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It is alleged that some transactions are completed in haste?
How do the pre-qualified bidders form consortia and is it acceptable according to the procedure?
What is the rationale for the privatisation program of the Government?
What specific measures are required to boost investor’s confidence in Pakistan?
This is a matter of perception only. It is not so. Any business has two
kinds of assets – core assets that are part of the business and non-core
assets that are not directly utilized as part of core operation and hence can
be treated surplus assets. The asset valuation of core assets is reflected in
the cash flow of the companies and are therefore not added separately to the
value. The non-core assets are not reflected in the cash flows therefore
valuation of the non-core assets is done separately and added to the DCF
method. This methodology of adding non-core assets value has been followed in
some transactions.
The privatisation program as a whole, require injecting new investment,
introducing better management, introducing or improving the technology,
improving competitiveness, and thus leaving more funds with the company. This
in turn, is likely to result in increased employment opportunities.
While some privatisations will generate net employment as a result of
expanding production or services, employment in many privatised entities may
decrease after privatisation. This is because state owned enterprises often
have many more employees than needed for efficient operation of the company.
This implies that either taxpayers end up subsidizing their salaries or
consumers pay for it through higher prices.
The laid-off workers are given generous severance packages that can be used to
start business or obtain training to help them prepare for a new job.
Worldwide experience has demonstrated private companies to be more
efficient than public ones. Liberal incentives coupled with accountability in
the private sector result in greater efficiency. However, even with improved
efficiency some private companies will go bankrupt while some private managers
may also be corrupt. The big difference is that the loss is borne mainly by
its private shareholders, rather than by the taxpayers.
A better question to ask is who is responsible if the public sector entity
is not privatised? Who is accountable for delaying the privatisation of UBL as
it required Rs 21 billion equity injection in 1998 and an additional Rs 8
billion in 2002? Who is responsible for delaying the privatisation of PTCL as
its value today is roughly one-quarter of what it once was, while its services
and coverage during this period were inadequate? Who is responsible for
picking up losses of WAPDA or KESC and for putting up with power shutdowns
that hamper businesses and Industrial Activity and cause huge hardships to
households? While actions leading to privatisation are questioned, the costs
associated with inaction in privatisation matters or decisions not to
privatise are often enormous. It is rather unfortunate that such inactions /
indecisions are rarely challenged or questioned.
Our long-term vision is a government that focuses on good governance and
regulation, while fostering conditions that provide incentives for the private
sector to invest in providing goods and services efficiently. Direct
participation of the Government in commercial activities should progressively
be reduced. In this regard the Government should focus on two broad areas.
First, good governance and creating an environment that encourages investment
while at the same time, safeguards the public interest through an effective
regulatory framework especially in key areas such as power, telecommunication,
oil & gas and transport sectors. Second, helping to create an adequate
physical and technological infrastructure required for the speedy economic
development of Pakistan’s rapidly growing population. Accordingly,
privatisation is a matter of principled ideology rather than a matter of
expediency.
The Government does not differentiate between specific transactions as loss
making or profit making when mapping its privatisation program.
Notwithstanding the above, it is also wrong to say that the Privatisation
Program is focused on profitable units and not loss making units. There are
many units like Karachi Electric Supply Company, which were loss making and
dependent upon Government’s subsidies and assistance for their continued
survival.
Also while some of the companies on the privatisation program may be currently
profitable, this is not surprising given that they are operating in a monopoly
environment and /or in an era of attractive prices. In fact, some of these
companies have failed to provide services demanded by consumers at reasonable
cost and failed to live up to their potential in terms of the level of
production and profits. Privatisation, when accompanied by the transfer of
management control and prudent regulation, can change this scenario. It can
overcome constraints brought about by bureaucratic and political interference.
It can provide an impetus to deregulation and competition, reduce
cross-subsidies, bring in new management and capital, and facilitate the
introduction of new technology. It can also strengthen availability of public
finances by reducing losses and enhancing taxes from increased profits.
Privatisation would also send a strong signal to investors of the Government’s
faith in the private sector to generate economic growth and productive
employment. International investors, in particular, view Privatisation as a
principal proxy of the seriousness of a government's reform program. An
improved business climate would bring in new investment, potentially reversing
the capital flight that has occurred in recent years.
Efficient enterprises providing enhanced quality and quantity of goods and
services, safeguard the security and national interests of the country more
effectively than inefficient and loss-making public enterprises.
Our long-term vision is a government that focuses on good governance and
regulation, while fostering conditions that provide incentives for the private
sector to invest in providing goods and services efficiently. This would
generate employment, which is necessary to reduce poverty. In short, the
Government believes that it has no business being in business. The
Privatisation Commission helps to put business into the right hands while
freeing the Government to focus on such matters as ensuring law and order and
making sure that the enabling framework is conducive to investment while being
fair to consumers and the taxpayers.
The privatisation program is expected to continue to play an important part in
further stimulating the economic development through increased capital
formation, widespread ownership of the privatised assets and reduction in the
burden of subsidies. Direct participation of the Government in commercial
activities should thus be progressively reduced.
The Government’s primary focus should be to provide good governance and
building an enabling environment for investments and economic growth. In this
regard, the Government should focus on providing a level playing field to all
investors; ensure continuity and consistency of policy and establishment of
the requisite fiscal, regulatory framework to protect the investor and
consumer interests.
Privatization is a complex and demanding reform, and every stage requires
utmost transparency and high level of managerial, financial and technical
expertise. Furthermore, the Privatisation process is dependent upon a lot of
external factors such as a stable regional situation, international market
trends and investor interests.
The focus of the Privatisation program in Pakistan has shifted from the
Privatisation of the more straightforward industrial transactions to those
involving the transfer of management control in services such as banking,
transport, and utilities. These require sensitive decisions on pricing,
restructuring and rightsizing. As such a lot of preparatory work needs to be
done in the form of improving the enabling environment and establishing and
strengthening regulatory framework.
While it is the endeavour of the Privatisation Commission to shorten the time
of Privatisation process, it has to ensure that all national and strategic
interests are protected before the Privatisation. These interests will not be
sacrificed for the sake of mere expediency.
The privatisation program as a whole, require injecting new investment,
introducing better management, introducing or improving the technology,
improving competitiveness, and thus leaving more funds with the company. This
in turn, is likely to result in increased employment opportunities.
While some privatisations will generate net employment as a result of
expanding production or services, employment in many privatised entities may
decrease after privatisation. This is because state owned enterprises often
have many more employees than needed for efficient operation of the company.
This implies that either taxpayers end up subsidizing their salaries or
consumers pay for it through higher prices.
The laid-off workers are given generous severance packages that can be used to
start business or obtain training to help them prepare for a new job.
Remarkably, each of the governments in power since 1988 has made
privatisation the cornerstone of their economic program. Privatisation is very
much a home grown program developed in response to the dismal performance of
public enterprises.
It should be remembered that privatisation was and continues to remain an
important part of the economic reform process followed by successive
governments. It is expected that this process would continue to enjoy support
from all sides of the political spectrum.
Continuity and consistency of policies, development of an enabling
environment for the investors and a demonstrable government commitment to
ensure reform.