Fifteen-year privatisation effort stalls in Pakistan

ISLAMABAD: Despite successive governments in Pakistan outlining privatisation plans to transfer state-owned entities into private ownership, no major transactions have been completed in the past 15 years. This stagnation persists despite the substantial public funds spent on hiring financial advisers, experts, and other arrangements.

The Senate’s Standing Committee on Privatization that met here with Senator Tallal Badar in the chair discussed this issue and sought details of expenditures on financial advisers who left without completing their tasks. He also asked for information on the number of privatisation attempts made, the costs involved, and the number of financial advisers hired over the past 15 years.

Senator Faisal Saleem Rehman questioned whether the costs incurred could be recovered from financial advisers (FAs) who failed to satisfactorily perform their duties.

Taxpayers deserve transparency regarding the expenditures involved in privatisation attempts and accountability for financial advisers who didn’t deliver results, it was noted. The committee was informed that hiring financial advisers incurs significant expenses. The chairman of the committee requested detailed budget and expenditure reports for the past five years.

The Secretary of the Ministry of Privatization gave a detailed briefing to the standing committee, highlighting the importance of transparency in privatisation matters for the government and the country, as well as its positive impact on the public.

He stated that implementing the government-approved privatisation programme transparently is the institution’s responsibility. The organisation formulates policies related to privatisation, which are then presented to the Privatization Board. The board’s recommendations are submitted to the federal cabinet, and upon approval, implementation begins.

The committee was informed that 84 institutions across ministries are earmarked for privatisation, with decisions made for 24 and 41 pending cabinet approval.

Among those slated for privatszation this year are Pakistan International Airlines (PIA) Company Limited, Roosevelt Hotel, House Building Finance Company Limited, and First Women Bank Limited. The Secretary of the Privatization Division stated that PIA Corporation Limited, Roosevelt Hotel, House Building Finance, and First Women Bank will be privatised this year. PIA has outstanding dues amounting to Rs800 billion, with the government providing Rs100 to Rs125 billion annually.

The secretary detailed that PIA owes Rs260 billion to banks, including Bank of Punjab, Standard Chartered Bank, Habib Bank, and National Bank, among others. Additionally, PIA owes Rs20 billion to Pakistan State Oil (PSO) and Rs120 billion to the Civil Aviation Authority. The goal is to attract maximum bids from six bidders for PIA’s privatisation. PIA’s total assets are valued at Rs160 billion.

Globally, governments typically assume the liabilities of state-owned enterprises to facilitate privatisation. The government has decided to transfer Rs600 billion of liabilities to a holding company, with Rs200 billion remaining with the core company.

Since 2015, PIA has incurred losses of Rs500 billion. The annual interest rate on loans obtained by PIA, initially at 25 percent, has been negotiated down to 12 percent. Regarding the Roosevelt Hotel, a report has been prepared and will be presented to the federal cabinet by the board.

The committee was also informed that the United Arab Emirates has shown interest in the First Women Bank, and the federal cabinet approved a government-to-government transaction model in February 2024.

The Privatization Commission has commenced the privatisation process on a government-to-government (G2G) basis. A technical consultant has been hired for the privatisation of power distribution companies, and the consultant will share the plan by September 2024.

The committee was briefed that the privatisation process will be carried out in three phases over a period of one to five years, adhering to legal requirements. The standing committee has requested a detailed report on the losses of loss-making public sector enterprises. Committee members questioned the privatisation of profit-making institutions, to which they were informed that profits are currently declining, but are expected to increase post-privatisation.

It was noted that First Women Bank, House Building Finance, Pakistan Reinsurance Company Limited (PRCL), and State Life are profitable entities. The privatisation of nine power distribution companies will be completed within five years, with financial advisers for three companies will be appointed this year.