Privatisation

Introduction

Why privatisation? When started?

Objective

Designed to cut the welfare role of the state and there was thinking in 1970’s that welfare role of the state was promoting the economic nationalism around the world, especially in developing countries.

By 1980’s around 100 countries embarked upon the privatisation

State controlled Economies like USSR and Eastern Europe and developing countries of Asia, Africa and Latin America jumped on the bandwagon of privatisation and handed over vast national assets to the private merchants.

Privatisation

Pakistan joined the process of privatisation

According to Privatisation Commission Ordinance 2000,

Privatisation have following objectives: Generation of revenues for debt retirement Improvement of quality of and quantity of good and services Reduction in corruption Creation of employment opportunities Reduction of poverty.

None of the above objective has been realised.

Privatisation

Background. 1970s and 90s witnessed major upsurge in neoliberal ideas

in the context of development process and development strategies.

The development policy of ‘counter revolution’ envisaged:

a. the greater role of market in place of state; it was accused of creating

b. Primary function is to maintain law and order, ensure macroeconomic stability and provide the necessary physical infrastructure.

c. Widespread and excessive state intervention was seen as the major cause of weak economic progress ( but this is not true)

Privatisation

The policies of the Counter Revolution got extra boost with the induction of the conservative governments in the USA, UK, and Germany.

The world’s financial institutions like World Bank and IMF were pressurised to abandon doling out aid to the developing countries and basic need strategy.

They were asked to adopt more monetarist approach to correct the global economic situation.

As a result, the MacNamara, the main architect of the basic needs strategy, resigned from the presidency of the Bank.

Privatisation

The International Keynsianism, which dominated the global economic scene for three decades, was rolled back, the role of the state in economic policies was curtailed.

The New Political Economy (NPE) was created to shape the new market, new society and state.

Under NPE, the universal policy proposal devised, of which aim was to pursue a systematic programme of decreasing state involvement in the economy through trade liberalisation, privatisation and reduced public spending.

Privatisation

Impact of Privatisation According to neoliberal economic critique,

Joseph Stigliz, stabilization prescriptions offered by IMF are counterproductive and have totally failed to yield the result initially expected.

He further argues “the dreams of open market economy have proved unrealistic and there is wide spread anxiety in global economy due to privatisation.

Privatisation

Transparency of Privatisation process

According to report, released by Auditor General of Pakistan in 2002, whopping Rs 70 billion that the government earned from privatization had gone missing and no one has a clue to where the money has gone.

International experience or privatisation USSR, Chile,

Privatisation

Privatisation as tool of class politics. Some studies and researchers consider

privatisation as move to exploit people by controlling the means of production, that is services providing basic utilities of life

to break the up public employee unions

To reduce the provisions of services.

Privatisation

Privatisation designed to promote market-oriented political values.

Privatisation in developing countries. Socialism was one of the popular economic systems after

Russian Revolution.

To check the tide of socialism, the strong role of the state in the development process was envisaged, especially during interwar period (1919-1939) just to control the labour movements.

This role of the state continues till 1980, a period marked with worst economic crisis in which so many big economies of Latin America defaulted on the debt payment.

In the light of those policies, ‘Washington Consensus’ devised the tool of privatisation with the aim to weaken the third world states by controlling them economically.

Privatisation

Pakistan joined SAPs in 1990s after being hit by economic downturn. Under SAP, it adopted the policy of market liberalisation,

privatisation and deregulation.

Since then it has been hotly pursuing privatisation under plans have been made to sell off a number of public sector institutions in sheer hurry, with realizing the negative consequences on the socially marginalized classes.

In the last 15 years, from 1991 to 2006, Govt of Pakistan has completed or approved privatisation of 160 units at gross sale price of Rs 395.241 billion

Only PTCL privatisation fetched 2.5 billion.

According some studies since 1990, 0.6 million worker have been rendered jobless

Privatisation

Privatisation process in Pakistan If not fully, the partial role of private sector under the

state patronage was recognized soon after the creation of Pakistan when in 1948, the statement on Industrial policy emphasized the role of private sector

Except for few areas like manufacturing of arms, hydel power, atomic energy, railways and telephones, all other areas were left open for private investment.

Further Pakistan Industrial Development corporations (PIDC) was set up in 1950, with the objective to promote such enterprises where private sector was hesitant to invest.

Privatisation

The years form 1972-74 saw complete reversal in economic policies and state moved into transfer private ownership to public ownership

The bigger role of state in the process of development envisaged.

Under Economic Reforms Order 1974, major industries (steel, cement, heavy engineering etc) were taken over by ZAB regime.

Banks insurance, shipping, petroleum, marketing and distribution companies were nationalized.

