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Privatisation of seven PSEs to be discussed with IMF

Updated April 29, 2019

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Informed sources said the government was not committing with the IMF divestment of any of the loss-making entities at this stage and these would be passed through a restructuring phase, but transactions of seven mostly profitable and efficient entities would be completed in the first year i.e. fiscal year 2019-20. — AFP/File
Informed sources said the government was not committing with the IMF divestment of any of the loss-making entities at this stage and these would be passed through a restructuring phase, but transactions of seven mostly profitable and efficient entities would be completed in the first year i.e. fiscal year 2019-20. — AFP/File

ISLAMABAD: The government has firmed up a plan for privatisation and restructuring of major public sector entities (PSEs) as part of the proposed medium-term economic and financial policies.

This will be part of discussions with the International Monetary Fund (IMF) this week for a three-year bailout package under which the provinces have agreed in principle on a single sales tax pro forma that will ultimately lead to a single value-added tax (VAT) regime.

Informed sources said the government was not committing with the IMF divestment of any of the loss-making entities at this stage and these would be passed through a restructuring phase, but transactions of seven mostly profitable and efficient entities would be completed in the first year i.e. fiscal year 2019-20.

Govt not considering divestment of loss-making entities for the time being

The sources said the authorities of the Federal Board of Revenue and four provincial revenue boards have already agreed to launch a common (single) return pro forma on sales tax on services with effect from July 1 this year. They said the relevant federal and provincial authorities were also holding discussions on reducing the GST rate on services from 17 per cent to below 10pc, addressing inter-provincial refund-related issues and disputes.

Another round of discussion on single sales tax on services is scheduled for Monday (today) under the auspices of the FBR with representations from the four provinces. The key objective of the single tax regime was to remove difficulties and compliance costs of the leading businesses and multinationals which had to deal with multiple layers of tax filings.

The sources said that a series of inter-provincial meetings on the subject had already been held in Punjab, Sindh and Balochistan, while a final meeting was due in Khyber Pakhtunkhwa after the Monday meeting at the FBR to keep the IMF mission updating on the sidelines.

The sources said it was premature to say if the GST rate on services would come down with the start of the next fiscal year, adding that it would depend on the government-IMF engagements as the two sides wanted generation of additional revenue of around 0.3pc of GDP by the provinces to jack up their share from 1.3pc of GDP to 1.6pc in three years, with addition of Rs50-70 billion every year.

The sources said the government would use privatisation as one of the key components of its overall economic and financial policy framework, commonly known as part of “Memorandum of Economic & Financial Policies (MEFP)” to be signed with the IMF. Therefore, the government “has restrategised selection of PSEs, bearing minimal operational, financial and human resource issues, for immediate privatisation so as to realise best value and attract strategic partnerships for its assets”.

The government has initially approved a plan to undertake sale of two newly commissioned RLNG (re-gasified liquefied natural gas) power plants at Balloki and Haveli Bahadur, privatisation of two specialised banks namely SME Bank and First Women Bank, two real estate assets namely Jinnah Convention Centre, Islamabad, and Services International Hotel, Lahore, and divestment of government’s residual 18.39pc equity in Mari Petroleum Limited. All these transactions are tentatively targeted for completion before Dec 31.

The government will also propose to the IMF to “undertake privatisation decision with regards to other PSEs in the power generation and distributions, oil & gas, industries sectors in light of recommendations by the Task Force on Energy Reforms, feasibility study and proposals/recommendations by the divisions concerned respectively”. The divisions and entities concerned have already been directed to formulate and submit their respective recommendations and proposals for consideration by the Privatisation Commission within the stipulated time period.

For restructuring of state-owned enterprises (SOEs), the government is explaining to the IMF that it has set up Sarmaey-i-Pakistan as a holding company for the management of select SOEs. This is to ensure that the excessive control of line ministries is taken away and political interference is done away with. The assessments are currently in progress for introduction of an SOE law and corporatisation of SOEs.

The appointment of board of directors and chief executive officers of a number of SOEs is currently at different stages. The government has decided to delist the Pakistan International Airlines from the privatisation programme and has made high-level changes in the PIA management to contain losses by financial and business restructuring, increasing the performance by route rationalisation, fleet modernisation and expansion, reducing financial and operational costs and providing better services to gain customers’ confidence.

The government has also decided to delist the Pakistan Steel Mills from the privatisation programme and the industries and production ministry is working with a private experts group for its operationalisation plan.

The government will also report to the IMF that under the national transport policy, the railway infrastructure will remain in the public sector, while the private sector participation in railway operations and maintenance will be encouraged and promoted. The overall direction for future development of Pakistan Railways will be set through the PR strategic plan.

The plan envisages the overall long-term direction for the entity and aims to address and, where possible, solve the problems of pension obligations and asset allocation issues. It also intends to mitigate the issue of under-utilisation of new capacity that will be added over the next few years by promoting growth of traffic by rail and satisfying market demands.

Published in Dawn, April 29th, 2019