{"id":77813,"date":"2024-04-01T07:02:38","date_gmt":"2024-04-01T07:02:38","guid":{"rendered":"https:\/\/pakistaninewspaperlist.com\/news\/the-chaotic-pursuit-of-privatisation-of-state-owned-enterprises\/"},"modified":"2024-04-01T07:02:38","modified_gmt":"2024-04-01T07:02:38","slug":"the-chaotic-pursuit-of-privatisation-of-state-owned-enterprises","status":"publish","type":"post","link":"https:\/\/pakistaninewspaperlist.com\/news\/the-chaotic-pursuit-of-privatisation-of-state-owned-enterprises\/","title":{"rendered":"The chaotic pursuit of privatisation of state-owned enterprises"},"content":{"rendered":"<p><\/p>\n<div dir=\"auto\">\n<p>Last week, Finance Minis\u00adter Muhammad Aurangzeb <a href=\"https:\/\/www.dawn.com\/news\/1824443\/finance-minister-aurangzeb-hoping-for-new-imf-deal-by-end-of-fiscal-year\">reported<\/a> \u201cvery good progress\u201d on privatising loss-making Pakistan International Airlines (PIA) and outsourcing three airports.<\/p>\n<p>Meanwhile, the Privatisation Commission of Pakistan is reportedly busy devising a new three-phase strategy to privatise state-owned entities (SOEs), barring those considered of national or strategic importance.<\/p>\n<p>The current privatisation list focuses on loss-making public enterprises and prioritises entities like PIA and power distribution companies to reduce the government\u2019s involvement and haemorrhage of taxpayers\u2019 money.<\/p>\n<figure class=\"media  sm:w-1\/2  w-full  media--right  media--embed  media--uneven\">\n<p>    <iframe class=\"nk-iframe\" onload=\"setInterval(()=&gt;{try{this.style.height=this.contentWindow.document.body.scrollHeight+'px';}catch{}}, 100)\" width=\"100%\" frameborder=\"0\" scrolling=\"no\" style=\"height:400px;position:relative\" src=\"https:\/\/www.dawn.com\/news\/card\/1811705\" sandbox=\"allow-same-origin allow-scripts allow-popups allow-modals allow-forms\"><\/iframe><\/p>\n<\/figure>\n<p>The massive annual losses of Rs500 billion incurred by the SOEs, which form a part of growing public expenditure, have become a major drag on the national budget, with their accumulated losses topping Rs2.5 trillion or nearly $9bn. Moreover, the financial burden of these resource-guzzlers, apart from haemorrhaging government budgets, has also become a source of systemic risk for the financial sector.<\/p>\n<blockquote class=\"blockquote-level-1\">\n<p>\u2018Haste can do more damage than good, with the risk of oscillating towards creating a private sector monopoly in lieu of a public sector\u2019<\/p>\n<\/blockquote>\n<p>The World Bank has pointed out in a <a href=\"https:\/\/www.dawn.com\/news\/1780116\">report<\/a> that the profitability of SOEs in Pakistan had been declining and turning into losses for about a decade. Things have come to a stage now where \u201cthe profitability of Pakistan\u2019s federal SOEs is the lowest in the South Asian Region\u201d as their aggregate profit at 0.8 per cent of GDP in 2014 turned into losses worth 0.4pc of GDP in 2020 and, growing, thus becoming a major driver of fiscal deficit and source of substantial fiscal risk.<\/p>\n<p>But successive governments, despite being cash-strapped, have gladly bankrolled these SOEs with borrowed money. However, many believe that with little easy money available to continue financing their losses through borrowings, the government has no option but to eliminate them.<\/p>\n<p>The current privatisation initiative, undertaken under the army-backed Special Investment Facilitation Council (SIFC), aims to sell shares of certain public assets to investors from friendly Gulf countries.<\/p>\n<p>The authorities expect a massive investment of more than $50bn from the United Arab Emirates (UAE) and Saudi Arabia alone over the next five years. So far, however, only a fraction of the investment has been made by investors from these two countries in Karachi Port and a private oil marketing company.<\/p>\n<p>Privatisation of loss-making public entities and improvements in the governance of others are also major goals of the ongoing International Monetary Fund (IMF) rescue loan as part of structural reforms. They will also be major conditions of the next medium-term bailout Pakistan is seeking from the lender of last resort. According to reports, the IMF wants early privatisation of PIA, Pakistan Steel Mills, RLNG power plants, and electricity distribution companies.<\/p>\n<p>According to Muslim Commercial Bank Limited chairman Mian Mohammad Mansha and former State Bank of Pakistan Governor Shahid Kardar, successive regimes have overstretched the mandate of the Pakistani state, burning huge holes in its budget.<\/p>\n<p>\u201cThis has resulted in its inability to perform, efficiently and effectively, what should be its core functions \u2014 security of life and property of its citizenry, and provide justice and some basic social services, responsibilities that it must pay for and provide.<\/p>\n<p>\u201cThis private behaviour is rational since these choices are being made based on service quality. But they resist privatisation because there would be reduced opportunities for \u2018patronage\u2019 [an appropriate all-embracing term in our context] or earnings as fees or junket trips as directors of these publicly owned entities,\u201d they have argued in a joint op-ed for this paper.<\/p>\n<p>Pakistan started privatisation of the state-owned enterprises in the late 1980s under the IMF\u2019s Structural Adjustment Programme (SAP) when the first Benazir Bhutto government offloaded 15pc shares of PIA through the stock exchange. The privatisation transactions have returned a gross value of Rs650bn (approximately $2.36bn) to the government during the last three decades.<\/p>\n<p>In addition, it has saved recurring losses of billions of rupees per annum and brought in efficiency and profitability in several privatised SOEs, if not all of them.<\/p>\n<p>The privatisation of banks, the telecom industry, and electronic media is often underlined as huge success stories that must encourage policymakers to disinvest the remaining SOEs to save taxpayers\u2019 money, improve efficiency, create more market competition, and encourage greater private sector investment and participation in the economy.