THE approval of the divestment of the government's 88pc shares in the National Power Construction Company by the Cabinet Committee on Privatisation last week can be read to signal the initiation of the next major drive towards privatisation. During the final bidding supervised by the Privatisation Commission (PC), Saudi company Mansour Al Mosaid emerged as the winner out of three companies with its highest offer of Rs1,420 per share, valuing the deal at Rs2.49bn. The offer was 26.9pc higher than the cabinet committee's approved reference price of Rs1,119 per share.
The government divested its holding of 1.76m shares, while the remaining 12pc of the company's stock (240,000 shares) is owned by the NPCC Employees Empowerment Trust under the Benazir Employees Stock Option Scheme.
We understand the sensitivities, but the government can no longer afford to let scarce public resources bleed - PC Chairman Mohammad Zubair The other two participants had quoted much lower prices. The Habib Rafiq Construction Company and the Frontier Works Organisation ( FWO) had offered Rs925 per share, and the Zahir Khan Construction Company had offered Rs344.50 per share. The process is scheduled to be completed in 45 days from the day of the acceptance of the bid, confirmed the PC.
Privatisation Commission Chairman Mohammad Zubair dismissed his political opponents' arguments against what he termed ' a winning deal' as populist rhetoric.
"The accusation that we sold the NPCC cheap is preposterous. The price we got was better than our expectation. The floor price worked out by the consortium of financial advisors was Rs975 per share, which would have raised Rs1.7bn ($17m). It was worked up by the board of the PC to Rs1,075 to fetch Rs1.9bn ($18.5m). It was jacked up again by the Cabinet Committee on Privatisation to Rs1,119 per share, which would have raised Rs2bn ($19.5m). The accepted bid was higher by 27pc. Can someone explain how this was cheap?" he commented over phone from Islamabad.
When his attention was drawn to the Rs5bn projected asset base of the company, he pointed to the liabilities of about Rs3bn on the profit-making firm's balance sheet.
"It was a long-drawn, transparent process that involved recognised professionals. The price we got was better than the one assessed by the IMF. They had worked out $20m as a fair price, and we made the deal for $24 m. So, much of the opposition is just for the sake of opposition."
But he admitted that the path ahead for the PC when it putting biggies on the block is not going to be easy. "Desirable economic decisions are not known to be popular. We understand the sensitivities, but the government can no longer afford to let scarce public resources bleed. The correction has to be made and the Nawaz Sharif-led government has the will and the capacity to follow through on its commitment to put the country's economy back on the rails," he stated.
Over the past 25 years, two phases have been identified when the privatisation policy delivered in the country. The first PML-N government - inspired by the policies of Britain's Margaret Thatcher - crafted and implemented the privatisation policy of 1991-93. The then prime minister Nawaz Sharif presided over the denationalisation of the banking sector, starting with MCB Bank, and some other industries.
The second phase was guided by the Shaukat Aziz/General Musharraf government with the stated objective to minimise the role of the government in business, which was stated 'not to be a business of the government'. The KESC and the telecommunication giant PTCL were privatised, but the drive ended when the Supreme Court struck down the sale of Pakistan Steel Mills. Since 1991, around 115 big and small entities have been either fully privatised or some of the government's stakes in them divested, like the unloading of 10pc shares in SNGPL through the capital market.
Privatisation has been met with resistance in Pakistan because of alleged corruption and favouritism, perceived unfairness, concerns over layoffs in an environment of limited employment avenues, and the further benefiting of the privileged in an economy marred by huge wealth disparity.
In the absence of strong regulatory bodies to monitor the market, curb market manipulation, ensure competition, privatisation led to the rise of big tycoons with enormous assets, further widening the wealth gap and increasing general discontent.
Earlier privatisations had ushered in an explosion in the communication and telecom sector and transformed banks from loss-piling firms to some of the most profitable business entities in the country.
But the performance of K-Electric in terms of the quality of service has left the consumers highly dissatisfied. It is, therefore, not just the trade unions that have pledged to oppose the privatisation drive tooth and nail, but the opposition parties have also joined them. Even some liberal experts - known proponents of an unfettered market - have expressed reservations over the recent moves or the mode of privatisation. "Everyone knows what's the hurry. The IMF is breathing over the government's shoulder and Dar's team has given an undertaking on privatisation to get the Fund's money," said a PPP leader. PTI's Dr Arif Alvi was against the blanket privatisation of public assets. "One ought to be careful with valuable assets. I see no reason for the haste. My party is for slower and more deliberate privatisation," he said.
"Frankly, I am not particularly gung-ho on privatisation in general and am actively opposed to the idea of disposing off strategic assets such as PIA or the power distribution companies," said former finance minister Dr Hafiz Pasha.