State enterprises’ privitisation

In view of the mounting budget deficit despite large scale austerity drive and control on discretionary spending, the government has decided to privitise 49 state enterprises within the next 5 years and has taken out 15 public sector entities out of the privitisation list. Two big hemorrhaging corporations Pakistan International Airlines (PIA) and Pakistan Steel Mill (PSM) are not on the privitisation list. The combined losses of these two corporations stand at Rs. 600 billion. PIA alone incurred losses of Rs. 400 billion. The total annual losses of Government Corporation are R. 1100 billion.

The PSM losses are around Rs. 200 billion however the enterprise can be once again revived, turned around and made profitable with the induction of honest and efficient management and rightsizing by purging the political appointments. In 2007-08 it earned profit of Rs.9.5 billion. A number of Russian and Chinese Companies have shown interest to make it a profitable entity under private-public partnership and increasing its production capacity from 1.1 million to 3.5 million tones. PSM used imported pig iron and coal for steel production and the import of these costly inputs after three times increase in production capacity will cause a sever drain on foreign exchange reserves. The high quality iron ores at Naukundi in Baluchistan can be used for production of pig iron substantially reducing dependence on its import. Significant increase in domestic production of steel is inevitable to meet the increasing local demand when new phase of industrialisation takes off. The revival and turnaround of PIA may be not that easy.

Previously, bulks of the shares of profit earning enterprises were sold out and management transferred but full amount of sale proceeds was not recovered from the buyers. Billions of rupees are yet to be retrieved from the politically influential buyers on account of sale of state entities privitised in the second tenure of PML-N government. Likewise, a foreign Telecom Company Etisalt owes $ 800 million on account of purchase of 51 percent shares of Pakistan Telecommunication Limited since 2005. Neither the two previous governments nor the incumbent one has made serious efforts to recover this hefty outstanding amount notwithstanding the fact the company is earning and transferring huge amount of profits out of the country. The inaction of the previous governments is understandable because of the Aqama Syndrome of PPP and PML-N leadership but why the current ruling leadership is shy of negotiating this matter with the UAE government and management of Etisalat. Privitisation is beneficial when it improves the liquidity position of the economy in the short run and brings down the massive recurring budget deficit in the long run.

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