THE PML-N government is giving final touches to the fourth phase of privatisation of state-owned enterprises, with a focus on selling loss-making companies.

As per initial projections, more than 23 state-owned enterprises (SOEs) have been identified. However, it is not clear at the moment whether the PML-N government will be able to sell all these SOEs during its current tenure of office.

The first phase of privatisation in 1992-1996 included partial privatisation of banks; this was followed by the second phase (1997-2001), resulting in the complete de-nationalisation of the banking sector. And the third phase, from 2001 till 2008, witnessed sell-off of non-banking SOEs .

Since 1991, Pakistan has sold off 167 SOEs at a price of Rs476.212 billion.

Four major factors under consideration will guide the new phase of privatisation, as in the past. The first point is that it was motivated by fiscal considerations, rather than a carefully conceived industrial policy. The billions generated from privatisation were mostly used to finance fiscal deficits, suggesting that past privatisations were not a part of any tangible development policy. Privatisations in the past led to the accumulation of wealth in a few families, creating monopolies in the domestic market.

Secondly, Pakistan’s privatisation policy has been driven by IMF conditionalities. The fourth phase of privatisation is also linked with the IMF’s $6.6 billion bailout package. So, privatisation is not a home-grown strategy to spur industrialisation in the country, but is to comply with one of the conditionalities of the Fund.

There was not a single bank that was owned by a local person or family until 1990, because of nationalisation, but the privatisation of state-owned banks and subsequent liberalisation led to an increase in not only their financial assets, but also ownership by a few families. Such a group of beneficiaries helped the PML-N in the May 11 election as well.

Thirdly, the new policy is being drafted in consultation with former Finance Minister Shaukat Tareen, who owns a private bank, and a Lahore-based industrialist, Mian Mohammad Mansha. Mr Tareen advises the government on disinvesting power companies, the oil and gas sector, PIA, Wapda, Pakistan Railways and Pakistan Steel Mills, banks and insurance companies.

These powerful men from the private sector are influencing the government’s privatisation policy.

Privatization in the past has worked against labour. In the privatised units, labour unions have been curtailed and massive lay-offs have taken place following the abolition of the nationalisation act. The new owners of these SOEs not only resorted to reducing costs through downsizing, but also avoided making investment. Privatization has been carried out at heavy social cost.

Most of the foreign direct investment in the last one decade ended up in acquisitioning and merging existing industries — mostly due to privatisation — rather than being used to set up new industries, retarding capital spending in Greenfield projects.

The privatisation policy should ensure that fresh investment is not fully diverted to the buying of state-owned enterprises, if it has to be part of the development strategy now being developed by the Planning, Development and Reforms Commisison.