Since then the Privatisation Commission (PC) has notified the schedule for privatisation of most of these entities during 2004-05, but not for the sale of PECO.
It is on record that Dr Hafeez Shaikh, then Sindh Minister for Finance, had commented that hidden opponents were the major cause for delaying the process of privatisation of the public sector units. Addressing a seminar on the privatisation policy and programme, at Karachi in August 2001, he had identified these hidden opponents as the ministers and top bureaucrats who were serving their own interests.
Now that he is in the helm of privatisation affairs, one may ask as to what are the impediments in the way of privatisation of PECO for instance that remains on the list since 1991.
PECO, the pioneering engineering industrial complex, was established in 1948 in the private sector. The government nationalised the company, along with another 30 key industries, in 1972, having its works located at Badami Bagh and Kot Lakhpat Lahore.
Its large variety of light engineering products remained popular for quality and performance for almost four decades. The product range of pumps included various sizes and different types of deep-well turbine pumps, up to 200-litre/second capacity, submersible pumps, mobile pumping units, and centrifugal pumps, single-stage, multi-stage and non-clogging types.
The annual installed capacity was to produce 3, 400 sets of pumps that competed well with the reputed foreign makes. Machine tools, such as general-purpose lathe, precision bench lathe, heavy-duty centre lathe, shaper, drilling machine and hacksaw were manufactured in accordance with international standards.
Automatic power looms were produced, in technical collaboration with IWAMA of Japan, to meet the demands of the domestic textile industry. The wide range of electric motors, 3-phase, 400 V, 50 c/s, squirrel cage type, offered models up to 150 HP, including the advanced totally-enclosed fan cooled (TEFC) type, having an annual capacity of producing 16, 500 motors.
Its products mix also included high-speed diesel engines, concrete mixers of various sizes, electric overhead travelling cranes ranging from 1/2 to 30 tonnes lifting capacity, mini hydel turbines, bank safe and strong room doors, vessels and storage tanks, steel towers, parts and components for the industrial sector.
PECO rolled steel products covered mild steel angles, flats, tees, shafting, channels, joists, girders, deformed bars, plain bars and ribbed TOR steel bars, and special steel ingots, billets and shafting, according to international specifications.
Annual installed capacity related to rolled material and ingots was of the level of 80, 000 tons and 40,000 tonnes, respectively. A dedicated unit, installed in 1960, produced PECO bicycles, with an installed capacity of 120, 000 Nos. a year, which were marketed nation-wide.
The company has been on the active privatisation list for more than 13 years now. There have been nine attempts to sell PECO, from 1991 to 2001, adopting different strategies, but none materialised.
Prepared in 1991, the first-ever list of the State-owned enterprises to be divested included PECO prominently. Subsequently, the Privatisation Commission (PC) notified publicly the intent to sell-out, in the first phase, PECO Badami Bagh works.
Initially, its assets and business both were offered on an "as is where is" basis, but PC failed to attract the proper response of the investors. Later, the PC auctioned separate lots of machinery and land, but without positive decision on the bids received. The Economic Co-ordination Committee of the Cabinet (ECC) therefore decided, in March 1993, to dismantle and shift all the plant machinery and steel structure from Badami Bagh to Kot Lakhpat, and to hand over the vacated land to the PC for disposal. Consequently, this 260-kanal freehold land was handed over by the management to the PC, along with its title documents. Once again the PC auctioned the land this time dividing to land into smaller plots - but for reasons best known to the PC, none of the bids received was considered acceptable.
Another attempt was made by the PC to sell the company assets in April 1999 that included 247-acres of Kot Lakhpat works in operation, along with the vacant land of Badami Bagh. Financial advisors were appointed to assist the PC, and they were wide publicity given, domestically and abroad, with road shows to attract investors.
This time too, the transactions could not finalise. The last effort to dispose of the 260-kanal land of Badami Bagh was made in January 2001, again without results. Once again the company's works in operation and the vacant land were scheduled for divestment in August 2001, but the plan ran into snags.
On November 7, 2001, the government approved the strategy for the sale of only its land of Badami Bagh, but the PC took no further action. One fails to comprehend as to why the PC has not been able to dispose off the prime land, with a fair price of over Rs 900 million estimated ten years ago.
Whatever the reason for the lack of decision on the part of the PC, the long and unsuccessful privatisation process had a multiplier negative effect on the operations of the company.
