ON June 23, 2006, a bench of the Supreme Court headed by then chief justice Iftikhar Chaudhry struck down the privatisation of Pakistan Steel Mills by means of a long, rambling judgment. The court’s action was to prove an extraordinarily expensive one for the nation. The losses of Pakistan Steel Mills are now approaching Rs400 billion. This is to disregard the hundreds of millions of dollars which were to be paid by the successful bidder.
Furthermore, the bidder had agreed to invest an additional hundreds of millions in order to increase the capacity of the steel mill from one to three million tons. All these losses have been absorbed by taxpayers in Pakistan because of that flawed judgment.
An interesting aspect of the judgment is that it pays lip service to the well-established principle of law that it is not the function of the judicial organ of the state to interfere in the policymaking domain of the executive. This is for the sound and compelling reason that democracy entails the acceptance of responsibility for one’s decisions. When the executive takes incorrect decisions the Constitution provides that the cabinet is responsible to parliament, and parliament, in turn, to the nation. But when the Supreme Court interferes in the executive domain and causes a wholly avoidable loss of hundreds of billions of rupees to the common weal the question is, who is to be held accountable? Quis custodiet ipsos custodes? Who will reimburse the public exchequer?
The Supreme Court’s decision to strike down the privatisation of the steel mills was to prove costly.
It is an equally well-established principle of law that the judiciary in Pakistan (although not in Britain, the US or India) is only accountable to itself. This is in order to preserve the invaluable concept of the independence of the judiciary. It may be observed in passing that historically self-accountability has generally led to non-accountability.
We can commence by looking at some of the core findings of the court. The chief justice held that a number of incentives were given to the successful bidder which had not been disclosed in advance. These included: a) stock in trade worth about Rs10bn, b) the commitment of the government of Pakistan to clear the loan liability amounting to Rs7.67bn, c) the refund of Rs1bn paid as advance tax to the government, d) responsibility was accepted by the government to meet the claim of the workers opting for a voluntary separation scheme (VSS) amounting to about Rs15bn.
Unfortunately, the official record reveals the opposite. The stock in trade was clearly disclosed in the financial statements dated Dec 31, 2005 which were provided to all prequalified bidders. The repayment of the loan advanced by the government was also clearly stated in Note-6 (in any event it is obvious that instead of being a concession this was an additional burden on the bidder because the loan had earlier been advanced to the steel mill by the Pakistan government at a concessional rate of interest. Calling it a concession eludes comprehension.)
The question of refund of taxes was, once again, clearly disclosed in the financial statements (in any event, it is obvious that since the sale was on an ‘as is where is basis’ any refunds to the company would be included just as the liability would be included.) The responsibility for VSS was also clearly understood in advance and set out in clause 9.2 of the draft purchase agreement.
Another (incorrect) criticism was that the Privatisation Commission had failed to mention that the company had recorded profits for the last three years. The criticism is all the more surprising in view of the fact that elsewhere the court had itself reproduced the public advertisement setting out the profits for the said years separately. Space constraints prevent analysis of other errors in the judgment.
On the basis of the above, the government approved the figure of $464 million based on discounted cash flow valuation for 100pc of the shares. The share value on the above basis comes to Rs16.18 per share and the winning bid was for Rs16.80. Incidentally, the chief justice failed to comprehend that the said method does not require the separate valuation of land or other assets.
The privatisation was challenged by the union. It is no secret that employees in a government-owned establishment have their jobs secured, irrespective of their integrity, performance or competence. In fact, the concept of nationalisation can perhaps more aptly be described as bureaucratisation. Is anyone satisfied with the performance of bureaucrats? Why should the taxpayer be compelled to pay for the shoddy performance of the employees? But still privatisation is opposed by some who should know better.
The petition was dismissed by the high court but found a more favourable environment in the Chaudhry court. There are numerous passages in the judgment which seemingly suggest that the benefits of privatisation were viewed by it sceptically to say the least.
One of the most remarkable findings by the court related to its unilateral demand that bidders should have been made to furnish a guarantee for the purpose of making future investment with a view to raising its production capacity. This was neither a condition laid down in the bid documents in this case, or indeed in any other case of privatisation. If such guarantees are demanded then no company will be privatised.
We now turn to the final chapter of this rather sad episode. A review petition was immediately lodged. The review petition was not fixed for hearing for six long years. Finally, it was fixed for hearing suddenly and then dismissed on the ground that the counsel for the petitioner was not present. Left unremarked was the fact that a few days earlier the chief justice had personally granted the counsel for the petitioner (myself) a general adjournment since he was proceeding outside the country. That is how the case was decided.
After the retirement of justice Chaudhry, the court has moved on. During his tenure he was a dominating personality until the collapse of his moral authority after the Dr Arsalan scandal. His successors have shown wisdom in preferring judicial restraint in cases of privatisation. Let us not forget, the pitfalls of judicial adventurism are many while the rewards are limited to the generation of sensational media coverage.
The writer is a lawyer and a former federal minister for law, justice & human rights.
Published in Dawn, August 8th, 2016