ISLAMABAD: The government finally decided on Thursday to go ahead with the privatisation of the Pakistan Steel Mills (PSM) and divestment of its remaining 40 per cent shareholding of the Kot Addu Thermal Power Company (Kapco).
At a meeting of the Cabinet Committee on Privatisation (CCOP) presided over by Finance Minister Ishaq Dar, it was also decided to sell through initial public offering (IPO) minority shares in power distribution companies, starting with the Faisalabad and Islamabad electric supply companies.
The authorities concerned were also directed to complete the corporatisation process of the Pakistan International Airlines (PIA) by dividing its core and non-core operations between the existing PIA and the Pakistan Airways -- a newly created entity still being processed by the Securities and Exchange Commission of Pakistan.
The CCOP decisions, said a government official, indicated a serious move to revive privatisation programme which had been stalled for months. After completing a series of capital market transactions by April 2015, the government was able to sell stakes only in a comparatively smaller subsidiary of the power ministry — the National Power Construction Company — in Sept 2015.
An official statement said the CCOP held detailed deliberations on financial and administrative situation prevailing in the PSM. The mill has been on zero production mode since June 10, 2015 when its gas supply was strategically reduced by the Sui Southern Gas Company Limited due to Rs17 billion unpaid bills and similar late surcharge. Since then the country has imported steel worth about $3.5bn (Rs375bn).
The losses and liabilities of the country’s largest industrial unit that stood at Rs200bn in June 2013 crossed Rs385bn in April 2016 and are believed to have gone beyond Rs400bn by the financial year ending on June 30, 2016.
But that was not all. The government wasted 10 months while persuading the Sindh government to take over the PSM even though the provincial government said in writing at the earliest that it had never expressed any desire to take over the troubled entity.
The technical and financial advisers hired by the federal government on the PSM had suggested last year that the plant capacity of the mill could be tripled to three million tonnes in three years with Rs90bn investment. They said that the mill could be made profitable in the first two years because of its “ideal location and market potential” that could also meet increased demand at home arising out of the China-Pakistan Economic Corridor and rebuilding process in Afghanistan.
Mr Dar, who authorised the summary for “privatisation of the PSM” as the minister for privatisation and then approved it as the CCOP chairman, said that the PSM had been non-operational over the past 12 months due to suspension of gas supply. As a result, he said, the federal government had been making hefty payments to meet the fixed costs and salary expenses of the employees.
He noted that “under normal privatisation process, the buy-side due diligence is completed in two months” but in the case of the PSM it lapsed for more than eight months.
Interestingly, while the CCOP was taking this strategic decision, two separate delegations from China were lined up on the sidelines -- one from BaoSteel and another form the China Overseas Port Holdings -- for separate due diligence events organised by Privatisation Commission Chairman Muhammad Zubair.
According to the statement, the CCOP observed that despite massive efforts, there had been no serious engagement by the Sindh government on the offer made by the federal government to acquire the PSM. “The CCOP, therefore, allowed the Privatisation Commission to go ahead with the plan for divestment of the PSM following due process,” it said.
The committee also approved divestment of the government’s residual shareholding in the Kot Addu Power Company (Kapco). The first PPP government led by Benazir Bhutto had initially sold its 26 per cent shares in June 1996 followed by the sale of another 10pc in Nov 1996 to the United Kingdom’s National Power while some escrow shares were sold in 2002.
The CCOP decided that all of 40.25 per cent of issued share capital (354,311,133 shares) -- the government’s stake in Kapco held via Wapda -- would be divested. “The transaction will be executed as a strategic sale to the qualified bidder,” the CCOP said.
Kapco’s financial advisers -- the Dubai Islamic Bank, Deloitte, Lummus Consultants, Mohsin Tayebaly and Company and Latham and Watkins -- have recommended that the entire 40.25pc government shareholding be sold to strategic buyer.
They have also recommended that 10pc of the government stake (4.025pc of issued share capital or 3.54 million shares) be offered to eligible employees of Wapda and Kapco for subscription under an agreement with the staff. The shares not subscribed by the staff should be taken up by the successful bidder.
The committee also allowed the Privatisation Commission to initiate the process for listing of shares of qualified power distribution companies on the stock exchange through the IPO, starting with Fesco and Iesco. It was decided that the government would retain the control and management of the companies.
As such, the government has rescinded its previous decision for strategic sale of power companies to the private sector to improve their work culture and overcome issues relating to system losses and bad administration.
The statement quoted the finance minister as saying that transparency must be ensured in the divestment process.
Published in Dawn, July 15th, 2016