with the full involvement of the management of the company. Preferably this should be done even before expressions of interest are invited.

Labour unions are often vehicles of blackmail and corruption, broken into fragmented groups, each fighting for its own vested interests. They rarely have the backing of all workers and the moral courage to stick to that principled stand rather than lambasting privatisation as a concept and then rapidly backing out on more lucrative offers and even admitting their original position was wrong. This will have to be managed delicately.

Equally tricky to manage will be other ministers in the cabinet, the well-entrenched bureaucracy and the opposition. The new minister will have to learn how to artfully but forcefully deal with ministers, federal secretaries and heads of state-owned corporations who publicly show support for the privatisation programme but practically set up major hurdles in is way.

The cabinet rarely functions as an effective team with a combined set of objections and this will often create roadblocks in privatisation. As in other countries undergoing privatisation, Hamid’s predecessors in Pakistan have had to find ways to work around those using subversion or delaying tactics. The bureaucratic process is cumbersome and privatisation relies on the cooperation with other ministries. The combination of being resourceful and being able to say no to powerful people will be essential.

The Parliament and opposition will also be hard nuts to crack. Many will leap on the slightest backlash from unions or delays in processes to oppose privatisation per se. Ways would have to be found to gather meaningful support from members of Parliament who are willing to make the case for privatisation to their own constituents. This is rare but if done, can be a useful tool to dilute the hurdles set up by other interest groups.

The new minister will do well to take forward the positive aspects of Hafeez Shaikh’s legacy. The privatisation for the people programme, for example, should be continued with full force, by bringing more government shares into the stock market. Shaikh claims 950,000 investors were given shares which have cumulatively appreciated by Rs80 billion since floatation.

The way ahead: If general elections are held on time next year, the new minister will not have much time in his new role as privatisation minister to get much done. Given these circumstances, perhaps his most important challenge will be to focus all his efforts on closing all those transactions that are at an advanced stage, such as PSO, NIT, Jamshoro Power Company.

It is said that the last two per cent of any transaction is usually as hard as the first 98 per cent and closing these deals would not add to one sense of confidence but maintain the pace of privatisation as well. If the pressure is on and focus on entirely on these transactions in the first instance, Hamid should be able to push them through within the next six months.

Hamid is described by colleagues as an upright worker who prefers a low profile even though critics worry about the lack of technical expertise he brings to this position in particular. He can use his positive attributes to his advantage by infusing greater transparency into the process and easily overcome any possible weaknesses by concentrating on projects that have already been worked to a mature stage.

In this highly politicised, financially sensitive and much scrutinized ministry, Hamid will have to learn fast that there is no room for slip-ups and no second chances. As foriving as governments may be, investors are a truly unforgiving lot.

nmangi@yahoo.com