There were reports in the English daily newspapers, in the month of September this year, about the National Investment Trust Ltd (NIT) selling its 22 per cent shareholding in the Pakistan Engineering Company Ltd (PECO) , a state-owned enterprise to "unknown buyers".

The move, reported to be undertaken without the due approval of the government, has great significance as it reduces government's shareholding in PECO to a minority, resulting in possible take over of management by the private sector.

Surprisingly, the concerned government agencies, such as the Securities and Exchange Commission of Pakistan (SEC), the Central Depositary Company of Pakistan (CDC), and the Finance Division, have taken no cognizance of the matter, it seems, neither the NIT issued any clarification in the national press, nor further details of the deal.

The PECO, a public limited company having its share quoted at Karachi, Lahore and Islamabad Stock Exchanges, is the pioneering engineering industrial unit. Established in 1948, the company was nationalized by the government in 1972, along with its works located at Badami Bagh and Kot Lakhpat at Lahore.

At one time, PECO brand was the guarantee for quality and performance of its large variety of light engineering products, which were popular, competitively priced and economical in operation.

The product range of pumps included various sizes and models of deep-well turbine pumps, submersible pumps, mobile pumping unit, and centrifugal pumps, single stage, multi stage and non-clogging types.

The annual installed capacity was to produce 3,400 sets of pumps that competed well with reputed foreign makes. Machine tools, such as general-purpose lathe, precision bench lathe, heavy-duty centre lathe, shaper, drilling machine and hacksaw were manufactured in accordance with international standards.

Automatic power looms were produced under license from a Japanese company, to meet the demand of domestic textile industry. The wide range of electric motors offered models up to 150 HP, having annual capacity of producing 16,500 sets.

Its other products included high-speed diesel engines, concrete mixers of various sizes, electric overhead travelling cranes ranging 1/2 to 30 ton lifting capacity, mini hydel turbines, bank safe and strong room doors, etc.

Sadly, the company's operations are standstill today, with the only exception of fabrication of steel towers, thanks to the ill-conceived and short-sighted privatization policies of the government. The company has been on the privatization list for more than a decade now. From 1991 to 2001, there have been as many as nine attempts to sell the PECO, adopting different strategies, but none materialized.

The PECO, which was a vibrant and profitable organization, suffered losses from 1991 due to impact of privatization process, and has never recovered since then, worsening its financial health every year.

Resultantly, the works located at Badami Bagh were closed down in 1992, whereas manufacturing of machine tools and power looms at Kot Lakhpat works was discontinued in the year 2000. Almost 3,000 workers and staff were laid off under the Voluntary Separation Scheme (VSS).

In January 2002, the Cabinet Committee on Privatization decided the closure of the remaining production units of the company, i.e., the bicycle plant, furnace and rolling mill, pumps and motor production shops and general engineering section.

The Privatization Commission accordingly terminated services of all the remaining regular and contract employees, totalling 1,500 in number, under the Compulsory Separation Scheme. Somehow, the management has decided to continue business of transmission towers through engaging temporary staff.

Given the positive market conditions in general, the company has shown improved performance during the year ending 30th June 2004, as it achieved sales of Rs457 million and earned an operating profit of about Rs14 million (as against operating loss of Rs15 million approx. during 2002-03).

Until recently, the government's shareholding in the PECO was approximately 56 per cent and the rest with private shareholders and companies. The position of shareholding of the company during the financial year 2003-04 however represented only 33 per cent shareholding of the government, whereas the majority of shareholding, about 67 per cent, was already with general public and private companies.

Details are given below. The table shows that the government directly owns about 25 per cent shares, mainly through the ministry of industries and production/ the State Engineering Corporation.

Its remaining shares, about 31 per cent as on 30.6.2000, were held by the government indirectly, through government-controlled entities like the NIT, the Investment Corporation of Pakistan (ICP), the National Bank of Pakistan, State Life Insurance Corporation of Pakistan, Pakistan Re-Insurance Co. Ltd. and the nationalized banks including United Bank and the Habib Bank.

Now that the nationalized banks have been privatized and the ICP has off-loaded its partial shareholding, the government holding in PECO reduced during the last four years or so. The major jolt however has been the selling of shares by the NIT. As on 30th June 2003, the NIT had 1,179,102 shares of the company that amounted to 21.72 per cent, and had its nominee director on the PECO Board.

Thus, the total government holding in the company, as on 30th June 2004, accounts for only about 33 per cent, which is already a minority shareholding. It is also obvious that the NIT has been selling its shares intermittently over a period of time, starting much before September 2004 when the news was leaked out in the national press.

Apparently, the NIT or the ICP still continue to selling the PECO shares, as holding of the CDC as on 31st October 2004 was 3,006,001 shares or 52.83 per cent, compared to 2,924,017 shares or 51.39 per cent as on 30th June 2004.

As reflected above, it is an alarming situation for the government. Private sector now holds majority strategic shares of the state owned enterprise, opening the doors for its hostile take-over any time. This would also adversely affect the government's future plans to privatize the company with total assets of about two billion rupees.

It was only eight months ago that the federal minister for privatization and investment had made a statement in the National Assembly that the PECO remains on the active list of privatization, and its Kot Lakhpat works and Badami Bagh land would be put up for sale in the near future.

Understandably, there has been no schedule announced for the sale of PECO as yet. This may prove to be "fast emerging as the first financial scandal facing the Prime Minister Shaukat Aziz administration", a columnist of an English newspaper opined.