Annual Report 2002 of Privatisation - United Nationsunpan1.un.org/intradoc/groups/public/documents/apcity/... · · 2013-01-25various units such as Ravi Rayon Limited and liquidation

Annual Report 2002 (Pakistan)

Privatisation Commission

Mission Statement Strengthening Public Finances and Enhancing the Quantity and Quality

of Pakistan’s Goods and Services

i

Contents Chairman’s Review Our Organisation

Our Mandate

Our Team

The Board of the Privatisation Commission

Cabinet Committee on Privatisation

Our Finances and Accounts Policy and Objectives Constraints in Implementation Measures to Facilitate the Process Progress to Date Recent Progress Privatisation Process

Identification

Hiring of a Financial Advisor Due Diligence

Enacting any Needed Regulatory and Sectoral Reforms

Valuation of Property

Pre-bid and Bid Process

Post-bid Matters Way Forward

Vision for the Future

Opportunities

Work in hand

Frequently Asked Questions Annex: Proceeds From Privatisation Transactions Glossary

ii

Contents ContinuedContents ContinuedContents ContinuedContents Continued

Financial Statements and Auditor’s Report Balance Sheet Income and Expenditure Account Notes to the Accounts Auditor’s Report

List of Charts

Chart 1: Organisational Chart

List of Boxes Box 1: List of Board Members

List of Tables

Table 1: Number of Privatised Transactions

Table 2: List of Upcoming Transactions List of Figures

Figure 1: Sources of Proceeds

Figure 2: Distribution of Proceeds

Figure 3: Timetable for a Strategic Sale

4

CHAIRMAN’S REVIEW

It is with pleasure that I on behalf of the Privatisation Commission present the Annual Report of the Privatisation Commission (PC) for the year ending June 30, 2002. Privatisation Commission’s Overview

The Privatisation program is part of the economic reforms agenda of the Government that focuses on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. The present Government took a fresh look at the privatisation program after taking over in October 1999. Unfortunately the privatisation process had gotten stalled during 1997-1999 and had to be started afresh. A lot of initial work had to be done to improve the enabling environment by way of promulgation of Privatisation Law, creation of Ministry of Privatisation, resolution of foreign investor disputes and establishing and strengthening regulatory frame work. Early in its tenure, the Government realised that the reasons for slow progress on privatisation during the last administration lay in an inhospitable enabling environment, legal challenges to privatisation, lack of resolution of key issues impacting the transactions, absence of a focused program with clearly identified state owned entities on the privatisation list, public opposition to privatisation, and lack of adequate regulatory frameworks for the privatisation of utilities. Recognizing the need to tackle the above issues on an emergent basis, the Government in its first two years undertook to prepare an enabling environment conducive to successful and fruitful privatisation program. Some of the measures taken by the Government in this regard included: Promulgating a Privatisation Commission Ordinance that provides legal cover to

challenges, comforts investors, assures transparency in sale process, and mandates distribution of proceeds

Restructuring and strengthening the Privatisation Commission to make it a leaner,

more transparent and more effective institution Appointing the Chairman as Minister for Privatisation to enhance the stature of

privatisation and facilitate the privatisation process

5

Improving the public’s understanding of privatisation rationale and process via seminars, interviews, publications, and a revamped website

Establishing and/or strengthening regulatory frameworks in power, oil and gas, and telecommunications to clarify the “rules of the game”

Carrying out sectoral reforms related to deregulation and pricing so that prices of goods and services bear a closer relation to their true cost and provide correct incentives to consumers and producers

Hiring top class financial advisors

Anticipating problems that the prospective investor may face in running the privatized entity and their timely resolution.

With the continuing improvement in the macro economic outlook, the pace of privatisation picked up momentum in the last one year in spite of various shocks to the economy like the 9/11 event, the Afghanistan crisis, amassing of troops by India on our Eastern border and terrorists activities inside the country. The success of the Government’s endeavor is evident form the fact that Privatisation Commission undertook transactions amounting to about Rs.35 billion since October 1999 as compared to transactions worth Rs.59.5 billion from the period November 1991 to October 1999. In fact, from 1997-1999 (the tenure of the pervious government), the privatisation proceeds were only Rs.2.35 billion. FY 2001-2002 was a busy year for the Privatisation Commission. With the continuing improvement in the macro economic outlook, the pace of privatisation picked up in the last one year in spite of various external shocks. Through September 2002, 22 transactions have been approved or completed totaling Rs.35 billion. These include 7 capital market transactions totaling Rs.2.3 billion, 1 finance and banking transaction (UBL) of Rs.12.35 billion, 8 oil & gas transactions totaling Rs 10.5 billion, 6 industrial and other transactions totaling Rs.9.3 billion. Concurrently, the groundwork for most of the major transactions on our privatisation list was successfully undertaken including the marketing of several landmark transactions in banking, power, and oil and gas sectors. Privatisation Commission was also instrumental in the restructuring and revitalization of various units such as Ravi Rayon Limited and liquidation of non-viable and sick units in order to curtail losses and stop financial hemorrhaging in the public sector. Similarly other units identified as non-privatisable for various reasons have been excluded from the privatisation programme Taking advantage of the buoyant stock exchange where KSE index crossed 2000 mark, the Privatisation Commission succeeded in divesting Government share holdings in a number of units including MCB, POL and NBP. The process continues and more such divestments are in the offing. These divestments have provided a fillip to the local capital markets by increasing capitalization and broadening of ownership. Despite the PC’s increased activities and workload, Privatisation Commission was successful in containing the administrative costs. Annual expenditures incurred for the year under review stand at Rs.44.609 million which is approximately 0.24 % of the revenues during the year. This compares quite favorably with the expenditure of Rs.43.742 million in FY2001 which was 4.6% of the revenue in that year.

