The uncertain direction of PTI privatization agenda
Somebody in the federal government needs to play the lead communications role in explaining its privatization approach. The ruling Pakistan Tehreek-e-Insaf party’s privatization agenda, if there is one, does not come across as a very coherent plan. While it is clear that most public assets have not attracted significant interest from foreign investors, even the local consortiums complain of the sluggish pace of the privatization process. The most recently advertised auction invites interest for 27 units, mostly comprising idle government land, buildings, apartments and shops. Where are the major loss making entities? Some time back we also heard of five entities being again placed on the privatization list despite remaining there for some time and not attracting much interest based on the terms and conditions. These include the House Building Finance Corporation, Services International Hotel, Lahore, Jinnah Convention Center, and First Women Bank Limited.
The privatization agenda also gets highlighted once there are controversies in the press. The reason such matters become controversies is that the ownership of the privatization agenda and disposal of such units is being decided in a fragmented manner. Despite having a full-time minister for privatization, the PTI government appointed the special assistant to prime minister overseas Pakistanis as head of the task force responsible for the disposal of the Roosevelt Hotel. The ministry of industries and production continues to mull over the disposal options for the Pakistan Steel Mills (PSM). However, after sometime the ministry of privatization informed that the government would retain the PSM and transaction structures for its revival would be announced.
For an economy carrying unprecedented debt levels, expediting privatization should be common sense. Disposing of such assets from the government books is not just about cost savings. In times of COVID-19 and liquidity crunch, we are looking at peer economies using privatization as a tool to attract much-needed foreign direct investment, new technologies, access to foreign expertise, better production, and quality standards.
Dr. Vaqar Ahmed
The Sarmaya-e-Pakistan Limited, a holding company for loss-making public sector enterprises and possibly also responsible for the disposal of some such entities, rests with the ministry of finance. After a delay of almost two years and insistence by parliament’s standing committees, a board of directors for Sarmaya-e-Pakistan has been constituted. Some unproductive properties, according to the privatization commission will now be parked with the Naya Pakistan Housing Scheme. Again, it is surprising that such intra-government transfer of assets should take place without scientific analysis and debate in parliament.
Perhaps it is due to the above mentioned fragmentation in the privatization agenda that very little (PKR 100 billion to be precise) is expected in the privatization receipts as per the Federal Budget 2020-21. For most entities now seen on the privatization list, the due diligence process has been completed and appointment of financial advisers has taken place several times in the recent past. It is therefore no surprise that the government is in no mood to embark on the disposal of some major entities contributing to the budget deficit.
The options related to transaction structures for the revival of PSM, Pakistan International Airline, Pakistan Railways and several other organizations continue to be in discussion for some time. A rudderless approach to privatization implies that the privatization board and cabinet committee on privatization has not been able to fulfill its fundamental commitment as per the terms of reference i.e. to formulate and implement a succinct privatization policy, and to ensure transparent processes in the light of privatization ordinance, public procurement regulatory authority rules and past court judgments.
For an economy carrying unprecedented debt levels, expediting privatization should be common sense. Disposing of such assets from the government books is not just about cost savings. In times of COVID-19 and liquidity crunch, we are looking at peer economies using privatization as a tool to attract much-needed foreign direct investment, new technologies, access to foreign expertise, better production, and quality standards. Investors taking over such assets are not necessarily opposed to retaining staff already employed unless the existing recruits do not even fulfill the basic job description for these industries or are found in the position based upon their past political loyalties.
Equally important is to align privatization policy with investment promotion measures of the federal and provincial boards of investment. Unfortunately, in this case too investment laws and policy are at variance, making it difficult to navigate through Pakistan’s investment ecosystem. The experience of Shanghai Electric Company in Pakistan indicates that regulatory approvals could frustrate foreign buyers. The government could in the future engage its Chinese counterparts as part of cooperation under CPEC, and Beijing could help in injecting much needed equity and capacity and making some of the public sector enterprises viable at least up to a point where they become attractive for Chinese or non-China private investors.
In January this year, the privatization commission had revealed that investors from the United Arab Emirates, Saudi Arabia, and Qatar had shown interest in select assets. Little is known if there was any follow-up on these leads. There is also no learning mechanism whereby the government authorities go to investors who visited and then decided against investing in Pakistan, even though one can immensely learn from their feedback and devise remedial measures.
- Dr. Vaqar Ahmed is joint executive director at the Sustainable Development Policy Institute (SDPI). He has served as an adviser to the UN Development Programme (UNDP) and has undertaken assignments with the Asian Development Bank, the World Bank, and the Finance, Planning, and Commerce Ministries in Pakistan.