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Why to sell family silver?

Published on 20th Oct, Edition 42, 2014

 

Since beginning of privatization process, the successive governments have successfully sold out a large number of public sector entities and also divested government holdings but a question often arises, why the government is selling its stake in profit making entities and still holding loss making entities? There will always be buyers for good performing entities, which are also a major source of income for the government. Top of the list entities should be those which swallow nearly half a trillion rupees every year. Experts are of the opinion that these entities should be sold on ‘as is where is’. The basis of valuation should be replacement value because the worth of landholding of these entities runs into billions of rupees.

Over the years, governments have been injecting billions of rupees into entities like PIA, Pakistan Steel, WAPDA, Gencos and Discos to keep these afloat, else these entities are virtually bankrupt. It may be correct to say the governments, both elected and dictatorial, should be held responsible for the delinquency of these entities. The reasons for this accusation are: 1) appointment of incompetent, inefficient and corrupt people in these organizations, 2) failure to undertake proper maintenance, BMR and expansion, 3) delayed as well as faulty decision making. All these factor lead to huge accumulated losses, liquidity crunch, failure to procure raw material and other supplies. Plants worked far below optimum capacity utilization.

One of the examples of faulty and delayed decision making is conversion of power wing of WAPDA into corporatize entities for ultimate sale. The decision was taken nearly two decades ago but neither of the corporatized entities could be privatized, only because no one is willing to buy loss making entities. A few distribution companies do work efficiently but privatization is being opposed from within. The delay in privatization is because labor unions, mostly working under the patronage of political parties, are against privatization. These unions know very well that once these entities are privatized, the first step the strategic buyer would take will be massive retrenchment, especially of those who don’t perform their duty.

Strategic buyer of K-Electric soon after privatization faced this situation. Keeping in view the generation capacity, nearly half of the employees are surplus and must be gotten rid off. However, the government is not allowing this because of potential fallout. The buyers face a tough time because they, under the political pressure also appointed many people on fabulous salary. The reason put forward for the appointment of these people was ‘improving management’, which was only an eye wash. No rocket science is required to improve operation of K-Electric. The steps can be stated as 1) containing pilferage and 2) improving recovery. To accomplish both the company needs help of government, which is not there.

 

Both PIA and Pakistan Steel suffer from over employment, inefficiencies, corruption and embezzlements. Fare charged by PIA is fabulous but service is pathetic. Pakistan Steels does not have money to buy raw material and its prime quality products are being sold as scrap by the corrupt officials. Since the cash flow does not support day-to-day operations the management keeps on asking for bailout plans, which add to debt but fail to improve operations.

Over the years, the successive governments have been talking about public-private partnership but have not been able to come up even one role model. It is worth mentioning that in the past PIDC establish many projects under public-private partnership and successfully transferred these to private sector. As against this, two sugar plants establish under public sector had to be sold out after incurring huge losses. National Fibre, a polyester unit operating in public sector was privatized but soon closed and its machinery was sold as scrap. It is one of the worst examples of privatization because the all the employees were rendered jobless, though the buyers made millions of rupees.

It has been said repeatedly that the government should list all the SoEs on local stock exchanges, slowly divest its holding and reinvest it to make these units profitable. During the era of Pervez Musharraf and Shaukat Aziz shares of SoEs were sold under ‘Privatization for People’ program. This on one hand allowed the government to retain the control and continue to earn dividend and on the other hand let the public own shares of profit making entities. The recent sale of UBL and PPL shares also yielded good money to the government.

However, PTI is trying to sabotage secondary public offer of OGDC shares. PTI stance look absurd on two ground 1) it is part of ruling regime and opposing federal government decision creates very odd position and 2) the sale will not lead to change in management or transfer of management. PTI should play the role of watchdog and not the game spoiler. It should force the PML-N government to get the SoEs listed on the local stock exchanges and make these release annual accounts in time. Public Accounts Committee should also be forced to keep a vigilant eye.

The aim of privatization should not be creation of monopolies or oligopolies in the private sector. All the political parties should ensure that taxpayers’ money is not misused. Accountability should be stringent and there should be no room for complacency. Even the loss making SoEs can be turned around through focused actions. Hike in electricity and gas tariffs can’t make utilities profitable unless cash flow is improved.

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