November 15, 2006	Wednesday	Shawwal 22, 1427

KARACHI, Nov 14: The Privatisation Commission has been unable to recover Rs4 billion as the differential between the bid amount made by the highest bidder who backed out of the deal and the second highest bidder who purchased Pak-American Fertiliser Limited (PAFL) on July 15, 2006, sources said on Tuesday.

The highest bid of Rs19.99 billion, at Rs667 per share for 100 per cent equity in PAFL was made by a stock market listed company, Ibrahim Fibres Limited at the auction on February 28. On March 12, the Cabinet Committee on Privatisation (CCoP) congratulated themselves and the buyer for the completion of the sale. But that was not to be. The buyer backed out of the deal.

Sources privy to the transaction said that the offerer had withdrawn when he learnt that in the simultaneous sale of Pakistan Steel, the giant unit was going for about an equal amount of Rs20 billion. The purchaser may have thought that he was paying too much for PAFL, a factory established as far back as 1959 in the remote area of Iskandarabad (Daudkhel) of district Mianwali.

But whatever the reason, the pull back from the offer was a violation of established rules of privatisation. Every party applying to bid for a unit that was on offer signs an undertaking, one of the clause of which reads: “In addition to forfeiture of earnest money, we shall be liable to pay as liquidated damages (which damages constitute reasonable compensation) to the PC, within 14 working days of the PC’s first written demand, the full amount of any differential between the amount actually received and realised by the PC/government as consideration for sale and transfer of the strategic stake and the bid price provided that such sale and transfer takes place within two (2) years of the issuance of the Letter of Acceptance to us”.

At the next auction, full amount was deposited by the second highest bidder Azgard-9 consortium on July 15, 2006, which stood at Rs16.110 billion at Rs537 per share. Azgard-9 had deposited around Rs5 billion earlier and the remaining amount of Rs11.7 billion was paid with penalty of Rs154 million as mark-up for extended time period from June 2 to July 15.

By that calculation from the close of transaction on July 15, the first highest bidder was supposed to have paid the differential of around Rs3.88 billion (Rs19.99 billion minus Rs16.110 billion) by Aug 2 (within 14 working days).

Sources say that already three months from the due date, the amount remains unpaid. So what options does the PC has? Federal Minister for Privatisation and Investment Zahid Hamid could not be reached on Tuesday despite repeated attempts, but earlier on July 9, he had told the press that the PC would “sue the defaulter in the court to recover differential amount of Rs4 billion”.

According to sources, the matter had still not gone into litigation and some kind of “arbitration” was underway. Observers stated that the privatisation pitfall over Pakistan Steel had already invited scathing criticism from all side over the process of sale of state-owned units.

“It would be another blunder if the PC/government does not follow its own rules and enters into out of court give and take solutions with defaulting parties,” observed an anti-privatisation activist.