6

The confidence shown by the investors in the investment climate in Pakistan is a matter of great satisfaction. Especially the recent acquisition of UBL by a consortium of overseas Pakistanis Group in partnership with Middle Eastern investors will send a strong signal to other overseas Pakistanis Group to look at investment opportunities in Pakistan. This is the largest investment by any overseas Pakistani in the country. Moreover, such large investment just before the October 2002 elections demonstrates the investor confidence in the economic policies of Pakistan.

SSSSummary of Key Activities in the last one yearummary of Key Activities in the last one yearummary of Key Activities in the last one yearummary of Key Activities in the last one year Some of the major activities undertaken by the Privatisation Commission in the last one year include: - a) Divestment of 51% shares of United Bank Limited to a consortium of Abu-Dhabi

Group and Bestway Group for Rs.12.35 billion. b) Divestment of GoP’s Working Interests in several oil & gas discoveries (namely

Badin-I, Badin-II – Revised, Turkwal, Adhi, Ratana, Dhurnal) for Rs. 10.154 billion c) Strategic Sale of 100% shares of Pak Saudi Fertilizer Limited to a consortium led by

Fauji Fertilizer Limited for Rs.8.151 billion. d) Divestment of 49 million shares of Muslim Commercial Bank for Rs. xxx billion.

e) Divestment of 20% shares of National Bank of Pakistan for Rs. xxx billion. f) Sale of four industrial and property units totaling Rs. 1.5 billion. g) Divestment of 30% shares of Bank Alfalah for Rs.620 million. h) Divestment of management rights of 12 Investment Corporation of Pakistan (ICP)

mutual funds (Lot “A”) for Rs. 175 million. i) Approval of the transaction structures for Oil and Gas Development Company

(OGDC), Pakistan State Oil Company Limited (PSO), Karachi Electric Supply Company (KESC), National Investment Trust Limited (NITL), Investment Corporation of Pakistan and Habib Bank Limited (HBL).

j) Marketing of OGDCL, PSO, KESC, HBL, NITL, ICP and Pak Arab Fertilizer

Limited. k) Strengthening of Policy and Regulatory frameworks in the telecommunications, oil

and gas sectors including the promulgation of the Oil and Gas Regulatory Ordinance, notification of tariff and licensing rules etc.

l) Initiation of preparatory work on several transactions like Karachi Shipyard and

Engineering Works, Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines

7

Limited (SNGPL), Faisalabad Electricity Company (FESCO) and Jamshoro Power Company (JAMCO).

m) Notification of Privatisation Commission’s rules and regulations With the completion of preparatory work on key transactions such as PSO, OGDCL, PTCL, Habib Bank, KESC, ICP, NITL and Pak-Arab Fertilizer these have been brought to a very advanced stage and are expected to be finalized in the next three to four months. Way Forward Our long-term vision is a government that focuses on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. This would generate employment, which is necessary to reduce poverty. In short, we believe that the Government has no business being in business. The Privatisation Commission can help to put business into the right hands while freeing the Government to focus on such matters as ensuring law and order and making sure that the enabling framework is conducive to investment while being fair to consumers and the taxpayers. The privatisation program is expected to continue to play an important part in further stimulating the economic development through increased capital formation, widespread ownership of the privatised assets and reduction in the burden of subsidies. Direct participation of the Government in commercial activities should progressively reduce. In this regard the Government should focus on two broad areas. First, building up a stable governance and environment that encourages investment but, at the same time, safeguards the public interest through a regulatory framework in case of key areas such as power, telecommunication, oil & gas and transport sectors. Second, helping to create a suitable physical and technological infrastructure required for the unhindered economic development of our rapidly growing society. In the end I would like to acknowledge the cooperation extended by all arms of the Government and its various agencies and departments and the efforts of the team at the Privatisation Commission in making the privatisation process in the tenure of the present Government a major success.

Altaf M. Saleem

Chairman October 2002

Our OrganisationOur OrganisationOur OrganisationOur Organisation Our Mandate Within the overall Government policy of strengthening the private sector’s role in the provision of goods and services and with the approval of Cabinet, the Privatisation Commission (PC) is entrusted with selling federal government property—such as its shares in banks, industrial units, public utilities, oil and gas companies, transport companies, and infrastructure service providers—in an open and transparent manner. In addition to the sale of shares or assets, it may also offer concessions or the right to operate publicly owned assets, without selling the assets themselves. On September 28, 2000, the Government promulgated the PC Ordinance 2000, which strengthened the PC’s legal authority as a corporate body for implementing the government’s privatisation policy. The measure increased PC’s accountability and independence and has provided greater comfort to investors. It also specified that 90 percent of net privatisation proceeds would be allocated to debt retirement and 10 percent to poverty alleviation programs. A copy of the Ordinance is available on PC website www.privatisation.gov.pk. In November 2000, with a view to enhancing the stature of privatisation and facilitating transactions, the Ministry of Privatisation was created. The Chairman of the PC was appointed as Minister for Privatisation, while the Secretary of the PC became the Secretary of the Ministry of Privatisation. Our Team The staff of the PC comprises of civil service officers and in-house consultants such as transaction managers, along with support staff. As of June 30, 2002, the PC employed 10 civil service officers and 11 in-house consultants (Chart 1), less than half the number it did in 1999. Civil service officers make decisions, with important decisions requiring approval by the Chairman on the recommendations of the Secretary. Certain policy and important decisions require approval of the Board of the Privatisation Commission, while a few key decisions require the approval of the Cabinet Committee on Privatisation (CCOP), for which the Board of the PC makes appropriate recommendations. Typical tasks for In house consultants / transactions managers include preparing the terms of reference and hiring external consultants/advisors, overseeing and assisting the external consultants to ensure timely submission of deliverables, liaising with the relevant ministry staff, regulators, and management of the entity being privatised, and advising on sectoral policies and regulatory frameworks related to privatisation. In-house consultants/transaction managers are also involved in providing legal, accounting, and public relations support.

Privatisation Commission Annual Report 2002

Chart 1: OrganisatioChart 1: OrganisatioChart 1: OrganisatioChart 1: Organisational Chartnal Chartnal Chartnal Chart As of 30 June 2002

Transaction Managers

Upcoming Transactions

Transaction Associate

Advisory Section

Drawing & Disbursement

Officer

Transaction Managers

Upcoming Transactions

Consultants

Legal & Finance

Deputy Director

Administration

DirectorAdministration

Director GeneralBanking & Utilities

DirectorPolicy & Coordination

Public RelationsOfficer

Deputy DirectorIndustry

Director GeneralIndustry & Transport

Advisor

Secretary

Legal Consultant

Corporate

Director GeneralPost Privatisation & Admin.

Chairman

Accounts Officer


The Board of the Privatisation Commission

The Board of the Privatisation Commission is headed by the Chairman and comprises thirteen other permanent members. Ten of the members are prominent professionals from the private sector, all of whom are serving without remuneration. Four of the private sector members are from the province of Punjab, two from Sindh, two from NWFP and one from Baluchistan. The four government members include the Chairman and the Secretary of the PC, the Secretary General Finance, and the Chairman of the Securities and Exchange Commission. In addition, the Secretaries of the respective Divisions whose matters are being discussed at a Board meeting are ex-officio members for the issue under consideration. A list of regular members of the Board as at June 30, 2002 is given (Box 1).

Box 1: List of Board MembersBox 1: List of Board MembersBox 1: List of Board MembersBox 1: List of Board Members Chairman 1. Altaf M. Saleem, Chairman, Privatisation Commission

Private Sector Members 2. Chaudhry Shahid Hussain, Chairman, Services Group

3. Firozuddin A. Cassim, Former President, Karachi Stock Exchange

4. Mahmood Faruque, Managing Director, Ghulam Faruque Group

5. M. Khalil Mian, Chartered Accountant, Chairman, Pakistan Credit Rating Agency

6. Mohammad Ali Jogezai, Minister for Industries, Commerce, Labour & Mineral Development, Government of Balochistan

7. Moin M. Fudda, President, Management Association of Pakistan

8. S.M. Naseem, Former President, Rawalpindi Chamber of Commerce and Industries

9. Saquib H. Shirazi, Chief Executive Officer, Atlas Group of Companies

10. Muhammad Afzal Khan, An Oil & Gas Experts. Also working as Chairman, OGDCL

Government Members 11. Mueen Afzal, Secretary General, Finance 12. Khalid A. Mirza, Chairman, SECP

13. Ahmad Waqar, Secretary, Privatisation Commission

Ex- Officio Member 14. Secretary of the Ministry/Division concerned whose item is on the

agenda of the meeting of the PC for the relevant item.


Cabinet Committee on Privatisation (CCOP) Created in 1991, the CCOP has operated continuously except for the period September 1998 to February 2000, when a Privatisation Board of Pakistan headed by the Prime Minister replaced it. Presently, this Committee of the Cabinet is headed by the Minister for Finance and includes the Ministers for Commerce & Industries, Communications & Railways, Petroleum & Natural Resources, Privatisation, Environments, Local Government, Labour and Water & Power. Deputy Chairman, Planning Commission and the Chairman, Board of Investment are also members of the CCOP. According to its terms of reference issued in February 2000, the CCOP is to:

• Formulate the Privatisation Policy for approval of the Government/Cabinet • Approve the State Owned Enterprises to be privatised on the recommendation of

the Privatisation Commission or otherwise • Take policy decisions on inter-ministerial issues relating to the privatisation

process • Review and monitor the progress of privatisation • Instruct the Privatisation Commission to submit reports/information/data relating

to the privatisation process or any matter relating thereto • Take policy decisions on matters pertaining to privatisation, restructuring,

deregulation, regulatory bodies and Privatisation Fund Account • Approve the Reference Price in respect of the State Owned Enterprises being

privatised • Approve the successful bidders • Consider and approve the recommendations of the Privatisation Commission on

any matter • Assign any other task relating to privatisation to the Privatisation Commission.


Our Finances and Accounts

Funding for the Privatisation Commission comes from loans and grants from the Federal

Government, supplementary contributions from the Privatisation Fund, into which

privatisation proceeds are deposited and grants from donors. The financial statements,

including the balance sheet and income and expenditure statements for the financial year

ending June 30th, 2001 - 2002 and the Auditor’s Report are given in chapter 4.11 of this

Report Highlights are given in the paragraphs that follow.

During the financial year under review, the Commission successfully completed

privatisation of 15 transactions including privatisation of major projects like GOP

Working Interests in 6 Oil Concessions, Pak Saudi Fertilizers Ltd., and sale of shares of

MCB and NBP. Total sale proceeds amounted to Rs.19.656 billion. This included US$

127.423 million received from the sale of Oil Concessions in foreign currency. Out of

these proceeds, the Commission transferred Rs.8.351 billion to the Government of

Pakistan for debt retirement and poverty alleviation programs. Besides, instructions for

transfer of foreign currency funds amounting to US$ 125.979 million are awaited from

Finance Division. In addition, the Commission has transferred Rs.730.0 million to the

SNGPL, SSGC, SBP, AHP, PIA and Custom Welfare Fund as part of their respective

share in different entities.

Finance Division had allowed the Privatisation Commission to open interest bearing

account both in US Dollars as well as in Pak Rupees where the funds received from

bidders are retained till the final closure of transactions. The Commission earned a

markup of Rs.14.9 million by maintaining these accounts. The Commission also

recovered fee amounting to Rs.8.6 million in line with CCOP approval. As a result, the

Commission had a surplus of income over expenditure by Rs.23.2 million thereby

reducing the requirement of funds through supplementary contribution from privatisation

fund, to nil.


The Auditor’s Report shows substantial improvement over the previous year Report. In

light of auditor’s recommendations in the FY2000 and FY 2001 report, concerted efforts

were made to improve the accounting system and records. Complete computerization of

the accounts was undertaken, severance payments (GHS and VSS) were reconciled and

details relating to the settlement and adjustment of picked up liabilities were firmed up.

The Board also constituted a Committee that made recommendations on the settlement

and adjustment of liabilities picked up in privatised units. In view of the improvements

made in accounting systems and records, the auditors have maintained only following

two qualifications.

Non-verification of terms and conditions of FSDIP Loan;

Non-provisioning against receivables from the buyers of privatised entities.

These two qualifications relate to uncertainty of receivables from pending court cases and

to unspecified terms of a World Bank loan to GOP, part of which was relent to the PC for

financing consultancy services. The uncertainty of legal outcome is the ground on the

basis of which the auditor has classified defaulted receivables in litigation as “doubtful

debts” until such amounts are realized. While the PC has not yet acknowledged these to

be “doubtful”, a review of the outstanding receivables is underway in order to reconcile

the outstanding amounts. With respect to the World Bank relent GOP loan, the PC, in

consultation with the Economic Affairs Division, expects to finalise the terms and

conditions of the loan and the qualification will not prevail next year.


Policy and Objectives

The Government's program for transfer of the ownership of public assets is unambiguously predicated on the principle of reducing its direct participation in commercial activities. The Government’s role will be limited to the oversight of the economy and to ensure equity and economic justice. This reinforces the need for regulation in strategic areas and the design of appropriate policies in order to ensure that the functioning of the economy is not distorted and that benefits are distributed in an equitable manner. The broad features of the privatisation policy are: • Privatisation is part of the overall economic program that embraces

deregulation and liberalization of the economy. In this regard, its scope includes all public assets that can be transferred to or managed by the private sector. Furthermore, it is a comprehensive policy that recognizes the need for regulation, broad-based legislative support and careful planning.

• The program of privatisation is flexible and not unduly rigid. It is being organized in such a manner that adjustments are made and necessary changes accommodated as privatisation proceeds in order to ensure successful divestiture of public enterprises to the private sector.

• The privatisation policy is an important feature of the economic liberalization agenda that will lead to improvement of domestic industry, greater private capital investment and economic growth.

• The program will enable the Government to liberate itself from micro-management of the economy and to reduce the need for persistent budgetary support to the public enterprises.

• The policy aim’s to provide a vehicle for potential investors to invest in Pakistan through their participation in the privatisation process. In this respect efforts are continuously being made to harness the resources of the expatriate Pakistani and domestic private sector investors.

• Safeguards are being introduced to achieve broad based ownership and to prevent the concentration of resources in a few hands, while promoting privatisation through competitive bidding.

• Steps will be taken to ensure that the interests of consumers are protected, especially in respect of fair price and quality of product.

• Establishment and strengthening of regulatory frameworks will be ensured to protect the genuine interests of the investors, consumers, tax payers and the Government will be safeguarded.


• Above all, learning from previous experiences, the process of privatisation has been made manifestly transparent through codification of procedures and process to the extent possible.

• Special care is being taken to protect the genuine interests of the employees of enterprises proposed to be privatized.

The Privatisation Commission Ordinance 2000 strives, among other things, to ensure that such policy objectives are met. In addition to specifying advertising requirements to ensure the widest possible participation in privatisation, the Ordinance also directs the Privatisation Commission to advise that monopolies are not created in the privatisation process, to propose or strengthen a regulatory framework for independent and fair regulation, and to advise on deregulating the economy to the maximum extent possible. Another policy decision of the Government that has also been enshrined in the Ordinance relates to utilizing the proceeds of privatisation primarily to reduce debt. With higher interest debt being retired first, the debt service payment would reduce by a greater percentage than the reduction in debt level. Fiscal position would improve in three additional ways. First, many public companies are making losses and obtain fiscal support via such means as equity injections, loans and bonds, loan and bond guarantees, and direct budgetary support. If the Government were to divest all its holdings in the company, it would no longer be responsible for financing any losses. Second, privatisation is likely to enhance profits, which would generate higher income tax revenues as well as increased profits per share on any remaining Government shareholdings. Finally, as the number of public companies falls, the number of employees in their respective ministries can also be reduced. Not only would this result in fiscal savings, it would free up human capital that could be employed more productively in the private sector, which would become more vibrant after receiving improved infrastructure services. In addition to privatising companies by handing over management control to new investors, the Government is also committed to use privatisation as a means of broadening the ownership of assets, mobilizing savings, and helping strengthen capital markets. For this reason, the Government is selling minority shares via the stock market in selected companies either before or after the transfer of management control. Listing and selling companies in the local stock exchanges is likely to give a much-needed boost to the stock markets and help tap into people’s savings. Simply listing a company in the stock exchange may also improve corporate governance, as companies will be forced to comply with the stringent reporting requirements of the stock exchange and Securities and Exchange Commission.


Last, but not least, privatisation is seen as a way to reduce corruption. The experience in many countries, including Pakistan, is that public ownership of businesses provides many opportunities for corruption. Kickbacks on the purchase of goods and services are one form of corruption. Theft and abuse of public property are others. Some employees of public companies providing services such as electricity, telephony, or banking may collude with certain consumers to provide free or cheap services in exchange for side payments. Decision makers, senior ministry officials, and other influential people may exacerbate the situation by staffing state-owned enterprises with their cronies and supporters and by pressuring state-owned banks to lend funds to bankrupt state-owned companies or to influential businessmen for risky or dubious projects. Honest consumers and taxpayers become the big losers. Privatisation will quickly curtail such forms of corruption. Achievement of these objectives will, in turn, enhance economic growth, which is the key to sustainable poverty reduction and improved living standards. The biggest gainers are likely to be poor consumers, most of whom do not presently have access to services. The other large and diverse group that will benefit substantially is the taxpayer, who currently pays a variety of direct and indirect taxes to cover the losses of state-owned enterprises and fails to get a satisfactory rate of return on taxpayer monies that have been invested in state-owned companies. The third large group to gain is the worker who is capable and willing to work, whose job opportunities will expand with increased investment and better provision of services. As per existing policy, the workers of displaced from Industrial units receive a generous golden handshake that can tide them over until they obtain another job. Constraints in Implementation Although Pakistan’s privatisation programme is amongst the more successful ones in the region, it did not achieve its targets in the past. Successive governments promised to execute privatisation programmes totaling billions of dollars in sales, yet managed to deliver only a small fraction of it. Of the 122 privatisation transactions, the Muslim Commercial Bank, Allied Bank Limited, KAPCO and Pak Saudi Fertilizer are the only major privatisations that were accompanied by a transfer of management control. Given that privatisation has been the cornerstone of every government’s policy during the last 12 years, and given its potential for strengthening public finances and improving services, it is useful to ask as to why has there been relatively less privatisation? Why have attempts by successive governments to sell companies in power, telecommunications, and banking sectors was met with success? Why do so many people believe that privatisation has not served Pakistan well?


While, there are no simple answers to the above questions, the slow pace of privatisation can be attributed to an amalgamation of several extenuating factors including:

• Perception issues and lack of investor confidence • Prices for services that did not reflect the cost of providing them • A lack of a clear and fair regulatory framework • Opposition from those with vested interests • Litigation and investigations against the PC from the public as well as

official investigative agencies. On-going investigations and audits on several transactions by various investigative agencies have further exacerbated the situation.

• Public misperception and distrust for the objectives and process of privatisation

While promulgation of the PC Ordinance, sectoral and regulatory reforms, and the public information campaign, in particular, have helped in overcoming some of the obstacles to privatisation, many people, especially those with vested interests, continue to oppose privatisation and attempt to derail the process. Attempts to derail privatisation come disguised in four forms. First, officials and company employees insist on time-consuming restructuring or unbundling of companies prior to privatisation under the guise of hiving off strategic assets, improving efficiency, or turning around company finances in order to obtain a better price. Second, they dawdle in implementing reforms on pricing or the regulatory framework, which they assert, rightly or wrongly, is needed for a successful privatisation. Third, they raise unrealistic expectations on price, thereby casting doubts on the integrity of officials and buyers if they settle at a lower price. Fourth, by claiming that property was disposed at a low price or without due process, they use national investigative agencies to pursue their claims. Although no wrongdoing has yet been proven, the investigative process is demoralizing for privatisation officials staff and uses up much of their time. It also deters potential investors from bidding. Moreover, previous Chairmen and others involved in privatisation had been charged and jailed without bail while awaiting trial/investigation. As a result, those involved in preparing privatisations are wary about recommending or implementing what would otherwise be sound business decisions or ways to expedite the process. Better training for investigative authority staff on privatisation matters and a more professional manner in the conduct of investigations would facilitate privatisation, thereby stopping the fiscal hemorrhaging from loss-making companies, improving services, and greatly reducing opportunities for corruption.


Measures to Facilitate the Process Recognizing the need to tackle the issues imparting the pace and progress of privatisation on an emergent basis, the Government undertook to prepare an enabling environment conducive to successful and fruitful privatisation program. The measures taken by the Government in this regard included: Improving the macroeconomic climate reflected in unprecedented foreign

exchange reserves, control of inflation, a stable foreign exchange rate, reduced trade deficit etc. and resolving investor disputes

Promulgating a Privatisation Commission Ordinance that provides legal cover

to challenges and comfort to investors, assures transparency in sale process, and mandates distribution of proceeds

Restructuring and strengthening the Privatisation Commission to make it a

leaner, more transparent and more effective institution Establishing and/or strengthening regulatory frameworks in power, oil and

gas, and telecommunications to clarify the “rules of the game” Carrying out sectoral reforms related to deregulation and pricing so that

prices of goods and services bear a closer relation to their true cost and provide correct incentives to consumers and producers


Anticipating problems that the prospective investor may face in running the

privatized entity and their timely resolution. Improving the public’s understanding of privatisation rationale and process via

seminars, interviews, publications, and a revamped website Creating a Ministry of Privatisation to enhance the stature of privatisation,

show the Government’s commitment to privatisation, and facilitate the privatisation process

Progress to Date


Privatisation efforts began in earnest after the creation of the Privatisation Commission on January 22, 1991. Although the PC’s mandate was initially restricted to industrial transactions, by 1993 it had expanded to also include power, oil and gas, transport (aviation, railways, ports and shipping), telecommunications, and banking and insurance.

During the financial year under review, the Commission successfully completed privatisation of 15 transactions including privatisation of major projects like GOP Working Interests in 6 Oil Concessions, Pak Saudi Fertilizers Ltd., and sale of shares of MCB and NBP. Total sale proceeds amounted to Rs.19.656 billion. This included US$ 127.423 million received from the sale of Oil Concessions in foreign currency. Out of these proceeds, the Commission transferred Rs.8.351 billion to the Government of Pakistan for debt retirement and poverty alleviation programs. Besides, instructions for transfer of foreign currency funds amounting to US$ 125.979 million are awaited from Finance Division. In addition, the Commission has transferred Rs.730.0 million to the SNGPL, SSGC, SBP, AHP, PIA and Custom Welfare Fund as part of their respective share in different entities.

Finance Division had allowed the Privatisation Commission to open interest bearing account both in US Dollars as well as in Pak Rupees where the funds received from bidders are retained till the final closure of transactions. The Commission earned a markup of Rs.14.9 million by maintaining these accounts. The Commission also recovered fee amounting to Rs.8.6 million in line with CCOP approval. As a result, the Commission had a surplus of income over expenditure by Rs.23.2 million thereby reducing the requirement of funds through supplementary contribution from privatisation fund, to nil.

The momentum of privatisation process was maintained even after closure of the financial year. The Commission during three months period from July 2002 to September 2002 has sold 51% GOP stake in UBL, additional 10% shares of Pak Saudi Fertilizer Limited and has concluded two Capital Market Transactions amounting to Rs. 13.595 billion. Moreover, bidding of Thatta Cement, ICP Lot A and 28% shares of Bank Alfalah has successfully been carried out which would procure another Rs. 1.514 billion.

By the end of September 2002, the Government of Pakistan had completed or approved 128 transactions at gross proceeds of Rs 94.170 billion The sources of the proceeds have been shown in the figure 1. About 61% of the gross receipts were turned

over to the Federal Government and 8%,

Figure 1: Sources of Proceeds

Energy22%

Telecom32%

Industrial &Other24%

Finance &Banking

22%Figure 2: Distribution of Proceeds

Rupees in Billion

34

657

Returned to SOE Privatisation ExpenseRestructuring Expense Returned to GOP


realised from Concessions, is in process of transfer, 6% was used for restructuring

expenses associated largely with golden handshakes, 3% was returned to companies on

whose behalf shares were sold, and 4% was used by PC essentially for

transaction/privatisation-related expenditures (Figure 2).

While almost all the transactions were settled in local currency, about two-thirds of the proceeds were received in foreign exchange from transactions namely PTCL (IPO of 12% shares), Kot Addu Power Plant (KAPCO), Seven Oil & Gas Concessions, Habib Credit & Exchange Bank (now Bank Alfalah) and United Bank Limited. The following table provides the number of transactions privatised and the Annex provides a list of the transactions by date and amount of proceeds. Table 1 : Number of privatised transactions

(Rupees in Million

From 1991 to Jun 01 From Jul 01 to Jun 02 From Jul 02 to Oct 15, 2002

To Date

Sector

No.

Amount

No.

Amount

No.

Amount

No.

Amount

Banking 4 5,644 1 12,350 5 17,994 Capital Market Transaction

1 563 2 737 4 1,226 7 2,526

Energy 4 9,549 8 11,349 12 20,898 Telecom 2 30,558 2 30,558 Automobile 7 1,102 7 1,102 Cement 11 7,790 1 718 12 8,508 Chemical / Fertilizer

14 2,045 2 7,338 1 815 17 10,198

Engineering 7 187 7 187 Ghee Mills 19 646 2 122 21 768 Rice / Roti Plants

23 326 23 326

Textile 2 87 2 87 Newspapers 5 270 5 270 Tourism 3 594 3 594 Others 4 44 1 110 6 154 Total 106 59,405 15 19,656 7 15,109 128 94,170

Recent Progress Realizing the reasons for slow progress on privatisation lay in an inhospitable enabling environment, legal challenges to privatisation, public opposition to privatisation, and lack of adequate regulatory frameworks for the privatisation of


utilities, efforts were taken to remedy the above situation. Some of the specific measures as part of the overall program included:

• Strengthening of the regulatory regime in telecommunications and Power and establishment of Oil and Gas Regulatory Authority.

• Pursuant to Privatisation Commission Ordinance, 2000 promulgation of

Privatisation (Modes & Procedure) Rules 2001, Privatisation Commission (Valuation of Property) Rules, Privatisation Commission (Hiring of Valuers) Regulations 2001 and Privatisation Commission (Hiring of Financial Advisor) Regulations. Other set of rules & regulations are under process of publication/finalization.

• Coverage arrangements through print & electronic media were made

regarding the projection of on going transactions of Privatisation Commission and the meetings of various dignitaries/delegations with the Minister for Privatisation. Interviews of the Minister with the national and international news agencies and journalists were also arranged.

