Like other ventures in the country, the privatisation of state owned enterprises runs into controversies. The policy makers of the time and political parties outside the ruling sphere share responsibility for aborting the divestment bids. While the opposition parties do what they have to, the governments adopt hasty, half-backed and flawed approaches that provide detractors more reasons to make their point. Meanwhile, the bailouts dished to larger PSEs have been costing a lot to the exchequer. The privatisation of mostly overstaffed SOEs with half a million workers cannot be delayed anymore as these entities have accumulated staggering losses of Rs1.3 trillion.
Not to privatise is not an option in an era of private sector-led economic growth. The private sector organisations cannot compete with public entities owing to availability of resources with the government as compared to private sector and hence distortions in the system occur. In Pakistan the precedents of privatisation of banking and telecom sectors reveal that their divestment made all stakeholders happy. These stakeholders include customers, employees, investors and the government.
PTCL is often mentioned as a failure whereas its sale in 2006 was well timed in the context of technological shift taking place in those days. Again in terms sale of shares, the organisation stood to gain. Often argument is made that the SOEs like OGDCL should not be privatised as these are running in profit. But while these organisations might be performing better than PIA or Railways, these are still far below optimal performance.
The phased and prioritised privatisation is at the heart of current government’s economic agenda as it vows to do anything to attract investment and upscale country’s ranking in index of doing business ease. Privatisation is a pressing need due to government’s programme of reducing dependence on foreign debts and doing away with subsidies to public sector entities.
The Privatisation Commission has once again commenced the process with renewed vigour. It has slashed from the agenda large PSE’s like PIA, Steel Mills, Railways, Utility Stores Corporation, Civil Aviation Authority, and power distribution companies. The power related public sector organisations are said to be considered for other forms of privatisation. More focus will be put on strengthening their management and financial health before these could be considered for being put in private hands.
The prioritisation of entities under different phases and classification is a good beginning though such exercises were also done by former governments. Starting with small entities including SMEs, First Women Bank and National Insurance Company, the government plans to privatise eleven entities on short-term, twelve entities on medium-term and remaining eleven on long-term basis.
The PTI government has certain pluses that can help it in its privatisation drive. The current government has immense threshold to take tough decisions as the masses in hope for a better turnaround are resigned to swallow bitter pills. The maiden experience of ruling the country without past baggage places the government in an advantageous position. The major component of opposition, PML (N) has been a staunch supporter of privatisation. The only criticism will come from Pakistan Peoples’ Party which has been raising the issue of employees’ rights. But the government may take them into confidence by showing its serious intent to adopt internationally agreed mechanisms to deal with this issue. It is believed that people-centric and anti-corruption profile of the government would lend sufficient credibility in ensuring transparency and accountability in the privatisation process.
The holding company by the name of ‘Surmaya Pakistan Company’ (SPC) may be a slippery slope. The proposed corpus that replicates Malaysia’s Khazanah Nasional Berhad (KNB) was previously rejected by Ministry of Finance and State Bank of Pakistan who termed the proposal as “highly risky and politically controversial”. Such funds deliver where there are exchange surpluses whereas we are confronted with depleting reserves and yawning deficits. The operating of SPC alongside financing and managing the sick units would pose a tough challenge. Holding company may not deliver if it is used only to clean balance sheets of SOEs and parking their debts into the fund.
Without efficient governing and regulatory mechanism, the issues of transparency in an environment of political suspicion could plague the initiative, how well-meant it might be. Just see how KNB was hit by scandals. It is feared that SPC’s failure could lead to collapse of all SOEs, an upheaval too huge to be absorbed by our economy.
The Privatisation Commission should initiate a study in the reasons of past successes and failures. The Commission may learn from best practices followed in other developing countries. In the banking sector, the privatisation of MCB presents the most eminent instance of success. A study published by German research foundation, Friedrich Ebert Stiftung found that as compared with other public enterprises that were privatised “MCB had more employees after privatisation.” The Bank’s employee strength has swelled almost three times since 1991 when it was privatised. Over the years, it has developed ethical work methodologies and an employee-friendly environment.
MCB has received several accolades from national and international organisations including the highest category rating by Pakistan Credit Rating Agency. The Bank is a leader by the standard of market capitalisation and the biggest taxpayer among all banks. During the past 27 years, its fiscal performance has attracted investments from within the industry and abroad. Owing to its outstanding performance, MCB was recognized as the “Strongest Bank in Pakistan” in 2017 by the Asian Banker, a Singapore-based financial services organisation.
There are instances of successful privatisation in the region. India is going for big-ticket divestments including sale of blue chip state firms like national carrier, Air India. The plan is to sell Air India’s subsidiaries to reduce debt burden before handing it over to private sector. This is something we can also do in regard to sale of large enterprises by breaking them into competitive units, bringing in efficient managers, and settling previous liabilities. Another example in India is that of power sector’s privatisation whose transmission losses came down to 8% from 58% following divestment. The privatisation of energy sector in India has led to better consumer service, transparent metering and efficient resolution of consumers’ complaints. We can also learn from China’s experience as it played a dominant role in privatisation from 2009 to 2015.
There is a need to look at privatisation for its own sake rather than as a condition imposed by IMF. The common knowledge is that the pressure from Monetary Fund is the prime reason behind the privatisation attempts, and once a bailout package is received the privatisation process loses steam. Financial pressures notwithstanding, the government must not show itself in tearing haste as this approach will give less time for proper planning and creating socio-political consensus.
As the criticism mainly originates from the issue of employees’ rights, the government will have to focus on this aspect that has previously hindered efforts to privatise large public enterprises like PIA. Efforts will have to be made to craft a strategy to secure workers’ support by engaging them in the process, sharing privatisation gains with them, compensating laid-off workers and helping them reintegrate into the labour market. In a country like ours where unemployment reigns supreme and labour market reforms are scarce, the government will have to do sufficient homework to mitigate the impact of privatisation on work force at least in the short term.
Successful privatisation depends on pre-requisites including a market-friendly environment to build investors’ confidence. Whatever the modalities adopted, the end objective must be privatisation of all public sector enterprises small or large on short, medium and long term basis. On its part, the media while suggesting to the government careful pre- and post-privatisation strategies should also educate the public about putting up with transient tremors in order to glean dividends of the process.
