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Plundering of Public Assets in Pakistan - A Chronology of Privatization

Abdul Khaliq

Publishing Date: January 30th 2008

Pakistan, under the gospel of market economy is aggressively pursuing the policy of market liberalization and privatization since 1991.

Government of Pakistan during 1990s after being hit by economic downturn was forced to adopt Structural Adjustment Program (SAP) under IMF to reform economy suffering from macroeconomic instability. Under the SAP, it adopted the policy of market liberalization, privatization and deregulation.

Pakistan, since then seems to have indulged in privatization binge under which plans have been set to sell off a number of profitable public sector institutions in sheer hurry, without realizing the negative consequences on the socially marginalized classes.

Since 1991 till April 2006, Government of Pakistan had completed or approved 160 transactions at gross sale price of Rs. 395.241 billion in the last 15 years. The sale of 26 per cent PTCL shares in 2006 alone fetched $2.5 billion. An astounding 130 privatized enterprises out of total 160 have been collapsed.

According to the Privatization Commission Ordinance 2000, 90 percent of the proceeds are spent for debt servicing and 10 percent go to poverty alleviation programs. But the privatization proceeds are reportedly misused by successive regimes.

Since 1990, about 0.6 millions workers have been rendered jobless as a result of implementation of ruthless and thoughtless privatization and neo-liberal policies in Pakistan. 64 percent of the workers in privatized units were forced to take “golden shake hand” in the name of voluntary separation scheme (VSS).

The privatization of State Owned Enterprises (SOE) became an important instrument of the state economic policy in late 80s. However, it was in 1991 that privatization process in Pakistan became effective. In 1988, the new government of Benazir Bhutto appointed a British firm M/s N.M. Rothschild, as consultants, to undertake a study on privatization strategy and selection of prospective candidates. The consultants submitted their report to the government in May 1989.

The report recommended privatization on widespread ownership basis as an appropriate strategy for Pakistan. By "Wide Spread Ownership" the consultants meant development of Pakistan’s capital markets. After analysis of more than 50 companies, the consultants short-listed seven companies as potential candidates for widespread offers. These included Habib Bank, Muslim Commercial Bank Pakistan National Shipping Corporation (PNSC), Pakistan International Airlines Corporation (PIAC). Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL). The government of Benazir Bhutto had not enough time to privatize the identified units as it was sacked on charges of corruption in early 90s.

The government of Nawaz Sharif soon after assuming power in November 1990, declared privatization as its primary economic policy objective. The agenda of privatization announced by the Government covered a wide spectrum of fields like industries, banks, development finance institutions, tele-communications and infrastructure facilities.

As a first step towards privatization, a Committee on Dis-investment and De-regulation was formed. The committee recommended the disinvestment of 118 industrial units, which included 45 nationalized units taken over during the period 1972-74. The government approved this disinvestment plan and announced the creation of a Privatization Commission on 22nd January 1991. This period of Nawaz Sharif government saw massive privatization in all sectors with 68 units handed over to private owners from 1991 to 93.

In the period from 1992 to 1994 assets worth Rs.120 billion were divested. The consultants engaged by Asian Development Bank conducted a thorough study of the first period. They published a detailed report in 1998. According to an evaluation of privatization in 1992-94 by ADB, only 22% of the privatized units were performing better than in the pre-privatization period, 44% approximately the same and about 34% worse than before.

Moreover, the most tragic consequence of privatization was the closure of 20 units after transfer to private owners. The closure of these units has played havoc with the national economy and the first phase of privatization contributed to the lower rate of industrial and economic growth. The GDP growth, which was above 6% in 1980s declined to around 4% in the post privatization period. The buyers were not interested in running the privatized factories but in stripping the assets. This is a frequent bane of privatization. Assets strippers buy, pay one installment, remove the machinery, sell the real state and then walk away. All the engineering units except Millat and Al-Ghazi Tractors were closed after privatization, as their buyers had no intention of running them.

Analysis of the first this period of privatization has shown that it has not been able to achieve the intended goals of privatization. The procedure of privatization, according to ADB consultants, was also not transparent but smacked of cronyism and corruption.

The anti-trade union measures by successive regimes resulted in decrease of trade unions and union memberships. The number of registered unions increased from 708 in 60s to 2,522 in 70s and 6,551 in 80s respectively. Similarly their declared membership rose from 350,000 in 60s to 736,000 in 70s and 870,000 in 80s.But after the process of privatization trade union membership decreased from 870,000 in 80s to 296,257 in 1999.

General Mushraff regime after taking over in 1999 announced to continue neo-liberal policies. The regime has been bent upon privatizing big public units in industrial and services sector, like Habib Bank Limited, Pak Saudi Fertilizers and Pakistan Steel Mills.

The roller coaster of privatization in Pakistan was suddenly halted when Supreme Court of Pakistan, through suo moto notice, struck down the privatization of Pakistan Steel Mills in 2006. Gen Mushraff had sold out the only steel mills of Pakistan to his cronies at a throw away prices of just Rs. 33 billion. Only the affiliated assets of PSM stand at Rs. 133 billion.

The general perception that privatization result in higher level of efficiency is not true in case of Pakistan. Privatization has caused social development slow down. The pre-privatization period (1981-1991) witnessed an annual average growth rate of 6.7 % of GDP while it went down to 4.4 % during privatization period (1991-2001). Two major objectives of privatization in Pakistan; debt-servicing and poverty alleviation have not been achieved. The total external debt rose from US $ 23.363 billion in 1991 to $ 40 billion in Dec 2007.

The reports of plundering of privatization money are also published. In July 2002, the Public Accounts Committee (PAC) had detected a massive sum of Rs. 80 billion missing, collected from privatization, when it was disclosed that this money was not used for the debt retirement purpose. In addition to it, indiscriminate use of billions of rupees collected from the privatization money on consultant salaries and legal experts also raised troubling questions that who was actually benefiting from the whole privatization process after laying off thousands of workers. The PAC also learnt that consultants and advisors generally hired by the PC are heavily paid. As much as Rs.5 billion were spent on the consultants, advisors etc.

In most of the responses to privatization union leadership failed to protect the genuine rights of the workers. They fell to opportunism, and succumbed to pressure of state, generating a great deal of disappointment among the workers and the general public. But the resistance of PTCL workers in 2005 was by no means a minute task. The 10-day strike was a great success. Though the spirit of this resistance, however, has not yet donned the cloak of a movement. But it definitely shows the decisive role of workers in the economy and the society.

Several other State Owned Enterprises including Pakistan Steel Mills, Pakistan State Oil, Pakistan Railways, Wapda and other gas and energy units are in queue to put on the block. The commitment with which the state is pursuing the privatization agenda has virtually turned Pakistan into a hunting ground for international capital.

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