Snags in the privatisation process
By Dr Akhtar Hasan Khan
THE progress of every nation depends on the strength of its institutions. Institutions are collective organizations run on fair rules and principles for promotion of national interest. They straddle across different fields of national life and it is their joint effort which leads to national uplift and growth.
Of all the institutions, the judiciary is the most important. If there is no justice in society, the rich will oppress the poor and the strong will strangle the weak. An unjust atmosphere creates despondency preventing people from working hard and building assets as their possession of these assets can be taken away. The enforcement of laws and protection of the rights to property and honour are essential ingredients of any civilised society.
Unfortunately, in Pakistan, there has been pervasive institutional weaknesses which are most evident in the case of the judiciary. People have very little faith in the courts starting from the Supreme Court, High Courts and the District Courts. It all started with Maulvi Tamizuddin Khan case against the dismissal of Khwaja Nazimuddin’s cabinet by Governor-General Ghulam Mohammed in 1953. The Sindh High Court declared the action to be illegal but the Supreme Court headed by Justice Munir termed it to be within the parameters of law and upheld the dismissal under the Doctrine of Necessity.
This judgment laid the foundations for the subsequent abrogations of the constitutional process when Ayub, Yahya, Zia and Musharraf declared Martial Laws. The Supreme Court also empowered them to amend the constitutions. Zia and Musharraf used this privilege to issue Provisional Constitution Orders by which they got rid of judges of the High Courts and Supreme Court whom they found to be independent and not pliable.
The delay in deciding cases, especially civil cases which drag on for years and sometimes decades, has made the public cynical about the judicial process in Pakistan. It is perceived to be unable to provide any protection against arbitrary and highhanded actions and decisions of the government functionaries.
The lack of faith in the judicial institutions is part of a pervasive atmosphere of listlessness and apathy which prevails all over Pakistan. The general perception is that merit and rules are irrelevant and what matters is either the power of money or of status. The people generally have a defeatist attitude full of despair and despondency and totally lacking in hope in any future improvements. Even those who are rich and have benefited from the existing dispensation want a better system in which laws are respected and things proceed according to merits. Moreover, in matters like privatisation of major assets, national interest and not ideological beliefs should be the deciding criteria.
The Pakistan Steel Mills (PSM) was sold at a throwaway price in a non-transparent manner. There are three snags in the privatisation process in Pakistan which have afflicted almost all the transactions.
Firstly, the reserve price is not properly calculated. The method followed by the Privatisation Commission is basically interested in cash flows without reference to physical assets and in some cases goodwill. In the case of Habib Bank, the evaluation was done by dividend discount method, although the bank is not listed and has never paid any dividend. Moreover, the physical assets of Habib Bank and its goodwill in terms of licence to bank in about twenty foreign countries were totally ignored.
The reserve price of Rs22 billion was judged to be very low in banking circles all over Pakistan. The same happened in the case of PSM whose land, stocks-in-trade, etc., were not properly evaluated.
The second snag is the prequalification of bidders. Bidders must be of good legal status, financially viable and possess management expertise in order to be pre-qualified. In most cases the government has handed over the units to parties whose legal and financial status and whose ability to manage the units are not properly determined. Similarly, in case of PSM, the credentials of all the three bidders in the joint bid were not properly evaluated.
The third snag in the privatisation process is that the bid terms are altered after the acceptance of a bid on fixed terms. In case of Habib Bank, the bid price was allowed to be paid in two years instead of one. Moreover, the government pumped in Rs. 13.4 billion of taxpayers’ money in order to get Rs. 11.2 billion in the first year and a similar amount in the second year. Similarly, in case of PSM, the government has given an undertaking to pay Rs.15 billion for golden handshake to employees who will be declared surplus by the buyers.
In case of the PTCL, the government altered the accepted terms of the bid by Etisalat by allowing it to pay the bid money in five years instead of upfront as it had undertaken while bidding initially and also agreed to other terms demanded by the bidder.
The Privatisation Ordinance 2000 stipulates that 90 per cent of the proceeds will be spent on the reduction of debt and 10 per cent on alleviation of poverty. The government has realised more than Rs. 270 billion from privatisation proceeds since 2000 and in the same period the domestic debt has increased by Rs. 670 billion and foreign debt by Rs. 520 billion.
Hence, privatisation proceeds have been probably utilised for current expenditure in direct violation of the statutory provisions of the Privatisation Ordinance 2000.
The PSM case in the Supreme Court brought three top lawyers — Mr. Sharifuddin Pirzada, Mr. Hafeez Pirzada and Mr. Khalid Anwar — besides the Attorney-General, to defend the government position. Some of the arguments made by these advocates were rather amusing. Mr. Hafeez Pirzada argued that the Supreme Court should not judge any executive action and its role should be confined to examining questions of law and is precluded from examining facts.
The Attorney-General argued that the Supreme Court should give an interim decision by appointing a commission to examine PSM privatisation process. The point is supreme courts in any country of the world do not appoint commissions but give verdicts on laws as well as facts.
The nine-member bench of the Supreme Court has broken the six-decade old practice of sanctifying all breaches of law which led to people losing faith in the judicial process. Instead of following the beaten track of acquisance and approval, the court has looked into all aspects of the PSM case critically and unsparingly and given its verdict on the basis of its our findings. It has courageously and minutely examined all aspects of the case and decided that the PSM sale agreement is null and void because of numerous deviations from rules and procedure.
It is heartening to see that at long last the Supreme Court has risen to the occasion and rightly told the government that the privatisation of the PSM was neither transparent nor in public interest.
The prime minister, who heads the Cabinet Committee on Privatisation, needs to explain to the nation as to how such a hasty and irregular sale of a gigantic national asset could have taken place and are continuing to take place.
This bold act of the Supreme Court in the Pakistan Steel Mills case should not be a flash in the pan for the nation and all the stakeholders need to take this opportunity to break a new path in national life. All the institutions need to take a cue from this bold decision to strengthen themselves and raise public trust in them.
It is very difficult to alter the behaviour of institutions but sometimes a bold action by one institution can lead to follow on by many others.
One hopes that this decision will prove to be a path breaker. This is merely a narrow white streak in the dark clouds of despair and despondency, defeatism and apathy. We need to take this opportunity to break from our past to blaze a new path for the future.
The writer is a former secretary, planning.

