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uk July 07,2013
Introduction Privatisation : Concept & Need Modes of Privatisation Privatisation Process Functions of Privatisation Commission Privatisation in Pakistan Prospects & Challenges Way Forward Q&A
Privatisation-not a new phenomenon in Pakistan 1960s-privatised factories built by the state to the private sector at nominal prices to enhance its role 1970s-reversal of the policy, wholesale nationalisation 1980s-denationalisation of the enterprises
80 to 100% state owned enterprises in the different sectors have been handed over to private sector
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. a transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person (entity) from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the Federal Government.
Generally the state has one or more of the following objectives of privatisation ; 1.Strengthening of private sector. This was the motive behind the first generation of privatisation carried out in Pakistan in 1960s when the state built factories in strategic sectors and handed them over, at very nominal rates, to the businessmen who were reluctant to invest in these sectors due to paucity of requisite resources at their disposal and high risks involved. 2. Improving the efficiency and service delivery of the SOEs, whether profitable or not, by bringing in the incentive and reward mechanism of the private sector who would inject capital, technology and better management practices. Pakistan privatised bulk of its SOEs in the second generation privatisation carried out in the 1980s and 1990s.
3.Eliminating/reducing the huge state subsidies being given to those SOEs which are continuously incurring losses but they cannot be closed because of social welfare considerations or their strategic nature even though better alternatives are now available in the private sector. This is the philosophy behind the third generation of privatisation in Pakistan in 2000s and it is still being done under Public, Private Partnership (PPP).Here at least 26 % of the shares with management control of an SOE are given to a strategic investor who injects capital and improves the management
4.Raising funds in the local and global capital market by divesting shares of the profitable SOEs. This is resorted to when the state needs cash and starts selling shares of its blue chip SOEs in the global market or locally.
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Established as a body corporate by the promulgation of Privatisation Commission Ordinance 2000 by the President of Pakistan The Commission is governed and administered by a nine (09) member Board with Minister for Privatisation as Chairman The Board is independent, autonomous and is dominated by the members from Private Sector
Recommending privatisation policy guidelines to the Cabinet; Preparing comprehensive privatisation programme;
Planning, managing, implementing and controlling the privatisation programme approved by the Cabinet;
Taking operational decisions on matters pertaining to privatisation, restructuring, deregulation and regulatory issues.
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Proposing regulatory framework, including the establishment and strengthening of regulatory authorities; Advising the Federal Government in selection and appointment of the head and members of a regulatory authority;
Advising measures to the Federal Government for improvement of public sector units till their privatisation;
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Assisting in the implementation of Federal Government policies on deregulation and privatization and advise the Federal Government on deregulation of the economy;
Performing any other function that is incidental or ancillary to carry out the privatisation programme approved by the Cabinet.
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Outright sale of assets and business through open auction Partial sale of shares through public auction or tender Public offering of shares through a stock exchange Management or employee buyouts
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Approval of Council of Common Interest (CCI). Cabinet Committee on Privatisation (CCoP) decision to privatise an entity
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Approval of valuation (reference price) by CCOP Bidding process (media invited to observe bidding) Approval of bidding results by PC Board and CCOP Issuance of Letter of Intent to successful bidder Finalization of sale agreement between PC and Buyer Handing over of the entity
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Privatisation in Pakistan
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1960s
Objective Strategy
1990s
Objective
Strategy
2000s
Objective
Strategy
Most successful privatisation program in South Asia, Central Asia and the Middle East Over $ 9 billion proceeds (Rs. 476,421 million)
Banking industry privatised substantially due to which 80% of the banking sector is under private ownership.
Convenient availability of better goods and services at affordable prices to the general public Increased tax revenue to the state exchequer in the form of corporate taxes Dividend yields to the public as well as the state which still holds substantial share holding in these entities
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Fiscal space for social sectors and infrastructure development resulting in employment generation and poverty reduction
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No of transactions 7 22 14
Telecoms
Automobiles Cements Chemical/fertilizer Engineering Ghee mills Rice and roti plants Textiles Newspapers
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7 17 23 7 24 23 4 5
187.36
1.10 16.18 41.92 0.18 0.84 0.32 0.37 0.27
Tourism
Others Total
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6 167
1.81
0.16 476.42
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Coming into power of a private sector friendly regime IMF conditionality in case of bailout Broad spectrum consensus on need and benefit of privatisation/ deregulation Robust private sector to take on big SOEs Comprehensive legal framework available Experience of 2 decades of successful privatisation
Domestic and International financial crisis Huge losses of SOEs-how to attract investors Share values of many likely transactions at all time low Managing public interest in industries with social
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Strong elite commitment for privaisation at the political and bureaucratic level in the form of policy formulation Translation of this commitment into vision and missionwhat, why, how and when to privatise i.e. loss reduction and efficiency improvement as basic objectives of privatisation Scientific structuring of the privatisation deals by looking at the cash-flow statements rather than assets of the concern
Strategic sale and PPP with management control should be the main course of action while safeguarding the interest of employees and the consumers
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Awareness campaign to inform the public about the entity to be privatised-why we are doing it
Sale of certain percentage of shares to the general public to create ownership Corporatisation of the components of the large entities to generate maximum competition Transparency to be the cornerstone of the privatisation process by strengthening the regulatory framework.
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Financial Institutions-Banks, Insurance companies Energy-Electricity Distribution Companies (DISCOs), Electricity Generation Companies (GENCOs), Oil & Gas Development Company (OGDCL), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO) Infrastructure-Pakistan Railways, Port Qasim Authority (PQA),Karachi Port Trust (KPT),Pakistan Steel Mills (PSMC)
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1 2 3 4 5
6 7 8 9
Oil & Gas Development Company Limited Pakistan Petroleum Limited Heavy Electrical Complex National Power Construction Company Peshawar Electric Supply Company (PESCO)
Quetta Electric Supply Company (QESCO) Hyderabad Electric Supply Company (HESCO) National Power Construction Corporation (NPCC) Faisalabad Electric supply Company (FESCO) Jamshoro Power Company Limited (JPCL) Pakistan Mineral Development Corporation (PMDC)
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11
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Thanks
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