During its ongoing third tenure, PML-N continues to maintain that it fully and unreservedly supports privatisation and/or restructuring of the poorly performing SOEs prior to sale - a view based on the party's economic managers' claim that study after study indicates that government engagement in production/services sectors compromises the profit maximizing maxim, leading to large losses requiring annual budgetary support that limits the capacity of the government to undertake physical and social infrastructure projects. This claim sadly is a reflection of the party's economic managers' persistent failure to keep themselves abreast of recent literature on the subject. Nobel laureate Jo Stiglitz acknowledged that while "privatization has deservedly had its critics, so have SOEs. Many have not been run efficiently and many have created losses that have been a burden on the state-money that could have been used for education or to pursue other developmental objectives.....(but) the privatization process has been marked by enormous abuses: in many countries a few individuals managed to grab hold of previously state-owned resources for a pittance and become millionaires - or billionaires". Unfortunately in Pakistan it is these very millionaires/billionaires who are engaged in the process of privatization.
Be that as it may, PML-N has consistently and with a degree of credibility maintained that unlike the Pakistan Peoples Party (PPP) it does not believe in creating jobs for party loyalists in SOEs - to the extent of using these entities as recruitment centres - because that leads to over-staffing and higher losses, a contention proven to be true with respect to Pakistan International Airlines, Pakistan Steel Mills and the third large white elephant the Pakistan Railways. However during its ongoing administration PML-N's achievements in privatising/restructuring SOEs have been particularly disappointing. The four-year-long functional Finance Minister Ishaq Dar unambiguously committed for the first time in the country's history to improving corporate governance, undertaking time bound restructuring and/or privatization of poorly performing SOEs to the International Monetary Fund (IMF) in the first Letter of Intent (LoI) submitted by the government dated 19 August 2013, a prerequisite for IMF Board approval of each tranche; and unlike his predecessors whose suggestions were repeatedly clipped by the party leadership for political considerations (as privatization is invariably opposed by the staff/workers) Dar continued to exercise comprehensive and consolidated powers spanning all economic-related ministries; but governance remains appallingly poor and while the administration of the PML-N has desisted from recruiting their loyalists in SOEs at the grass root and middle management levels yet it has made flawed appointments (flawed as they were not based on merit or qualifications) of senior management, particularly heads of SOEs which account for rising losses in these entities even in comparison to the PPP led coalition government's tenure.
The first LoI therefore committed to "step up efforts to reform public sector enterprises, focusing on limiting poor performance and improving public sector resource allocation. We are working on a time bound strategy for 65 PSEs approved for privatization in the Council of Common Interest to facilitate decisions to either privatize firms, restructure those with prospects of profitability but which the government wishes to retain in the public sector, or close non viable firms....the strategy for 30 firms will be announced by end September 2013 (structural benchmark) with plans for the remainder to be completed by end-December 2013.....we have already begun the process of hiring professional chief executives and board members for those enterprises with a corporate structure in line with the corporate governance rules. We are developing medium-term action plans to restructure Pakistan International Airlines, Pakistan Steel Mills and Pakistan Railways."
By the eleventh LoI dated June 2016 disturbingly the text of the government's commitment did not change from the one issued on 19 August 2013 reflecting the failure to achieve its stated objectives: "Large and accumulated losses in Public Sector Enterprises (PSEs) underscore the urgency of restructuring and privatising PSEs. We are working to reform or privatize PSEs focusing on limiting poor performance and improving public sector resource allocation. The Cabinet Committee on Privatisation initially approved a list of 31 PSEs for action and subsequently added another 8 PSEs to the list. We are in the process of adding more companies to our list and we aim at updating the list by July 3, 2016. We have developed a plan to sequence capital market and pre-privatization restructuring for these firms. Despite significant delays in our privatization program, we remain committed to advancing our reform agenda in order to reduce fiscal risks and improve performance, efficiency and quality of services. In the interim we are placing added emphasis on strengthening the performance and efficiency of public enterprises". Ironically the list continued to increase while the process remained stalled.
The eleventh LoI notes that "we have successfully sold minority stakes in United Bank limited and Pakistan Petroleum Limited in June 2014, Allied Bank Limited in December 2014 and Habib Bank limited in April 2015" as well as National Power Construction Company - profitable entities and not those that were a drain on the Exchequer. The total amount generated was 1.1 billion dollars as per the twelfth LoI or in effect money that was subsequently misspent (on current expenditure) while future income stream (profits) from these entities was lost - with no cost benefit analysis undertaken to determine whether the sale price was justified given the loss of future stream of income. It is relevant to recall Jo Stiglitiz views on the subject: "What is at stake is not just the current flow of profits (rents), but the present discounted value of these rents, which is much larger. It follows that incentives for abuse are all the greater. Moreover, there are a variety of ways by which the extent of abuse in the running of SOEs can be monitored and controlled (eg by benchmarking), but experience suggests that it may be more difficult to control abuses within the privatization process. Standard remedies have focused on the use of auction processes, but in Russia and elsewhere it became clear that there is ample scope for auctions to be rigged by setting the rules (including "qualifying" bidders).Other failures of privatization arose when monopolies (especially natural monopolies) were privatized before regulatory and antitrust systems were put into place. The private sector was better at exploiting monopoly power than the government: overall economic efficiency was not enhanced."
Additionally, the government committed to conducting the State Life Insurance Corporation's Initial Public Offering by May 2016 with the first option for government shares to Mari Petroleum Company Limited and finalize the process by August 2016. This intent remains an intent to this date. As does the intent to privatize distribution companies including Faisalabad Electric Supply Company Limited, Islamabad Electric Supply Company Limited, Lahore Electric Supply Company Limited and divesting Kot Addu Power Co. Ltd. and to solicit expressions of interest by July 15, 2016. The reason as stated in the twelfth LoI: "owing to labour tensions, political opposition we revised our strategy for PSEs in early 2016 and amended the time line and mode of the planned divestment transactions including PIA, PSM and Discos".
To conclude, the final LoI pledged the government's "resolve to restructure and attract private sector participation" - a resolve that is simply unrealistic given the current political and economic considerations while concern that the process of privatisation requires a revisit continues.