THE purpose behind privatisation, we have always been told, is that the state should not be in the business of running commercial enterprises. When the state does so not only does the enterprise run inefficiently, it also incurs tremendous costs in the form of subsidies and miscellaneous liquidity injections — costs that ultimately place an unbearable burden on a fiscally strapped government. This was the thinking behind privatisation, and in the name of this belief, successive governments have been selling state-run enterprises for almost a quarter of a century now. The process stalled when the Supreme Court intervened to halt the sale of Pakistan Steel Mill in a famous judgement 10 years ago, and all we have seen since then are divestment of shares in a few enterprises.

For better or for worse, the process is supposed to begin anew with a series of privatisations scheduled for this year in the power sector, and most importantly, a renewed commitment from the government to sell Pakistan Steel. However, an odd proposal has come up, and strangely enough, it is being entertained. The decision by the Cabinet Committee on Privatisation to offer the beleaguered steel mill to the Sindh government violates every tenet of the philosophy that lies behind privatisation. Does the Sindh government have a good track record of running commercial enterprises, or steel mills? Does it have the capacity to turn the enterprise around? All along we have been told that privatisation is not about jettisoning state assets simply to relieve government expenses, it is also about finding a credible buyer who will not strip the entity of its assets but will make the necessary investments to return it to profitability. It is a little perplexing how the cabinet committee decided that the Sindh government makes for a credible investor given its image and the absence of a track record in running manufacturing enterprises. The deal is likely to inject new life into the impression that the current spate of privatisations scheduled for the year has motivations beyond the original philosophy. In order for this deal to be transparent and credible, the government needs to explain how the provincial government of Sindh is better suited to run the steel mill than the federal government, what sort of a turnaround plan exists, and whether or not the province possesses the fiscal strength to make the investments necessary for the process.

Published in Dawn, October 4th, 2015

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