ISLAMABAD, Dec 18: The government has significantly amended rules to invigorate the privatisation of state enterprises and meet some of the concerns raised by the Supreme Court in its landmark ruling against the controversial sale of Pakistan Steel Mills.
“The upgraded privatisation rules now explicitly provide for price evaluation of units on future cash flow basis and envisage complete public disclosure of balance-sheets and other detailed data in the expressions of interest (EOIs). It also allows creation of special purpose vehicles (SPVs) for the specific purpose of purchasing state-owned units by the bidders,” Dr Salman Shah, Adviser to the Prime Minister on Finance, told Dawn on Monday.
He said Pakistan planned to raise $15 billion in five years at a rate of $2-3 billion per annum by selling state assets and stakes in various companies to meet the growing current account deficits.
He said the privatisation process had expanded a lot over the years, but the relevant rules had not evolved accordingly that caused problems.
“Most of the small units, for instance, used to be privatised on ‘as is where is’ basis and their valuation was based on land, machinery and assets but not on future cash flow,” he said.
As the privatisation process expanded and involved large units like banks during the last six years, the privatisation rules should have been upgraded to make evaluations on the basis of future cash flows, he said.
“From now on, the evaluation of units to be privatised would be made on net present value (NPV) of the future cash flow and old assets instead of depreciated asset costs and discounted cash flow methods,” he said.
Mr Shah said the existing privatisation rules were silent on evaluation methodology on future cash flow basis, and this had explicitly been explained in the revised rules. He said the change of rules to cash flow-based valuation was a common practice in the modern banking system.
He said another objection to the steel mills sale was its re-approval by the Council of Common Interest which had been removed.
“The new rules also envisage public disclosure of entire data about the transaction at the time of seeking EOIs,” he said, adding that under the existing rules, the interested parties got an opportunity to enter a data room, set up by the Privatisation Commission, for each transaction in the presence of financial advisers after submitting bid bonds.
The rules, he said, were also silent about SPVs which were among the many reasons for the scrapping of the steel mills sale to a three-party consortium by the Supreme Court in June 2006.
“In today’s world, investments take place through SPVs which are created sometimes by different shareholders for special tax treatments and are disbanded after the transaction is complete. Hence, a new clause has been inserted in the rules to formally provide legal cover to the SPVs,” he said, adding that the revised rules would result in greater transparency in the privatisation process and provide a new impetus to the sale of state-owned entities.
The government had put on the back burner the privatisation of many flagship entities like the PSO, PPL, SNGPL and SSGC through re-invitation of bids, extension in deadlines and holding up, in some cases, the entire transaction following the apex court decision regarding the steel mills.