As a result of all these measures, the share of public sector increased fro 48.9 percent in 1960-70 to 71. 5 percent in 1975-76.

Privatisation

Zia and denationalisation of nationalised industrial units. The nationalised units were returned back to their original owner

through the promulgation of Transfer of Managed Establishment Order in 1978.

Objectives of Privatisation in Pakistan. According to PC Ordinance 2002, major objectives of

privatisation process in Pakistan are:a. Debt Retirement: 90% of the privatisation proceeds will be used for

debt retirementb. Poverty Alleviation: 10% for poverty alleviation.c. Enhance the quantity and quality of goods and services. d. Strengthen public financee. Broaden and deepen capital marketsf. Reduce opportunities for corruptiong. Maintain and create employmenth. Decrease misuse and corruption of public property by government

officials. i. Reverse flight of capital aboard and repatriate capital already

transferred.

Privatisation

First BB regime and privatisation. M/s N.M Rothschild appointed as consultant to undertake a

study on privatisation. It submitted a report to govt. in 1989, recommending the widespread privatisation.

After analysis of 50 companies, Rothschild shortlisted seven companies as potential candidate for widespread offer.

These were: Habib Bank, Muslim Commercial Bank, Pakistan National Shipping Corporation (PNSC), Pakistan International Airline Corporation (PIAC), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL).

Govt. abandoned the privatisation of SSGC but disinvested 10% shares of PIA amounting to Rs 274 millions, 30-40 % shares of Pak-Saudi Fertilizer and 60% shares of MCB.

Privatisation

Privatisation 1991-93 Nawaz Sharif after assuming office of PM, declared

privatisation as its primary economic policy objective.

The agenda of privatization covered a wide spectrum of fields like industries, banks, development finance institutions, telecommunications and infrastructure facilities.

The period of Nawaz Sharif government saw massive privatization in all sectors of manufacturing, cement, Ghee, Rice and Roti plants.

Around 68 units handed over to private owner from 1991 -1993.

Privatisation

Sr. Category Better Same Worse Total

1 PMEs* 9 13 16 38

2 Misc 3 10 1 14

3 Ghee Millis 2 12 5 19

4 Rice Mills 2 - 6 8

5 Banks 2 2 - 4

Total 18 37 28 83

Percentage 22 44 34 100

Privatisation performance in Pakistan (1992-94)

Source: Impact and analysis of Privatization in Pakistan: ADP Report October 1998.*Public Manufacturing Enterprise

Privatisation

According to the study of Dr. Akhtar Hasan Khan “Is Privatisation purposeful”, many industrial units were closed and assets stripped.

As a result of that growth rate come down form 6% to 4%

For example Al-Gazi Tractors was closed as buyer was not interested to run the company. He removed the machinery and sold the land.

In other case cartels were formed. DG Khan Cement and Mapple Leaf Cement had merger in order to exploit the consumer.

Other case of Kot Adu Power plant, of which 36% shares were sold at the price of US$291 millions

Interesting thing about this was that the minority shareholder was given the management of unit which was never been done in the corporate history of the world.

Privatisation

Privatisation from 1994-2000 During this period 36 industrial units were privatised. Chemical units remained at the top with 7 transactions,

followed by newspapers and textile with 4 each.

Privatisation in 2001-02 During this entire financial period, the total value of

privatised transactions was Rs 19.6 billions but in the last three and half months before handing over of power from military to civilian elected representative, the privatised transaction amounted to Rs 15.billions

The other two in explicate transaction were related to UBL and Pak Saudi Fertilizers.

Pak Saudi Fertilizer was one of the profitable industrial unit but sold to Fauji Foundation.

Before the privatisation of UBL, GOP poured Rs 30 billion to cover its non-performance loans and make it saleable.

Interestingly, it was sold to foreigners for mere Rs 12.35 billions. GOP lost Rs 17.65 billions.

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Privatisation in 2003-2005

During this period total of 19 transactions completed. The total amount realised from these transactions amounted to Rs 76.29 billions.

Pakistan as Hunting ground.

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General impact of privatisation Diminished quality of life Lower employee morale and productivity Worker exploitation through lower wages Increased discrimination against women and

children Loss of government control and sovereignty Increased corruption, bribery and kickbacks Increased conflicts, strikes, grievances, and

arbitrations.

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No Name of alliance Period

1 Anti-Denationalisation Action Committee (ADNAC) 1990

2 All Pakistan Enterpirsed Workders Action Committee (APSWAC) 1991

3 Trade Union Action Committee(TUAC) 1993

4 Pakistan Workders Confederation (PWC) 1994

5 Union Action Committee (UAC) 2005

Chronology of workers alliances against privatisation (1990-2005)

Privatisation

Conclusion