According to the ministry, these SOEs are among the 58 approved for privatisation by the Council of Common Interests (CCI) in 2006, and will be privatised in accordance with the public-private partnership policy approved last year. However, proceeds of their privatisation (Rs19 billion) budgeted in FY10 may not be realised because of the delay in completing the pre-privatisation ground work.

Privatisation proposals based on a policy review were approved by the Cabinet Committee on Privatisation (CoP) on February 17, 2009 and, as envisaged by the PC Ordinance-2000, the Privatisation Commission (PC) was given exclusive authority to enter into public-private partnerships. However, the ministries currently supervising the SOEs took positions on the issue that delayed the issuance of the initial privatisation list.

According to the PC, this practice created complications and undermined its efforts to carry forward the privatisation process although it had expanded its board of directors by including private sector experts and parliamentarians to ensure transparency. But still, because of the resistance by some ministries, only Hazara Fertiliser Plant could be privatised.

The resistance the PC encountered is odd because the CCoP mandate to the PC stipulates stringent pre-qualification criteria “including a contractually binding business plan with regard to [SOE] management, default, termination, penalties and dispute resolution” leaving precious little for the ministries to worry about unless they don't care about the Rs250 billion fiscal burden created annually by the SOE losses.

Now that the privatisation process has finally commenced, and 23 SOEs identified for privatisation during 2010-12, the issue to examine is the advisability of privatising these entities. Of these SOEs, seven are power generating companies, five engineering and industrial units, four financial institutions, two tourism sector entities, two service industries, and three public service entities.

Privatising most of the SOEs on this list makes sense because it will eventually off-load a huge fiscal burden, but not the last three i.e. Pakistan Post Office (PPO), Pakistan Railways (PR), and Utility Stores Corporation (USC). These entities provide essential public services; privatising them implies handing them over to entities that will rightfully operate them to earn (who knows how much) profit.

In a developing country like Pakistan with one of the lowest per capita incomes, should such basic services be handed over to profit-making entities, and that too by a 'peoples' government? What does the state envisage its role to be in a developing country? This is a question the government must answer to satisfy its own conscience more than those of its critics.

Privatising PR won't be easy. Given its accumulated losses and its size, in all likelihood, its assets may be valued unfairly and the initial offer of 26 per cent shares may be under-priced. Let us also not forget that the value of its assets, and the monetary value recoverable through their sale, depends on investors' view of its assets, its organisational set-up, and its prospects; none of them is presently positive.

USC has strategic value given the unregulated profile of our retail markets. The rampant violation of practically all price, quality and quantity controls in these markets makes it imperative that there is one country-wide retail chain through which the state can impose these disciplines; privatising it would result in losing whatever clout the state has in these markets with all its consequences.

As for privatising the PPO, even the most pro-free market countries do not offer such examples because even they realise that this is the most 'public' service that the state must offer to its citizens on no-profit-no-loss basis. It is proposals like privatising the USC and PPO that strengthen the view that, in desperation, the incumbent regime can go to any length.

Cutting fiscal and trade deficits as the rationale for privatising SOEs, has always lacked credibility. Against its promise of repaying external debt, the last regime used privatisation proceeds to fund galloping trade deficits, which were caused by tactlessly applauded rise in consumption. Now there are doubts about “promoting competition and efficiency” as being the real objectives of privatisation.

These promises lack credibility, especially in the backdrop of the proposal to privatise the PR. Privatising PR will create a huge private sector monopoly - the type even the great supporters of free markets have gotten used to calling the “too big to fail”. Besides, this experiment wasn't successful. Off-hand examples that I recall are Britain and Holland.

The other issue to examine is the strategy of the public-private 'participation'. Unconfirmed reports suggest that before offering the initial 26 per cent stake to 'strategic investor', the SOEs will be restructured. The idea is certainly not bad because, for a gigantic entity like the PR, a fairer price for its shares may be earned only if it is re-structured but the question is, “where is the cash?”

Rumour has it that the National Bank of Pakistan (NBP) has promised to raise the requisite funds. NBP may, perhaps, do so but to benefit from every rupee spent on restructuring, it must be planned and supervised by those with proven expertise and impeccable integrity. To forestall poor results or corruption charges, restructuring must be carried out by independent agencies. This is absolutely imperative.

Need for this crucial independent check has been highlighted yet again by the RPP affair. In his press briefing on January 28, even the finance minister roundly agreed that in-house project evaluation capability is both inadequate and biased, as exposed by the higher ADB estimates of the increase in power tariffs once the government shifts to buying electricity from the RPPs.

Finally, the PC must ensure that privatisation doesn't lead to compromise on the quality of SOE output. The requirement on the strategic investors “to provide the government directors with compliance reports viz-a-viz the agreed benchmarks” is a dicey mandate. Unless the directors possess requisite experience and supervisory skills, strategic partners could enjoy unfair benefit without delivering on their promises.

In the past, this supervisory weakness ignored inefficiency and waste, and steadily turned SOEs into loss-making entities, a repeat of which can't be avoided without appointing competent government directors on the boards of SOEs privatised under the public-private participation policy. But if this mechanism is allowed to function without political interference, it offers the best chance of success.