The government is ‘energising’ the privatisation process to generate funds for domestic debt retirement. That includes the promotion of private-public partnership (PPP) for the revival of major bleeding strategic state-owned enterprises which it cannot run on its own.

Under the existing law, 90 per cent of the privatisation proceeds are to be spent on debt retirement and 10pc on poverty alleviation. Mounting debts are a major cause of the fast widening fiscal deficit and overall the government’s revenues are being outpaced by surging non-development spending.

Some 20 state units are proposed to be revamped or restructured on a fast track basis by the recently established Sarmaya Pakistan Limited (SPL), managed by an empowered technocracy. A fresh proposal to reconstitute the SPL board, and the names and details of organisations to be affiliated to it, is being prepared for the prime minister’s approval. The SPL board members were initially appointed by former finance minister Asad Umar.

Addressing bankers and corporate executives in Karachi recently, federal minister for privatisation Mohammad Mian Soomro said “we have a huge a burden of debt and the government wants to generate more funds through privatisation to lessen this burden.”

Advisor on finance Dr Abdul Hafeez Sheikh is confident that by December the government will succeed in raising Rs300 billion from the strategic sale of 100pc equity of two profitable Re-Gasified Liquid National Gas (RLNG) plants.

90pc of the proceeds are to be spent on loan retirement and 10pc on poverty alleviation

Regarding the PPP mode, the privatisation minister observed “some of the institutions (state-owned enterprises) require more capital injections to grow and the government is not in a position to invest, therefore some strategic partners are needed to support these institutions.” In such cases, the majority of shares will be retained by the public sector.

However, there is a bottleneck in opting for the PPP model. The Privatisation Ordinance 1973 has no such provisions. Pakistan Steel Mills (PSM) is one of the major units to be privatised through the PPP model. No progress has been made to resolve the PPP issue while it is stated that three or four international companies have shown interest in PSM.

The good news is that a fresh approach is being adopted for the revival of PSM which has been non-operational for the past three years and without a management structure or board of directors for the last one year. Its accumulated losses continue to mount.

The newly appointed PSM Board Chairman Aamir Mumtaz, an American Pakistani, specialises in transformational initiatives for driving performance and value of enterprises. He will, however, face a challenging job given the old management practices and work culture in the organisation.

Maybe, the proposed public-private partnership, if it materialises, may serve as a catalyst in this regard. The problem of labour retrenchment would, however, be much reduced because of the bulk of PSM employees have retired though they have yet to be paid a significant amount of their retirement benefits.

So far innovation in the public sector in 141 countries surveyed, including Pakistan, has been broadly incremental and not radical or transformational one, according to a recent study carried out by the Association of Chartered Certified Accounts (ACCA).

In their responses to the survey, 4, 436 ACCA members stressed the need for the government to shift from the current domination of incremental innovation to more radical forms of innovation. That involves a difficult job of ensuring a stable environment as ‘bringing new ideas to life can be disruptive’, says the study.

To make the privatisation process transparent, the government has also decided to take all the relevant authorities and regulators on board. Interestingly, that would include the National Accountability Bureau. How private investors will respond to this is not known. Will their sources of funds for investment be scrutinised? The scrutiny of the proposals by all regulators and authorities considered relevant would be a time-consuming process. This may run counter to the government’s policy to reduce the cost and ease of doing business.

The list of companies for privatisation with frequent additions and deletions remains in flux but for about 10 firms. On agenda is also the divestment of small lots of shares of two profitable companies which was opposed by investors at the stock exchange for being ill-timed. That will be carried out at an ‘appropriate’ time. There is some confusion whether their shares would be off-loaded at the stock exchange or sold to ‘strategic buyers’. Will small investors be excluded?

And in a not-so-conducive business environment, low government development spending is squeezing private sector activities, the economy taking a downturn and the appetite for both domestic and foreign private investment is very low. Privatisation is being revived again after having remained almost suspended over the past decade. But the government may still find some room for privatisation over time.

Published in Dawn, The Business and Finance Weekly, September 30th, 2019