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By Zameer Haider
ISLAMABAD: The government is committed to ensuring transparency in its privatisation process and will provide a level playing field for all potential investors who express interest in entities offered for privatisation, Minister for Privatisation and Privatisation Commission Chairman Altaf Saleem said in an interview with Daily Times on Saturday.
Following are excerpts of the interview.
Daily Times: The privatisation commission is running behind its schedule. Is it because investors have shied away due to a poor law and order situation in the country?
Altaf Saleem: We have said on record that delays set in after 11th September due to travel restrictions on potential investors and uncertainty in the region. We had estimated that the process was set back about six months. Subsequent to that, however, 13th of December happened, then the Church incident in Islamabad followed and now there is the suicide bombing in Karachi. Nonetheless, all these incidents haven’t really had any significant impact on our programme so far. Before these incidents, we had targeted for bidding one major oil and gas transaction by 16th April for which we did receive a good response -- against our best estimates of about $180 million approved by the government of Pakistan we received a price offer of $188 million. Now we have a number of big and small transactions targeted for May end and in the first three weeks of June. So far we have not received any request from prospective bidders to extend the date as a result of any reasons relating to law and order etc.
Prior to that, we did go well with smaller transactions like two ghee mills. We also went ahead with the bidding for National Power Construction Company in which both foreign and local investors participated. All these transactions show these “law and order” incidents have not adversely affected us so far.
DT: Successive governments have been giving schedules for divestment of PTCL but nothing concrete has come out so far. What is the schedule now and what has the present government done in this regard?
AS: We have done more than make mere claims about this exercise. When you say you are going to privatise an entity, a number of steps should follow. Previously when it was said that PTCL will be privatized, all such steps were not taken by earlier governments. For example, not even the Telecom rules were notified. How can you expect a bidder to come and bid for a company for which the government does not have proper rules in place? So this was the first step to be taken and we have notified the rules. In fact, this is the first government which actually took the transaction to the market - advertised, invited Expressions of Interest, etc. This process was set in motion prior to September 11, and more than half a dozen investors expressed interest. Meanwhile, two things happened simultaneously in the international market. First, leading telecom companies all over the world went into a tailspin. They suffered heavy losses and started concentrating on consolidation instead of looking for investment to acquire other companies all over the world. In other words, they went into a phase of consolidation. Second, the 9/11 incident shook the confidence of western and North American investors. As a result of this some of the companies which had expressed interest in PTCL withdrew.
Therefore we thought it was appropriate to invite fresh Expressions of Interest after some of the dust had settled down and this is precisely what we did. Three players have now shown interest and we are in the process of evaluating them to pre-qualify. Once they are pre-qualified we will set the process in motion on taking the transaction finally to the bidding stage by August this year.
DT: Is the government inclined to support a particular group from the Middle East which is interested in buying Pakistan Telecommunication Company Limited (PTCL).
AS: We have advertised it in newspapers and anyone interested can file its interest. Nobody is stopping anybody from filing an expression of interest. Please let me know if the government of Pakistan has stopped anyone from filing an expression of interest. We were looking for people who would file their Expressions of Interest - and we have advertised extensively in Pakistan and out of Pakistan that this is an opportunity available to all investors. Whoever wants to invest, please come in and file your expression of interest, we said. We have a pre-qualification criterion that is fixed by the government of Pakistan in consultation with their technical advisors and with the consent of all concerned ministries.
And whoever fits into this pre-qualification criterion is entitled to go and bid for the entity. Right now I have no idea who will fit and who will not.
DT: In view of the post 9/11 situation and the aggravating law and order situation, why don’t you delay divestment of PTCL for some time more in order to get a better price when the situation improves?
AS: The government of Pakistan sold 12 per cent of PTCL shares for $ 900 million a few years ago, and even then it was said that the government should have waited for the some time to fetch better price. The share which was at Rs 65 then is around Rs 17 today. We think the right way to go about it is that we should have an independent evaluation of the price of the Company - considering all factors - and then go for bidding by pre-qualified bidders and if we get the price that we think is reasonable we should go ahead with the transaction. And if we think that we are not getting a reasonable price we should wait - but without going through the process you will never know what price it can fetch.
DT: How is the government planning to divest the shares of United Bank Limited? What has the government done with the bad loans made to certain UAE investors by UBL?
