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Privatisation.

In addition to the sale of state-owned enterprises the government's privatization policy has included the opening up of a number of areas to private enterprise which hitherto had been a monopoly of the public sector. As a result, as of early 1992, nine new private commercial banks, several shipping lines and two cellular mobile telephone companies are in operation, and negotiations for a large power generation project and a foreign-owned airline in the private sector are at an advanced stage. Also, bids have been invited for the construction of telephone exchanges, roads and airports on a Build-Operate-Transfer (BOT) basis.

Privatisation has been going apace. The Privatisation Commission has handed over three more ghee units to the new owners thus bringing the total number of units privatized to 50 out of the 100 units advertised last year. These units are Bara Ghee Factory, Chilton Ghee Factory and Haripur Ghee Factory. Commission sources stated that two cement units are ready for transfer. The Commission received 40 per cent of bid price for Kohat Cement Factory while 26 per cent of the price has been received in the case of Gharibwal Cement.

Naya Daur Motors was sold to Farid Tawakal and Salim Kapoorwala for Rs. 69.12 million. The fate of Mustehkam Cement is still to be decided. In bids opened in July 1992, Trade and Textile Group made the highest bid of Rs. 265 per share of Rs. 10 of this unit. The new ownership however will be decided after the Lahore High Court decides on the fate of two applications one by the original owners Mian Farooq Sheikh and the other by the Employees Management Group.

In two companies Government is reducing its shareholdings. In Marri Gas Co. Ltd. The Government would reduce its shareholding from 40 to 20 per cent which will now be issued to the public through the stock exchange. Meanwhile the Marri Gas Company is undertaking development of Marri Gas field at a cost of Rs. 1.2 billion with a foreign exchange component of $ 19.5 million being provided by the International Finance Corporation, a commercial wing of the World Bank.

Government has also reduced its shareholdings in Park Suzuki Company's from 32 per cent to 17 per cent. Suzuki of Japan had agreed to buy 15 per cent Pak Suzuki Company's shares of Rs. 10 each at Rs. 117.19 against the present market value which is Rs. 105 per share. The total cost of 15 per cent of the Pak Suzuki Company's shares comes to Rs. 180 million. Suzuki of Japan already held 25 per cent of the total paid up capital of Pak Suzuki. Further purchase of 15 per cent shares will increase their holding to 40 per cent of the paid up capital. It will enable the Japanese company to control the management.

The privatisation process was held in check due to poor response by subscribers to the sale offer of Sui Northern Gas Pipelines Ltd. SNGPL offered shares for public subscription at a total price of Rs. 40.15 per share which included of Rs. 30 as premium and paisa 15 for share transfer stamp duty. The poor response was attributed by the market sources mainly to the report that sale of share of SNGPL was challenged in the Lahore High Court by Consumer Watch, a recently established NGO to protect the interest of common people. The court case was also reported by a section of the Press on July 27. The other reason for poor response is that the share was offered at a very high price. The law and order situation was also one of the reasons.

Another factor putting an impediment to privatisation process is the weak numerical strength of the IJI government in the National Assembly. The IJI privatisation programme has remained controversial since its start about 18 months ago, with Opposition accusing the Prime Minister, his family and the Chairman of the Privatisation Commission, Ltd. Gen. Saeed Qadir, of doubtful deals by offering these units to their favourites. However, the Prime Minister and Mr. Qadir always denied these charges and pledges to continue their programme without the fear of opposition from the other parties. But they assured that this programme will be provided legal and constitutional protection very soon.

The IJI government is no more supported by MQM, Jamaat-i-Islami, JUI of Maulana Fazlur Rehman group and the group of former Premier Ghulam Mustafa Jatoi's NPP. And at present only ANP of Wali Khan and one man party of Maulana Abdus Sattar Khan Niazi was supporting the government which was not sufficient to pass any amendment. The main objective of the privatisation policy of the government is to reduce the drain on government resources, raise funds for priority sectors and improve efficiency of the economy through the sale of state-owned enterprises. So far several financial institutions and over 100 manufacturing units have been offered for sale. Two of the smaller of the four nationalized commercial banks and twelve large manufacturing units in the automobile, cement, chemicals and engineering sectors have been privatized. In addition, a number of bakeries and vegetable oil plants have either been sold or will be sold shortly.

In addition to the sale of state-owned enterprises the government's privatization policy has included the opening up of a number of areas to private enterprise which hitherto had been a monopoly of the public sector. As a result, as of early of 1992, nine new private commercial banks, several shipping lines and two cellular mobile telephone companies are in operation, and negotiations for a large power generation project and a foreign-owned airline in the private sector are at an advanced stage. Also, bids have been invited for the construction of telephone exchanges, roads and airports on a Build-Operate-Transfer (BOT) basis.

Investment sanctioning has been eliminated for all industries, except a few which are restricted for security or religious reasons. Also, a number of regulatory restrictions, such as registration of technical and foreign loan agreements, work permits for foreign technical personnel, the issuance of shares at par value and equity capital ceiling at which a company must go public, have been removed or greatly liberalized.

Other factors which have slowed down the pace of privatisation are the prudential regulations imposed by the State Bank of Pakistan. But the bankers feel that some of the new rules are not supportive to the privatisation process of the government. As a proof they say only two out of 12 units offered by the Privatisation Commission recently could fetch the bid above the reference price.

Of the many units which have been privatized and the letter of intent have been issued, quite a few of them are finding it difficult to raise the guarantees for the 60 per cent shares as required by the Privatisation Commission. A major problem is that under the prudential regulations the bank can accept the shares of the company as a security at only 50 per cent of the market value. Now even the reserve price of the PC in all the cases is higher than the market price. The real value of the acquisition shares is always higher than the shares available in the market. The logic behind this rule is no doubt correct.
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Title Annotation:privatization of government-owned enterprise in Pakistan
Publication:Economic Review
Date:Aug 1, 1992
Words:1209
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