<\/p>\n<p>However, people like former investment minister Haroon Sharif think the government must decide as to why it wants to privatise SOEs. \u201cBefore heading into privatisation, the government and SIFC should clearly state and communicate the reasons for their decision to choose this path.<\/p>\n<p>\u201cDo they want to get rid of loss-making entities because they can\u2019t manage them? Or have they determined, in principle, that it is not the government\u2019s job to run these businesses? There is a difference between the two,\u201d Mr Sharif told Dawn.<\/p>\n<p>\u201cThey must spell out a clear-cut policy. Otherwise, these transactions would not only not fetch the desired revenues but also risk ending up in litigation [as has happened in the past in many cases],\u201d he concluded.<\/p>\n<p>He is of the view that privatisation is only one tool to transfer management to private investors \u2014 it has produced mixed results in different countries. \u201cThere are other solutions as well to invite private participation in the management of SOEs without the typical sale of shares, whether it be concessions, franchise or management contract.<\/p>\n<p>\u201cThe authorities must consult widely and involve professionals to make the process a success. The ultimate goal should be to stop the bleeding of public money.\u201d<\/p>\n<p>The World Bank has also raised concerns over Pakistan\u2019s approach to privatising its SOEs. The bank has identified economic volatility, judicial activism and resistance from trade unions, litigation, fears of monopoly creations, weak political commitment, and perceptions of corruption cost post-2007 as key factors leading to unsuccessful privatisation efforts.<\/p>\n<p>In its Public Expenditure <a rel=\"noopener noreferrer\" target=\"_blank\" class=\"link--external\" href=\"https:\/\/www.worldbank.org\/en\/country\/pakistan\/brief\/pakistan-federal-public-expenditure-review-2023\">Review<\/a> 2023, the lender cautioned the government of looming litigation in divestments to foreign states under government-to-government contracts and instead advised public offerings through stock exchanges followed by privatisation under the transparent oversight of a special joint committee of the parliament.<\/p>\n<p>\u201cSuch a move (under government-to-government contracts) could lead to litigation, raise questions about transparency and full disclosure and may slow down the privatisation process further.<\/p>\n<p>\u201cJudicial decisions in the Pakistan Steel Mills privatisation and Reko Diq mining contract cases badly hurt Pak\u00adistan\u2019s image as an untrustworthy country where international contracts are not honoured, and businesses always run the risk of falling victim,\u201d the Bank said.<\/p>\n<p>It has also advised revamping the privatisation commission by staffing it \u201cwith able professionals who can prepare a financial model for each entity to be privatised\u201d and ensuring that privatisation promotes efficiency and competition in the economy.<\/p>\n<p>Zafar Masud, the president\/CEO of the Bank of Punjab, believes that sustainable growth is impossible without a thriving private sector, for which the starting point is a Private-Public Partnership (PPP). He also cautions that privatisation \u2014 awarding concessions or ownership transfer\u2014 must be undertaken with extreme care.<\/p>\n<p>\u201cWhile it\u2019s an absolute must, its pursuit in haste can do more damage than good, with the risk of oscillating towards creating a private sector monopoly in lieu of a public sector. Therefore, we need to do at least two things before we embark on privatisation. Firstly, regulators should be made independent and stronger, with the appointment of top professionals on merit and on market terms to protect people.<\/p>\n<p>\u201cSecondly, transaction structure and selection criteria of successful private parties shall be such that it would promote competition and have a broader view of long-term economic prosperity rather than myopic bottom-line approach. Investors with a private equity mindset, backgrounds, for example, shall be discouraged and prohibited,\u201d he told this correspondent.<\/p>\n<p>However, the authorities have decided to move ahead with their privatisation plans, and it is amply clear that progress will remain chaotic at best without extensive reforms and greater transparency.<\/p>\n<p><em>Published in Dawn, The Business and Finance Weekly, April 1st, 2024<\/em><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Last week, Finance Minis\u00adter Muhammad Aurangzeb reported \u201cvery good progress\u201d on privatising loss-making Pakistan International Airlines (PIA) and outsourcing three airports. Meanwhile, the Privatisation Commission of Pakistan is reportedly busy devising a new three-phase strategy to privatise state-owned entities (SOEs), barring those considered of national or strategic importance. The current privatisation list focuses on loss-making [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":77814,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/i.dawn.com\/large\/2024\/03\/6608ec1c1e98e.jpg","fifu_image_alt":"","footnotes":""},"categories":[10],"tags":[],"class_list":["post-77813","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pakistan"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts\/77813","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/comments?post=77813"}],"version-history":[{"count":0,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts\/77813\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/media\/77814"}],"wp:attachment":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/media?parent=77813"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/categories?post=77813"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/tags?post=77813"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}