SIXTEEN months after the ambitious privatization programme of Pakistan was unfolded with considerable fanfare to mobilise $4 billion by selling 49 public sector units within two years, the process has made little headway. And now disinvestment of large units which should be getting big amounts is to be put off until better times instead of resorting to any kind of fire sale.

The privatization Commission is, however, making some headway with the financial sector units like banks and the National Investment Trust as they are not meant to attract the top global players.

Meanwhile, the government wants to make haste in the privatization of the small units placed under the Corporate and Industrial Re-structuring Corporation [CIRC] which has been told to sell ten units each month by finance minister Shaukat Aziz. The CIRC has already sold 24 units out of 37 sick units placed for sale and raised Rs.290 million . They include 17 from the Punjab, six from Sindh and one from NWFP.

Reduction in interest rates of banks as demanded by the finance minister and the governor of the State Bank of Pakistan, Dr. Ishraat Hussain, repeatedly, as well as the larger inflow of funds from overseas Pakistanis should be helpful for privatization of such small units lucratively for them.

But not only the political situation in the region and the global economic slowdown do not encourage major world investors to show keen interest in the Pakistani outfits to be privatised but also the financial and other conditions within such large units are equally depressing. So a change in the approach of the government to privatization of such large units has been brought about realistically. Many of them like the PIA, Pakistan Steel, and the KESC have large staff, heavy recurring losses and large accumulated liabilities. Hence the Privatization Commission headed by minister Altaf Saleem is moving towards splitting such unwieldy units and making them more manageable and saleable.

He has to end the financial haemorrhage in these institutions, as he says, before putting them on sale in a highly competitive world in the area of privatization too.

The best example of an organization which needs to be stripped and new viable institutions created prior to its privatization is Wapda. Twelve regional electricity boards have been created in place of one amorphous large unit and they are to be sold singly separately. But that alone has not been regarded enough to make the units more attractive for the new buyers. The provincial and local bodies have to pay their dues to such boards, the multiplicity of federal and provincial and local body taxes on them reduced, and the sale price of the power units raised considerably as Wapda has been pleading. All that is taking time. But without such reforms or re-structuring of the units the World Bank would not give the 350 million dollar re-structuring loan to WAPDA which it desperately needs.

The other new strategy is to strip such large bodies of its needless but heavy appendages which make then uneconomic. The PIA with over 20,000 staff is a good example. It is now to resort to outsourcing by getting rid of its catering department and giving the contract for supplying food to the famous Swiss firm of Gate Gourmet which is catering to the needs of 225 airlines in the world. The ground handling services of the PIA are also to be separated and privatised; but what would form the ground handling services and how much of staff reduction would come through that process have not been specified.

As a result of such load shedding by the PIA its administrative and financial departments as well as the transportation services will also become small. And there will be a sharp fall in the number of staff members and their families flying free and occupying too many seats. The PIA can become more pleasurable airline to fly after undergoing such changes and it will have fewer union problems and abuses of its facilities.

The Pakistan Steel which Mr. Saleem says is a city by itself, is a financial monstrosity with its 20,000 staff. The one million tonne capacity of the mill was to become a three million tonnes as the Russians who helped set up the mills had envisaged, but that never came to pass to make it really economical. Instead every regime in the past tried to increase the staff by 3,000 to 5,000 of its workers and supporters and made it more of a financial monster.

Now future buyers of the large units to be privatised have a good many questions to ask. They want to know what will be the economic policy of the future political government to follow the current military rulers? They can’t take it for granted that there will be no major changes in the economic policy, although Gen. Pervez Musharraf says there will not be. The military rulers are hoping or presuming the IMF and the World Bank which have under-written these reforms will not permit radical changes in the economic policies, particularly in respect of the privatised units. Foreign investors also want to see the end of the Afghan war and a decent interval thereafter.

This is the election year in Pakistan. They want to see what kind of elections take place and how the political parties cooperate with the military rulers or go along with them until October next year. They also want to know what kind of constitution is framed and how acceptable and durable is that.

There is also talk of the U.S. attacking Iraq after the Afghan war is over. Pakistan in recent times has been increasing economic cooperation with Iraq and is also due to export its surplus wheat of one million tonnes to Iraq. So Pakistan will be inclined to support Iraq, and that can sour the new US-Pakistan relations.

The fall-out of the Israeli attacks on Palestinian Authority can also be bad for Pakistan. Pakistanis are bound to support the Palestinians which cannot be to the linking of President Bush who supports Israel disregarding the vote of 131 nations in the U.N. General Assembly calling for the right of self-determination for the Palestinians. All these factors have impelled Pakistan to put off privatization of the large units in which it wants large investment by major world financial players.

Meanwhile some of the minority shares of the MCB with the government have been sold. And there has been good response to the offer for sale of 5 per cent share of the National Bank of Pakistan. Mr. Saleem says instead of the Rs.18.5 million sought through the sale of those share the bank received offers for Rs.900 million. So the Bank is proposing to sell 10 per cent of its shares. And the government is also to offer the shares of other banks too through the stock exchanges.

The United Bank’s privatization is also making headway. And three groups of Pakistanis and foreign investors, including the Union Bank and the MCB, are to be pre-qualified this week.

While the big ticker items are making little headway in the area of privatization in Pakistan, India too has not been making any headway in this regard. The move to sell units for Rs.10 billion in India last year never got off the ground and is not making real headway this year either.

International financial institutions like the World Bank, the IMF and the Asian Development Bank are pressuring Pakistan to make haste with the privatization as it was estimated to lose upto Rs.100 billion annually through the inefficient and uneconomic public sector with its pervasive corruption. But political constraints or changes have stood in the way along with the fear of being accused by the public of having sold the family silver for a pittance.

But now the global recession, the political uncertainties in the country and the political situation in the region with war clouds hanging over here and there, discourage large scale privatization.

Foreign investment in recent times in Pakistan has been very poor. In the first four months of this financial year total direct foreign investment was only 119. 6 million dollars and that was reduced sharply by a portfolio disinvestment of 44.6 million dollars by Britain, while additional portfolio investment of 10 million dollars came in.

Our history of privatization so far has been poor. For 103 units sold in the 1990s we got Rs60.5 billion out of which 52 per cent came through privatization of 12 per cent share of the PTCL. And the PTCL shares, sold some years ago abroad for Rs55 a share,now sells for Rs19 which is a very poor advertisement for our privatization.

Evidently the government does not want to do such absurd overselling and then face a collapse. Meanwhile we have been telling the western Coalition to help us more because of the delay in privatization because of the war.