Privatisation In Pakistan
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Transcript of Privatisation In Pakistan
Privatisation in PakistanProspects and Challenges
Shahid Hussain Raja
July 26, 2012
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Sequence of Presentation
Privatisation : Concept & Need Modes of Privatisation Privatisation Process Functions of Privatisation Commission Privatisation in Pakistan Prospects & Challenges Way Forward
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Privatisation Defined
“…. 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”.
(PC Ordinance 2000)
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Need for Privatisationa) Enhancing the role of private sector in the economy
b) Reducing the budgetary deficit by selling the loss making
State Owned Enterprises (SOEs) to the private sector
c) Improving efficiency of SOEs by selling their at least 26 %
shares with management control to the private sector
d) Producing better quality products & services at affordable
prices for the public through Public Private Partnership
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Privatisation Commission
Established as a body corporate by the promulgation of Privatisation Commission Ordinance 2000
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
Functions of Privatisation Commission
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. 6
Functions of Privatisation Commission (contd)
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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Functions of Privatisation Commission (contd)
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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Modes of Privatisation
Outright Sale of assets and business through open auction Sale of shares through public auction or tender Public offering of shares through a stock exchange Management or employee buyouts Award of long term leases Management or concession contracts Global Depositary Receipts (GDRs): Euro Bonds etc Exchangeable / Convertible bonds: Taking loans from
international funds against collateral of shares
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Approval of Council of Common Interest (CCI). Cabinet Committee on Privatisation (CCoP) decision to
privatise an entity Hiring of a Financial Advisor (FA) or Valuer Due diligence by FA and Privatisation Commission Finalization of transaction structure Restructuring and regulatory reforms, if needed Invitation of Expressions of Interest (EOI) Submission of statement of qualifications Prequalification of firms Due diligence by potential buyers
Privatisation Process
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Sharing of Bid Documents/Instructions with pre-qualified bidders
Pre-bid conference 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
Privatisation Process (contd)
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Privatisation in Pakistan
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Privatisation Phases1960s First Generation Privatisation
Objective Create / Strengthen Private Sector
Strategy Build factories and Sell them
1990s Second Generation Privatisation Objective Reduce Government Losses
Strategy Disinvest, Deregulate
2000s Third Generation Privatisation Objective Improve Efficiency & Profitability
Strategy Seek Strategic Investors
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Achievements Most successful privatisation program in South Asia,
Central Asia and the Middle East Over $ 9 billion proceeds (Rs. 476,421 million) 167 transactions completed so far 100% state owned enterprises in the chemical,
textile, nitrogen fertilizer, cement, rice, roti and light engineering while 98% automobile industry, 96% ghee mills and 100% units of Phosphate fertilizer have been privatised
Banking industry privatised substantially due to which 80% of the banking sector is under private ownership.
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Sector No of transactions Proceeds (Rs M)
Banking 7 41,023
Capital market 22 133,124
Energy 14 51,756
Telecom 4 187,360
Automobile 7 1,102
Cement 17 16,178
Chemical and Fertilizer 23 41,922
Engineering 7 183
Ghee Mills 24 843
Rice and Roti Plants 23 324
Textile 4 371
Newspapers 5 271
Tourism 4 1,805
Others 6 159
Total 167 476,421
Sector Wise TransactionsSince its inception in 1991, the Privatisation Commission have conducted
167 transactions with over Rs. 476 billion. Details are as follows:
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Benefits of Privatisation Increased private sector share in GDP Induced investment and transfer of technology Improved management via introduction of international
best practices and quality improvement increased productivity and competitiveness Employment generation leading to poverty alleviation Creation of fiscal space for allocation of funds to social
sectors and infrastructure development Better services, products, higher profits leading to
increased dividends and tax revenues
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Prospects Broad national consensus on need and benefits of
privatisation/ deregulation in the country
Robust private sector to take on even loss making state owned enterprises( SOEs)
Comprehensive legal framework available
Experience of 2 decades of successful privatisation
Support of international organizations
Strong judiciary, civil society and media to ensure transparency
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Challenges Domestic and International financial crisis
Huge losses of State Owned Enterprises
Share values of many likely transactions at all time low
Managing public interest in industries with social
repercussions i.e. power, transportation etc
18th Constitutional Amendment has increased the role of
provinces in privatisation decision making process
Regulatory/ dispute resolution framework needs changes
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Way Forward
Privatisation Strategy1. Loss reduction and efficiency improvement will remain as
basic objectives of privatisation in Pakistan2. Corporatization and Restructuring of State Owned
Enterprises before their privatisation.3. Transparency as a cornerstone of entire process.4. Safeguarding the interest of employees and consumers.5. Strengthening of regulatory framework.6. Strategic sale and Private Public Partnership with
management control continues to be the main strategy7. Sectors chosen for privatisation on priority are
infrastructure, energy and financial institutions 20
Upcoming Transactions
Sr. No. Transaction
1 Oil & Gas Development Company Limited 2 Pakistan Petroleum Limited 3 Heavy Electrical Complex4 National Power Construction Company 5 Peshawar Electric Supply Company (PESCO)6 Quetta Electric Supply Company (QESCO)7 Hyderabad Electric Supply Company (HESCO)8 National Power Construction Corporation (NPCC)
9 Faisalabad Electric supply Company (FESCO)10 Jamshoro Power Company Limited (JPCL)11 Pakistan Mineral Development Corporation (PMDC)
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