ALMOST half of the remaining 40 units in the public sector are scheduled to be privatised during the current financial year.
But the prospects of even half of these units coming on the block any time soon have become highly doubtful in view of the Supreme Court judgment reversing the sale of the Pakistan Steel Mills and the aftermath of KESC sell-off.
No doubt, the Council of Common Interest (CCI), a constitutional requirement (and one of the main conditions set by the Supreme Court in the PSM case for safeguarding national interests in the privatisation process) has been met. Still, privatisation seems to have become uncertain.
The prospective buyer, local as well as foreign would now think more than twice before even taking a look at the list of units to be privatised. And because the risks associated with buying a privatised unit is perceived to have gone up sharply, the offered prices may also be proportionately lower, perhaps even much lower than the ones the government could afford to accept.
All this is likely to persuade the government finally to take a fresh look at the content and direction of its privatisation policy and also take some decisive steps to remove the loopholes from the privatisation process that promote corruption.
Starting from 1991, Pakistan has to date privatised as many as 143 public sector enterprises including seven banks, one major telecommunication corporation, one major power utility, 12 energy sector units, five newspapers, as many hotels, one advertising agency about 100 industrial units of various kinds.
Since January 2001, it has unloaded its shares in as many as 14 enterprises through the stock exchanges. This gigantic exercise spread over 15 years has earned for the state a paltry sum of $7.28 billion, the bulk of which (about a little over $5 billion) has come in the last seven years with more than half of these proceeds having been contributed by one single sale (PTCL).
Major public enterprises still on the block and awaiting the hammer to fall include the Oil and Gas Development Corporation Limited, Pakistan State Oil, Sui Southern Gas Company, Sui Northern Gas Company, power distribution units of Jamshoro and Faisalabad, the NIT, Pakistan Petroleum Limited, the Karachi Shipyard, National Construction Company, Peco land and the Printing Corporation of Pakistan.
In fact, a total of about 41 units of various kinds including the Pakistan Steel Mills are still in the public sector. Of this, as many as 21 are scheduled to be sold during the current year starting with PSO and OGDC in the first quarter, three ( PPL, NIT, Services Hotel Land in Lahore) in the second quarter, eight ( FESCO, Genco, Lasbella textile, Lyallpur Chemical Fertilizer, Hazara Phosphate Fertilizer, HMC, HEC, PMTF) in the third quarter and as many ( SSGCL, SNGPL, ICP,PESCO, Morafco Industries Faisalabad, Tomato paste plant, PCPL, and Sindh Engineering) in the last quarter.
The major argument for privatisation is that to privatise a company which was non-profitable when state-owned, means taking the burden of financing it off the shoulders and pockets of taxpayers, as well as freeing some national budget resources for something else.
Especially, proponents of the laissez-faire capitalism argue, that it is both unethical and inefficient for the state to force taxpayers to fund the business that cannot work for itself. Also, they hold that even if the privatised company happens to be worse off, it is due to the normal market process of penalising businesses that fail to cope with the market reality.
But the rewards from privatization do not seem to be big enough to compensate for all the associated socio-political risks that the country has been subjected to all these years for pursuing with religious zeal the privatisation policy. One could, however, come up with extra benefits of privatization in monetary terms by estimating the extent of reduction of burden on the annual budgets. While doing so, we must also adjust these estimates against the contribution of those profitable privatised units which had augmented the budgetary incomes.
While awaiting relevant official estimates of the reduction in the budgetary burden and the proportionate increase in the expenditure of development programme especially in the social sectors, one could use the rule of the thumb as well to reach a rough estimate. For instance, let us study the development budget of the current fiscal year.
The amount budgeted for this head is Rs415 billion. Of this Rs50 billion is for the reconstruction of the earthquake regions. In the first place, reconstruction cannot be defined as development. Secondly, most of the expenditure being incurred on the reconstruction work is being done with aid money funneled through NGOS or is being spent directly by the donors themselves.
Next, of the remaining Rs365 billion, as much as Rs115 billion is for provincial development programmes. And unlike the previous years, the provinces will be using these funds even for completing the federally initiated projects. So, the seemingly generous increase in this budget too is more of an illusion. So, what is left in the kitty for the federal development programme is no more than Rs250 billion which is only Rs46 billion or about 18 per cent more than what was allocated for federal programmes for last year.
And if this allocation is adjusted against an inflation rate of nearly eight per cent, we end up with an insignificant increase in the federal development budget for the current year. Last year there was an estimated shortfall of about 20-25 per cent in the utilization of this budget. In case, this is repeated, the year will end with an expenditure of no more than Rs200 billion on federal development programme.
In such a scenario, one can imagine how the social sectors, specially health and education would fare in the coming 12 months. So, on the face of it, privatization so far has not made any significantly positive impact on the budgetary allocations for development programmes.
In the absence of a transparent market system, privatization leads to ownership of assets by a few very wealthy people at the expense of the general public. Where free-market economics is rapidly imposed, a country may not have the bureaucratic tools necessary to regulate it.
Most economists argue that if a privatised company is a natural monopoly, or exists in a market which is prone to serious market failures, consumers may be worse off when the company is in private hands. This seems to have been the case with rail privatisation in the UK and New Zealand; in both countries, public disaffection has led to government intervention.
British Rail is an example of privatisation programme that has been deemed a failure and largely abandoned. The track-owning company has been effectively repossessed by the British government, and many of the train-running companies are at risk of having their concessions removed.
However, in developing countries, privatised companies cannot be re-taken so easily. These governments do not have the political will to do it, and there is strong pressure exerted by multilateral lending agencies to keep on the privatisation course.
Countries such as Argentina, which had embarked upon far-reaching privatisation programmes, selling off valuable profitable industries such as energy companies, have seen revenue streams which could previously be directed towards public spending suddenly dried up, resulting in severe drop in government services.
It has also been argued that the Chinese and Indian economic reforms have illustrated that such reforms can take place in the absence of large-scale privatisation, though these governments have been following a gradual form of privatization since the early 1990s.
And because the driving motive of a private company is profit, not public service, essential services such as water, electricity, strategic national assets, health, and primary education should not be privatised.
ALMOST half of the remaining 40 units in the public sector are scheduled to be privatised during the current financial year.