AS: We had two options - we could have sold UBL “as is” and left the right of the recovery of loans made to the UAE investors with the new buyer of the Bank. But if we had done so, one of the three bidders who is from the UAE would have had an advantage over the other two because he would have been in a better position to recover the bad loan than the non-UAE bidders with less clout in the UAE. This is on the realistic assumption that all the three bidders would have discounted those loans to zero in their bid offer to start with because these loans had remained un-recovered for the last 22 years. Thus the government would have gotten zero value for these receivables. But if after privatisation the winning bidder was able to recover this loan, he would have reaped a great advantage. In short the government would have gotten zero value and any amount subsequently recovered would have fallen in the hands of the new buyers for free. Therefore we opted for the second option - which was that the government has retained the right of the recovery of loans and parked it in the CIRC. The CIRC is a specialized recovery of bad loans organization. We believe the CIRC will make much better and more concerted efforts that UBL in the last 15 years to recover such bad debts. As a result of these efforts, the chances of recovery will be more than they were with the UBL. If and when these loans are recovered, the benefit will fall in government hands. Thus we have already created a level playing field for the potential bidders and safeguarded Pakistan’s future interests as well.
DT: What is the schedule for the major transaction in the financial sector?
AS: The target of UBL’s privatisation is the 31st of May and that of Habib Bank Limited is end-September this year. After privatizing these two banks the financial sector, which is 92 per cent with the government of Pakistan right now, will move into the hands of the private sector. This is a major shift and nowhere in the world has such a major shift ever taken place in so short a time.
DT: The World Bank and the IMF have expressed serious concern over the draining of resources in public sector enterprises and they had stressed rapid privatisation of these entities with special emphasis on the power sector. What has the privatisation Commission up its sleeve in this regard?
AS: We have taken major steps in the power sector and if you look at it - in the last 10 years no distribution company was brought to the point of sale. We have started the marketing efforts of KESC and an investor’s conference is fixed in Karachi for May 30. We already have two EsOI and we are moving fast to bring this entity to the point of sale. The actual results will be visible after we see how much interest is shown by potential investors. The government has done its part. Similarly, work is progressing on the Faisalabad Electric Supply Corporation which is likely to be privatized in the last quarter of the current year. And simultaneously, we are working on the disinvestment of Jamshoro Power Project, which is a power generation company. I think with these three transactions in the power sector, there will be sufficient progress in this area.
DT: There has been much criticism on the price that the PC received for the nine oil fields it offered. International oil prices were much higher at that time, so we should have got better prices.
AS: We received $ 3.17 per barrel, which is higher than the Asian average. This can be checked from any international publication. Tell me of any transaction that has been sold and there was no criticism about the price obtained. Experts who calculated the estimates for us are amongst the top three oil experts in the world. They took one year to arrive at a price.
Then there are those “experts” who took one day and that too without even
visiting the sites to argue that the price should have been higher. There is no standard formula for calculating the price of an asset which is under the ground. The international prices of oil actually reflect the price of oil upon sale after it has been delivered to the buyer and after people have taken their margins, profits, etc. The price of the oil which is underground also has to account for price fluctuations over several years. There is a track record available of all transactions done in this area and then their world average is published. The Asian average is much lower than what we got.
DT: Why the government did not go for the market price at the time of divesting 10 per cent shares of National Bank of Pakistan?
AS: What we have done is that the government intentionally decided to transfer the benefits of the privatisation to the smallest shareholders.
We had a restriction of 1000 shares per individual, which means anybody who had invested 10,000 rupees would have got NBP shares. Any benefit that has come has gone to these deserving individuals and not to rich people.
So the government knowingly priced the share at Rs 10 per share and tried to pass on the benefit to 20,000 people. We have done it intentionally and we think we have done the right thing. In the second tranche, we will have a higher price, since the government always had the opportunity to make money on the remaining 90 per cent shares. The next tranche would be priced on the basis of a combination of market price and other considerations. The second tranche will also be of 5 per cent shares with a Green Shoe option of another 5 per cent shares depending on the response from the market.
DT: What is the general response of domestic and international investors in the post 9/11 situation, especially in the case of the privatization of the larger entities?
AS: The marketing of the larger entities had just started in April. It will take one or two months to get some feedback. I think the response to the soft marketing is reasonably good. Furthermore, the reason for a good response is the improved macro-economic situation -- like improved foreign exchange reserves, low inflation, currency is stable, and reforms have started showing results too.