News Column

Privatisation Step Two

June 23, 2014



After negotiating a successful sale for 20 percent of UBLís shares in a deal worth $387 million, the government now turns toward Pakistan Petroleum Limited (PPL) to continue its policy of privatizing national firms to decrease the burden on the government and increase investment in the private sector. The government fell short of its expected $420 million mark in the sale of UBLís shares, and must be hoping that the same does not happen with PPL, with initial projections of revenue reaching $152.6 million by selling 5 percent of the shares. The governmentís plans of privatization extended to two types of enterprises that were owned by the public sector; firms that were incurring losses, such as PIA and Pakistan Steel Mills (PSM) and needed to be sold off to reduce the burden of government spending, and relatively stable businesses like UBL, HBL, OGDC and PPL that were performing well in the stock exchange and the sale of which would generate revenue for next yearís budget.

According to Ishaq Dar, the government loses approximately $5 billion a year to keep public-owned enterprises afloat. In the budget 2014-2015, the government prioritised the sale of the stable public-owned firms instead of PSM and PIA. The IMF has delayed its fourth review and will not be releasing the fourth installment of the $6.7 billion loan programme until the government restructures NEPRA, and appoints a financial advisor for the privatization of PIA. The rumors of the government considering forgoing the sale of PIAís shares is not likely to ease the fears of IMF. The government must remember that their principle argument for justifying the sale of national assets was that big enterprises like PIA and PSM would stop draining funds from the national kitty. If PIA is not to be privatized, the only objectives that will be achieved with the sale of PPL and UBL will be an immediate injection of money from the sale, and a very slight increase in their share values on the market, which is good for international investment but will not change anything to ease the burden on the government. And for these marginal benefits, selling off potentially profitable businesses does not make sense.

The government needs to look at the bigger picture and stop focusing on increasing foreign reserves for the short run, and work on making the economy sustainable with the state owning only those assets which it can convert into profitable ventures. PPLís shares will also attract investors from everywhere, but anyone can sell an established business which can be improved to increase revenues. The real challenge lies in being able to sell deadweight firms such as PIA and PSM, which will need complete overhauls if they are to operate in the private sector.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Nation (Pakistan)


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters