Privatization and economic necessity
Courtesy:- Malik Muhammad Ashraf
It is estimated that State Owned Enterprises (SOEs) are collectively incurring an annual loss of between Rs.400-500 billion; more than 25% of the total revenue receipts of the government in a fiscal year. Keeping them afloat, therefore constitutes a huge drain on our precious national resources which could have been invested in vitally needed projects of socio-economic development. The government, presently, is running 126 such entities including big money guzzlers like Pakistan Steel Mills PSM), PIA, PSO and Railways among others. Pakistan Steel Mills alone suffered losses to the tune of Rs.200 billion during the last five years and the government had to give four bail-out packages amounting to Rs.40 billion to keep it on the ventilator. There are no two opinions about the fact that these entities owe the current state of affairs to inefficient management, corruption, political interference by successive regimes and recruitment of excessive personnel on the basis of political affiliations rather than actual needs of the organizations.
No developing country like Pakistan faced with a perennial scarcity of resources can afford the luxury of feeding these white elephants indefinitely. Therefore something needed to be done. In the early nineties when the PM(N) government was in power, an initiative was taken to disinvest the sick units and sell them to the private sector. Over the years some progress was made in certain areas but it could not be accelerated due to a number of factors including political opposition to such a move.
Privatization of some of the major loss incurring units and restructuring of others to turn them into profitable entities is an integral part of the economic agenda of the present PM (N) government. It has already decided to privatize 31 SOEs in three years, including PSM, Pakistan State Oil and a number of power producing and distribution companies. Privatization of the SOEs is also a conditionality of the IMF. The detractors of the privatization policy however oppose the move apprehending that these units would be privatized at throw away prices in a non-transparent manner. Further the government would be able to privatize only profitable units and would still remain burdened with running the loss accruing units; a proposition that in the long run could result in loss of massive revenue to the government. They are emphasizing the restructuring of the SOEs and tuning them into profitable entities, rather than indulging in the indiscriminate and hasty privatization.
The apprehensions of the critics seem to be based on assumptions rather than the ground realities. According to Chairman Board of Investment (BOI) the policy of privatization of SOEs is aimed at reducing state losses and attracting foreign investment in the crucial sectors of the economy. The successful implementation of the policy of privatization and restructuring, he believes, would reduce national losses by Rs.500 billion. As is evident, the government is not contemplating to privatize all the SOEs. It is only going to privatize the sick and non-profitable units while there are plans to restructure those entities which can be revived and made profitable. The privatization is being done through a board of directors in a transparent manner. Move to revive Railways is a vivid example of restructuring some of the strategically important state owned enterprises. Railways, which incurred losses of Rs.35 billion during the financial year 2012 and due to the paucity of funds and the dilapidated conditions of its locomotives, perforce had to discontinue a number of trains including goods trains---the most profitable of its operations--- and had to seek a bail out package from the government, has finally started showing signs of revival. According to the Railway authorities 6.12 million passengers traveled on trains during August to October as compared 4.63 million during the corresponding period last year. The revenues earned during this period amounted to Rs.5.319 billion as compared to Rs.3.954 billion during the same period last year. The trend is really encouraging as more and more people are now coming back to travel by train. The improvement in standard of the services, public facilitation and punctuality of trains is also quite visible. Similarly, the government, reportedly, has also decided not to privatize PIA. A plan has been approved to increase the number of flight worthy planes to 43 from the present 25, by December 2014 through the addition of 10 narrow body planes on dry lease as well as to carry out necessary restructuring. Apart from Railways and PIA, there are many other commercial concerns that can be revived and made profitable through sagacious policies and initiatives such as injecting required resources for their revival and running them on purely commercial lines by employing competent and truly professional persons with proven expertise and track record in those particular areas.
The truth is that it is not the job of the governments to run commercial concerns except those of strategic importance and public-welfare oriented units. It only has a regulatory role to ensure that there prevails a healthy competition in the market. Many other countries including Britain have taken such decisions to rectify the economic maladies and improving the health of the economy. The decision to privatize the non-profitable SOEs is economically prudent and would contribute tremendously to the process of revival of the economy. However the government must make sure that the concerns expressed by the opponents are properly addressed; utmost transparency is observed and seen in the privatization process and the rights of the employees of the privatized units are protected to avoid any political and social backlash.