PECO, which was a vibrant and profitable organisation till 1990, suffered losses for the first time in its history during that year. Understandably, the customers were reluctant to place orders. Due to reduced inflow of orders the company operated far below its production capacity, and as fixed overheads could not be absorbed, it sustained heavy losses.
This caused serious liquidity problems, but the banks and financial institutions were not willing to extend credit limits to a state enterprise under privatisation.
The company thus remained under heavy debt burden. The uncertainty due to privatisation created insecurity for the employees that were retained by the company, resulting in inefficiency and mismanagement. Designing capabilities of the company deteriorated over time, lowering the company's competitive edge. PECO's dealer network weakened, adversely affecting the promotion of its products.
Furthermore, all the resources of the management were diverted towards facilitating the PC, resolving various issues related to privatisation, and the shifting and re-installing of the machinery and steel structure to new premises.
Thus, whatever orders were in hand could not be delivered according to agreed schedules, impairing the company's credibility further. Resultantly, the company was even unable to pay the salaries of employees on a regular basis. As on 30th June 2004, the company had accumulated losses of Rs 1, 741 million.
Obviously, the situation had a direct impact on the production operations. Manufacturing of machine tools and power looms was discontinued way back in the early nineties, and most of the workers and staff, over 600 in number, were then laid off under the Voluntary Separation Scheme.
Machinery, equipment and the steel structure shifted from Badami Bagh and installed at Kot Lakhpat could not be put into operation. Huge investment in terms of time, money and effort went down the drain. In the latest move, on January 2002, the Cabinet Committee on Privatisation decided the closure of the remaining production units of the company, that is the bicycle plant, the furnace and rolling mill, pumps and motor sections and the general engineering workshop.
The PC accordingly terminated the services of all the regular and contract employees, totalling about 1, 500 in number, under the Compulsory Separation Scheme.
Thanks to the ill-conceived and short-sighted privatisation policies of the government, the operations of the company, which once was the industrial empire and played a key role in the industrialisation of the country, are now at a standstill, with the exception of the fabrication of the steel towers.
There were no remedial or corrective measures taken, either by the PC or the concerned ministry, during these years, to ensure that the PECO continued as an on-going concern.
Understandably, a closed industrial unit would not be attractive to an entrepreneur, unless the objective is to deal in the high-value real estate. Taking a look at the sale transactions of the seven engineering units of the State Engineering Corporation (SE) in the past, mainly during the period 1992-1995, one observes that the objectives of privatisation could not be achieved - rather it proved to be detrimental to the national economy. In fact, the experience was a total failure as most of these units have been closed since long.
The buyers were simply interested, in most cases, to purchase the assets, particularly the real estate, and never intended to operate these units as an industry.
This is perhaps the most opportune time for re-energising the company since its fixed costs are minimal at this stage, laying off almost all the employees, and closing almost all its production units. This has aided the company to show an improved performance during the year ending 30 June 2004, as it achieved sales of Rs 457 million and earned an operating profit of approximately Rs 14 million as against an operating loss of Rs 15 million during 2002-2003.
PECO, the only qualified company to produce high voltage electricity transmission and distribution towers, undertakes the design, fabrication and galvanising of steel towers of 500 kv, 220 kv, 132 kv and 66 kv electricity. It has secured and executed many WAPDA contracts for the supply of these towers, and currently has a major order in hand for the fabrication of 10, 500 tons of steel towers amounting to Rs 769 million that is being executed by a skeleton team of workers on daily wages.
WAPDA has ambitious plan to expand its electricity transmission line network. It is envisaged that it would require about 100, 000 tonnes of steel towers for the proposed expansion during the next five years or so. Thus undertaking these prospective orders, some operational continuity at PECO can be foreseen in the coming years too.
Seemingly, Jahangir Khan Tareen, Minister of Industries, Production and Special Initiatives is committed to the development of the engineering sector, and intends to simultaneously strengthen the public and private sectors in strategic areas. He has already taken steps to re-activate Pakistan Industrial Development Corporation (PIDC), whereas plans are on the cards to restructure and upgrade a few industrial units of the State Engineering Corporation.
On the same principles, the Minister should consider the revival of PECO, in the best national interest, either to continue as a SE company or through establishing joint ventures with strategic partners. Indeed, PECO has great potential to become, once again, a viable enterprise, thus achieving the government's objective of accelerating industrialisation in the country.