Two years on, and there is no substantive progress on the privatisation of the identified state-owned enterprises (SOEs), whereas focus remains on auction of government-owned properties only. In spite of repeated claims, nothing concrete has been done by the government to reform or restructure strategic units like Pakistan Steel Mills that remains inoperative since June 2015. In the process of privatisation without restructuring, these industrial units will further deteriorate in coming times, as seen in the past. Since privatisation plans were adopted by the present government in October 2018, it was only last month that the proposed transaction structure of one industrial unit, namely Heavy Electrical Complex (a company of the State Engineering Corporation), was finalised and okayed by the Board of the Privatisation Commission. Nonetheless, the Cabinet Committee on Privatisation (CCOP) and the Federal Cabinet have yet to approve the transaction structure of HEC and divestment of 96.6 percent government shares for further processing of privatisation. Unfortunately, various attempts for divestment of this strategic SOE were made during the past two decades, but all failed. HEC as an operational entity, was first put up for sale in 1997. Later, it was offered to a strategic foreign partner to own and manage. Again, in 2011 the private sector was offered 96 percent shares along management control. The SOE was put on divestment list again in 2016 under the Public-Private Partnership (PPP) mode.
Two years on, and there is no substantive progress on the privatisation of the identified state-owned enterprises (SOEs), whereas focus remains on auction of government-owned properties only. In spite of repeated claims, nothing concrete has been done by the government to reform or restructure strategic units like Pakistan Steel Mills that remains inoperative since June 2015. In the process of privatisation without restructuring, these industrial units will further deteriorate in coming times, as seen in the past. Since privatisation plans were adopted by the present government in October 2018, it was only last month that the proposed transaction structure of one industrial unit, namely Heavy Electrical Complex (a company of the State Engineering Corporation), was finalised and okayed by the Board of the Privatisation Commission. Nonetheless, the Cabinet Committee on Privatisation (CCOP) and the Federal Cabinet have yet to approve the transaction structure of HEC and divestment of 96.6 percent government shares for further processing of privatisation. Unfortunately, various attempts for divestment of this strategic SOE were made during the past two decades, but all failed. HEC as an operational entity, was first put up for sale in 1997. Later, it was offered to a strategic foreign partner to own and manage. Again, in 2011 the private sector was offered 96 percent shares along management control. The SOE was put on divestment list again in 2016 under the Public-Private Partnership (PPP) mode.
These unsuccessful attempts to privatise the HEC adversely impacted the company’s operational and financial performance. Somehow, the PC has neither learnt from past mistakes, nor seems to have the wisdom or vision to effectively implement its policies. During these years, the PC was asked by various forums, including the Ministry of Industries and Production and the National Assembly Committee on Industries and Production to delist HEC from divestment but to no avail. Globally, such high-tech industries are considered to be of significant strategic importance. Private sector will only be interested in the valuable real estate of the HEC, and the strategic manufacturing capabilities of HEC will be lost, as in many other cases of privatised SOEs.
Pakistan once used to have a policy of self-reliance. In 1967, it was decided to create domestic capacity and capability for manufacturing of critical high-voltage electrical equipment required for the growing energy sector. The HEC was thus established, initially for manufacturing of power transformers. Pakistan Switchgear Ltd (PSL), originally a fuse-gear manufacturing factory at Lahore under the then English Electric Co of the UK, was purchased by the Pakistan Industrial Development Corporation (PIDC) from the private sector in 1975. PSL was thus established in 1976 with 100 percent government ownership to produce low-tension fuse-gear and switchgear, control and protection panels, medium and high voltage switchgear, as well as electrical equipment for sugar, cement and textile industry. Since then PSL had supplied significant number of control and relay panels for 66kV and 132kV substations, and circuit breakers (132Kv) valuing millions of dollars to WAPDA. PSL was running profitably when it was privatised in June 1992, and predictably the factory remains closed ever since.
Power transformers, an essential part of today’s world economy, form a vital link in the power transmission and distribution systems. But globally very few countries have the capacity to manufacture this kind of equipment given the high capital cost, complexities of technology transfer and costly value-added inputs. For long, efforts were made to acquire state-of-the-art design and manufacturing facilities in the respective fields from western sources. The western sources remained reluctant to transfer such technology to HEC and at one stage, senior Chinese officials working at Heavy Mechanical Complex Taxila conveyed to Pakistani authorities clearly that it would be a waste of time to continue dialogue with the west in this regard. They predicted that Pakistan will eventually have to ask China for help, but by that time lots of opportunity would be lost, besides cost overrun. The prediction was prophetic. After almost two decades of wasted negotiations, the Chinese were finally approached and an agreement was signed for providing economic and technical assistance for the project.
A one of its kind facility in Pakistan, HEC boasted the largest domestic integrated facilities for design, engineering, production and testing procured from China, Germany and Switzerland. The complex has installed annual production capacity of 148 nos power transformers of size ranging from 6.3 MVA to 40 MVA for 132kV and 66kV electricity transmission systems, which is translated into factory’s total production capacity of 3,000 MVA per year. It was also planned to diversify HEC production programme in later years to include other grid station and substation equipment such as high-capacity step-down and step-up transformers, circuit breakers, disconnectors, isolators, current transformers, instrument transformers, lightning arrestors, power factor improvement panels, and other products. This required plant modification, technological improvement, acquisition and assimilation of advanced technology, and augmenting in-house testing facilities. All this could not be achieved for lack of government interest and the perpetual privatisation process.
Unfortunately, the project also suffered sabotage from its inception at the hands of vested interests of multinationals and their lobbyists in our own country. State self-reliance was never in the interest of the capitalist private sector. A single-product and single-customer project was approved by the Executive Committee of the National Economic Council (ECNEC) on February 13, 1986, and decided that WAPDA would sign a sale-purchase agreement for the HEC power transformers to ensure viability of the project. Subsequently, the agreement was signed in June 1987 under which WAPDA committed to “procure from HEC at least 85 percent of their requirements of power transformers or 70 percent of the HEC designed capacity, whichever is lower”, according to an agreed price formula.
In spite of legally binding and valid contract, WAPDA did not order a single power transformer from HEC. Instead, WAPDA continued to import power transformers against its full requirement for many years, on one pretext or the other. It was only in later years that HEC received limited orders from WAPDA and Karachi Electric Supply Co, and executed. Optimally, HEC could hardly achieve 30 percent capacity utilisation in any financial year, when it could earn profits also as its overheads were minimal. Still, the company is reportedly earning profits today, despite its low order-book and being on active privatisation list.
A strong base created for the development and progress of high voltage electrical equipment in the country was thus decimated due to tilted policies of successive governments, serving well the vested interests of the multinationals and the import mafia in Pakistan.
The writer is the retired chairman of State Engineering Corporation
