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WHEN we oppose a policy, we should be able to propose a rational alternative. So what options are the PPP and the PTI suggesting when they reject the planned privatisation of the state-owned PIA and Pakistan Steel Mills?
More of the same, I’m afraid: end the corruption; improve efficiency; and bring in professional management. This is like saying a corpse can be revived on a better diet and more exercise. And sadly, PSM is a dead mill walking, having stopped production three years ago when gas supplies were shut off due to non-payment of dues.
Its accumulated losses are approaching Rs200 billion, and it has to beg the government for periodic bailouts to pay staff who have no work. Just to restart the steel mill would be an enormously expensive affair. And after the Supreme Court blocked privatisation over a decade ago, it is doubtful there would be any buyers now.
What keeps PIA and PSM going are massive loans and subsidies.
Even if the PSM had been efficiently and honestly run, it could not have been profitable due to inherent design issues. The Soviet technology was outdated, but more importantly, while the infrastructure created for the mills was for an annual output of 2.2 million tons, the initial investment built production facilities for 1.1m tons.
This meant that instead of being spread over 2.2m tons, infrastructure and manpower costs were charged to half this production, raising the price per ton well over the international rate. The original concept was that after a few years, production facilities would be doubled; unfortunately, that day never came as the government could not spare the funds, and the PSM continued to produce steel at a high cost.
Also, the management was forced to create the infrastructure for the country’s largest state manufacturing enterprise: apart from 19,000 acres of land, water and electricity had to be provided, roads and a housing colony built, and a fleet of transport had to be run and maintained.
If I sound knowledgeable, it’s because my last job as a civil servant before I took early retirement in 1997 was finance director of the Steel Mills. I joined when the PSM was going through a deep crisis: Usman Farooqi, the previous chairman, had been accused of massive corruption, and I had to conduct a number of unpleasant inquiries together with doing my job.
The economy was in a slump, and there were few buyers for our products; and finding the cash to pay for our immediate requirements was a constant challenge. More depressing was the thought that no matter how hard we worked, the PSM would never be a profitable enterprise without a substantial infusion of capital — something that would only happen with privatisation.
With PIA, my insights are only those of a regular passenger: over the years, I have experienced the national carrier’s decline in terms of service and punctuality. Currently, its accumulated losses stand at around Rs350bn, and its ongoing facelift is hardly going to turn the airline around.
One problem has been the tendency to appoint retired air force officers to run PIA. While they might have been excellent combat pilots, this did not necessarily qualify them to run a commercial operation. In an official capacity, I once called on a freshly appointed chairman, and found his office in semi-darkness. I asked him if his head office had been hit with load-shedding, and he replied that he always turned off half the lights as an economy measure. I’m glad he didn’t order PIA’s Boeings to fly on two engines.
But even CEOs from the private sector haven’t managed to improve matters noticeably. The reality is that the airline falls under the control of the defence ministry, and major decisions have to be approved by a heavy layer of bureaucracy. This is seldom a formula for efficient management.
Given the massive accumulated losses, and the inbuilt inefficiencies and constraints both white elephants struggle under, how do the PTI and PPP expect to make them profitable? In the past, all political parties in power managed to get their supporters jobs in these and other state enterprises. And once in, these political appointees were very hard to remove.
What keeps these zombies going are massive doses of loans and subsidies. In effect, banks that should be lending to healthy organisations are forced to funnel funds to these deadbeats, and taxes that should be financing development are channelled into providing liquidity to loss-making enterprises.
Politicians who argue against privatisation need to spell out specific proposals instead of voicing pious, simplistic ideas. Clearly, they are aiming to gain the votes of employees who fear redundancy and unemployment.
But why should taxpayers be forced to underwrite inefficiently run state entities that have no hope of producing a profit? The vast majority of Pakistanis have never used PIA, so why should they end up footing the bill? Being populist is not enough: politicians also have to be rational.
Published in Dawn, April 14th, 2018
