THE recent decision — since suspended — by the government to divest an additional 10pc of its shareholding in OGDCL has reignited the debate on why, how, when and which public enterprises should be privatised.
In a country where the privatisation process has been in operation for over two decades, there seems to be no national consensus on these questions. For consensus to develop, the current government — or the Privatisation Commission — must carry out a detailed audit of the process so far. Such an exercise could reveal, inter-alia, the tangible as well as collateral gains (or losses) of privatisation to the government and public.
In the absence of such an exercise, supporters and opponents alike tend to use partial — often anecdotal — evidence in support of their arguments. More importantly, the audit findings would facilitate the selection of entities for future privatisation and the mechanism of divestiture.
A review is needed of the privatisation process so far.
Analysing past experience would highlight avoidable errors of judgement. Loss-making units were all disposed off as ‘going concerns’, with the condition that private buyers would continue operations. In reality, when buyers found that the enterprises were not financially viable, they obtained a waiver from that condition, selling off the assets as real estate and chunks of machinery. Roti plants’ divestment is one such example.
The point is that the government needs to revisit the premise that all loss-making enterprises currently on the privatisation agenda would remain operational after privatisation. Changing market dynamics or outdated technology might well have rendered some or most of such enterprises non-viable. It follows, therefore, that it would be more prudent to close down such units and sell off the assets.
In some cases, the government tried to make bankrupt enterprises ‘attractive’ for privatisation by ‘restructuring’ and capital infusion, HBL and UBL being two examples. It is questionable whether such measures enhanced the bid value on privatisation.
A similar exercise is in process for PIA and Pakistan Steel but is unlikely to make either organisation more ‘attractive’ for privatisation. The aborted privatisation of Pakistan Steel has already resulted in a colossal loss for the country, illustrating the importance of timely privatisation.
The only defensible rationale for privatisation is the realisation that public ownership and management of assets of any enterprise is not yielding optimum benefits. While historical profitability is one ready indicator, the more important test is how well the particular enterprise is geared to sustain that trend, and to ensure effective future utilisation of its assets.
Such a rationale is often questioned on the ground that even if a public enterprise is not operating at optimum levels, intangible benefits like consumer or worker welfare are too important to ignore. Yes, it is the obligation of the state to protect such rights but such protection should flow from the overall regulatory framework rather than from public ownership of specific enterprises.
Now let us focus on the current controversy regarding OGDCL’s ‘privatisation’. The chairman of the Privatisation Commission, while deferring the partial divestiture of the company, has failed to address the issue of whether a profit-making entity like OGDCL should be privatised.
It is obvious to most that the company’s performance over the years is hardly a reflection of its ‘distinguished’ management capability. In fact, the CEOs of the company or nominees on the board, more often than not, have hardly been of outstanding merit. The continuing robust financial performance of the company is, thus, a consequence of its productive oil and gas fields. But, with fast depleting reserves, is the company equipped to quickly and substantially expand its exploration activities?
Oil and gas exploration has become highly capital- and technology-intensive. Exploration and production companies here face constraints in venturing into these initiatives. Again, timely decisions in a company like OGDCL are critical but difficult owing to the compulsion to follow the PPRA code.
Under these circumstances, public interest would suggest seeking a technically and financially sound partner for OGDCL even if such an arrangement envisages the transfer of management control and substantial equity stake to a foreign entity. Critics could argue that a similar mode in the case of PTCL and KESC remains contentious. This is a valid point, but only underscores the need to ensure transparency in contract terms and clarity in terms of rights and obligations of the contracting parties.
The dilemma for the government is that with a tainted record of cronyism in economic decisions, it would find it difficult to make out a convincing case that this mode of privatising OGDCL is in the best public interest.
The writer is the former CEO of PACRA and a former director of PPL.
Published in Dawn, November 16th, 2014