It is estimated that State Owned Enterprises (SOEs) are collectively incurring an annual loss of between Rs.400-500 billion; more than 25% of the total revenue receipts of the government in a fiscal year. Keeping them afloat, therefore constitutes a huge drain on our precious national resources which could have been invested in vitally needed projects of socio-economic development. The government, presently, is running 126 such entities including big money guzzlers like Pakistan Steel Mills PSM), PIA, PSO and Railways among others. Pakistan Steel Mills alone suffered losses to the tune of Rs.200 billion during the last five years and the government had to give four bail-out packages amounting to Rs.40 billion to keep it on the ventilator. There are no two opinions about the fact that these entities owe the current state of affairs to inefficient management, corruption, political interference by successive regimes and recruitment of excessive personnel on the basis of political affiliations rather than actual needs of the organizations.
No developing country like Pakistan faced with a perennial scarcity of resources can afford the luxury of feeding these white elephants indefinitely. Therefore something needed to be done. In the early nineties when the PM(N) government was in power, an initiative was taken to disinvest the sick units and sell them to the private sector. Over the years some progress was made in certain areas but it could not be accelerated due to a number of factors including political opposition to such a move.
Privatization of some of the major loss incurring units and restructuring of others to turn them into profitable entities is an integral part of the economic agenda of the present PM (N) government. It has already decided to privatize 31 SOEs in three years, including PSM, Pakistan State Oil and a number of power producing and distribution companies. Privatization of the SOEs is also a conditionality of the IMF. The detractors of the privatization policy however oppose the move apprehending that these units would be privatized at throw away prices in a non-transparent manner. Further the government would be able to privatize only profitable units and would still remain burdened with running the loss accruing units; a proposition that in the long run could result in loss of massive revenue to the government. They are emphasizing the restructuring of the SOEs and tuning them into profitable entities, rather than indulging in the indiscriminate and hasty privatization.
The apprehensions of the critics seem to be based on assumptions rather than the ground realities. According to Chairman Board of Investment (BOI) the policy of privatization of SOEs is aimed at reducing state losses and attracting foreign investment in the crucial sectors of the economy. The successful implementation of the policy of privatization and restructuring, he believes, would reduce national losses by Rs.500 billion. As is evident, the government is not contemplating to privatize all the SOEs. It is only going to privatize the sick and non-profitable units while there are plans to restructure those entities which can be revived and made profitable. The privatization is being done through a board of directors in a transparent manner. Move to revive Railways is a vivid example of restructuring some of the strategically important state owned enterprises. Railways, which incurred losses of Rs.35 billion during the financial year 2012 and due to the paucity of funds and the dilapidated conditions of its locomotives, perforce had to discontinue a number of trains including goods trains---the most profitable of its operations--- and had to seek a bail out package from the government, has finally started showing signs of revival. According to the Railway authorities 6.12 million passengers traveled on trains during August to October as compared 4.63 million during the corresponding period last year. The revenues earned during this period amounted to Rs.5.319 billion as compared to Rs.3.954 billion during the same period last year. The trend is really encouraging as more and more people are now coming back to travel by train. The improvement in standard of the services, public facilitation and punctuality of trains is also quite visible. Similarly, the government, reportedly, has also decided not to privatize PIA. A plan has been approved to increase the number of flight worthy planes to 43 from the present 25, by December 2014 through the addition of 10 narrow body planes on dry lease as well as to carry out necessary restructuring. Apart from Railways and PIA, there are many other commercial concerns that can be revived and made profitable through sagacious policies and initiatives such as injecting required resources for their revival and running them on purely commercial lines by employing competent and truly professional persons with proven expertise and track record in those particular areas.
The truth is that it is not the job of the governments to run commercial concerns except those of strategic importance and public-welfare oriented units. It only has a regulatory role to ensure that there prevails a healthy competition in the market. Many other countries including Britain have taken such decisions to rectify the economic maladies and improving the health of the economy. The decision to privatize the non-profitable SOEs is economically prudent and would contribute tremendously to the process of revival of the economy. However the government must make sure that the concerns expressed by the opponents are properly addressed; utmost transparency is observed and seen in the privatization process and the rights of the employees of the privatized units are protected to avoid any political and social backlash.
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