AFTER disengaging itself from the widespread workers’ protests, the government has embarked on the stalled privatisation process. On July 14th, Finance Minister Ishaq Dar summoned a meeting of the members of Cabinet Committee on Privatisation to deliberate on the divestment of bleeding public sector units.

Under consideration were the Pakistan Steel Mills, PIA and Power Sector entities. The CCoP approved the sale of residual 40.25pc shares in the stock market listed Kot Addu Power Company Limited (KAPCO). The government called for Expression of Interest (EoIs) in the country’s largest Independent Power Producer (IPP) on July 15.

While the investors at the market are looking forward to the prospects of a larger free-float post privatisation of Kapco, their joy is the government’s intent to divest part of holdings in power sector entities through the stock exchange.

Earlier the government had completed the process of appointment of financial advisors for strategic sale with management control of four utilities. “Under the circumstances, it picked up the middle way solution” — Privatisation Commission Chairman Mohammad Zubair

“The CCoP allowed the Privatisation Commission (PC) to initiate the process for listing of shares of qualified power distribution companies (Discos) on the stock exchange through Initial Pubic Offering (IPO) starting with the Faisalabad Electric Supply Company (Fesco) and Islamabad Electric Supply Company (IESCO).”

“The controlling stake and management of companies would continue to be vested with the government”, a spokesman for PC announced at the conclusion of the July 14 CCoP meeting.

But it wasn’t supposed to be that way. Earlier the government had completed the process of appointment of financial advisors for strategic sale with management control of four utilities. The IESO; Lahore Electric Supply Company (Lesco); Faisalabad Electric Supply Company (Fesco) and the National Power Generation Company Limited to a single buyer. So what brought about a change of heart on the part of the government?

“This was the preferred option but under the circumstances, the government picked up the middle way solution”, Privatisation Commission Chairman Mohammad Zubair told Dawn on phone from London on Thursday evening. Fast-track privatisation was replaced with sale after ‘Transaction restructure’ where necessary.

He pointed out that the PC had put in a lot of effort and energy to restructure, particularly state-owned entities that churned out losses year after year. Financial advisors were appointed and due diligence was carried out. As workers’ unions agitating against privatisation vowed to turnaround the sick units given ample time of a year or two, the government decided to float 10 to 20pc of their shares at the stock market.

“The government expects to improve governance and proper disclosure by putting a part of those companies under the vigilant eye of the corporate regulators” said Zubair. The PC would then proceed to sell the remaining three-quarters of stock of a hopefully disciplined and stronger Fesco to the strategic buyer within two years.

The PC chairman said that it should be appreciated that after more than two decades, the privatisation of power companies was taken up in right earnest and brought it up to the ‘restructured’ stage.

Although the outstanding stock of power sector arrears remained, new arrears were accumulating at a significantly reduced pace. The PC chairman contended that already savings of Rs61bn was achieved by reducing transmission and distribution (T&D) losses and improved revenue collection.

Arif Habib, the former chairman of the Karachi Stock Exchange, termed the offer of equity through the stock market a good tiding. He said fresh listing of power companies would satiate the appetite of the investing public. Small investors could get an opportunity to make money by investing in IPOs just as they did in case of earlier divestment of Oil & Gas Development Company and Pakistan Petroleum.

“It would help in ‘price discovery’ of the power stock for offer to strategic buyer; deepen market capitalisation and increase ‘free float’ which is a major attraction for institutional and foreign investors”, he said.

Most other market participants admitted that due to lack of depth, investors were chasing very few shares on most sectors of the stock market.

Neither the thunder of the chairman of the Securities and Exchange Commission of Pakistan that he would order forced listings, nor the lollipop of extending tax credit of 20pc for new listings at the bourse to two years decreed by the Finance Act 2016-17, could lure companies to float an IPO. Incidentally, the new listings in the current calendar year to-date have been just two: Awwal Modaraba and Hi-Tech Lubricants Limited, against seven new entrants a year ago.

Aside from a bevy of reforms and code of corporate governance compliance which frightens them away, the private firms also are loath to go public so as to be able to keep all profit to themselves instead of sharing it with outside stakeholders. And they understandably find comfort in cloak of secrecy wrapped around the firm’s workings.

Published in Dawn, Business & Finance weekly, July 25th, 2016