With the continuing improvement in the macro economic outlook, the pace of privatisation has picked up momentum since the past about one year in spite of various shocks to the economy like the 9/11 event, the Afghanistan crisis, amassing of troops by India on our Eastern border and terrorists activities inside the country. Since October 1999 through September 2002, 22 transactions have been approved or completed totalling over Rs.35 billion. These include 7 capital market transactions totalling Rs.2.3 billion, 1 finance and banking transaction (UBL) of Rs.12.35 billion, 8 oil & gas transactions totalling Rs 10.5 billion, 6 industrial and other transactions totalling Rs.9.3 billion. Some of the major transactions completed are: -

a) Divestment of GoP’s Working Interests in seven oil & gas discoveries (namely Badin-I, Badin-II – Revised, Minwal, Pariwali, Turkwal, Adhi, Ratana, Dhurnal and Mazarani). Bids amounting to US $ 187.891 million were approved. The transactions for six concessions have been closed. The bidder for Priwali transaction lost interest.

b) Strategic Sale of 100% shares of Pak Saudi Fertilizer

Limited to a consortium led by Fauji Fertilizer Limited. Full amount of Rs.8151 million has been received.

c) Divestment of 51% shares of United Bank Limited to a

consortium of Abu-Dhabi Group and Bestway Group for Rs.12.35 billion. Payment of US $ 90,188,320 and local


currency component of Rs.944, 411,765 received. Second installment of US $ 86,719,538 and Pak. Rs.908, 088,235 is expected to be received before 20th October 2002.

d) Divestment of 42.45 million shares of Muslim Commercial

Bank for Rs.1287.45 million.

e) Divestment of 10% shares of National Bank of Pakistan for Rs.373 million.

f) Divestment of 30% shares of Bank Alfalah for Rs.620 million.

Key transactions such as PSO, OGDCL, PTCL, Habib Bank, KESC and Pak-Arab Fertilizer have been brought to a very advanced stage, which are expected to be finalized in the period November, 2002 to March, 2003. The confidence shown by the investors in the investment climate in Pakistan is a matter of great satisfaction. Specially the recent acquisition of UBL by a consortium of overseas Pakistanis Group in partnership with Middle Eastern investors will send a strong signal to other overseas Pakistanis Group to look at investment opportunities in Pakistan. This is the largest investment by any overseas Pakistani in the country. Moreover, such large investment just before the October 2002 elections demonstrates the investor confidence in the economic policies of Pakistan.

Privatisation ProcessPrivatisation ProcessPrivatisation ProcessPrivatisation Process The privatisation process, which is aimed at selling government property in an open and transparent way with a view to obtaining the best possible price, varies somewhat depending on the nature of the asset being privatised, on the proportion of shares being offered for privatisation, and on whether a transfer of management is involved. The Board of the Privatisation Commission decides as to what kind of process will be followed. A brief description of some of the steps common to major transactions is provided below:


Identification The first step is the identification of the entity or list of entities to be privatised. In a typical transaction, the Privatisation Commission, in consultation with the relevant ministry, submits a Summary of the proposed transaction to its Board. The Summary justifies the need for privatising the property, outlines the likely mode of privatisation, and sometimes seeks guidance on issues relating to such matters as pricing, restructuring, legal considerations, and the regulatory framework. Once endorsed by the Board, it is submitted to the Cabinet or its subcommittee, the Cabinet Committee on Privatisation, for approval. Hiring of a Financial Advisor In major transactions, the process to hire a financial advisor is carried out by the transaction manager with the approval of the Board. Terms of reference for the FA are finalised, expressions of interest from prospective FAs are solicited, an evaluation team is constituted, and short listed firms are invited to submit technical and financial proposals in a common format. The evaluation team scores the technical proposals and the highest ranked firm based on both technical and financial scores is invited for contract negotiations and signing. In November 2001, the Board approved regulations for hiring a financial advisor in order to make more transparent the procedures that were largely being followed over the last decade. A copy of these regulations can be obtained from the PC website at www.privatisation.gov.pk. Due Diligence The next step is to carry out the legal, technical, and financial due diligence. This is aimed at identifying any legal encumbrances, evaluating the condition of the assets, and examining the accounts of the company in order to place a value on the company. For most industrial units and some small transactions, this is done using in-house transaction managers and staff, or by sub-contracting out part of the work to a domestic legal, technical, or accounting firm. However, for major privatisations in banking, infrastructure, or utilities, the FA carries out this function. Following due diligence, the FA finalises the privatisation plan. This may include recommendations on any needed restructuring, in addition to specifying the amount of shares or assets to be privatised. For major privatisations or when the proposed privatisation mode is different from the initial plan, the plan is then submitted to the Board, the CCOP, or the full Cabinet for approval. Enacting any Needed Regulatory and Sectoral Reforms For many major transactions, the ability to privatise and the amount of proceeds realisable depend critically on the level of regulated prices for the public enterprise’s inputs or outputs and other sectoral or regulatory policies. For many monopolies or


quasi-monopolies, the “rules of the game” specifying the competition framework post-privatisation, the manner and type of regulation, and the institutions regulating them are key to investor interest. In addition to rules determining prices or tariffs, there may be rules determining standards, penalties for non-compliance, the extent, form and timing of any proposed deregulation, and the evolving structure of the market following liberalisation. Clarification of these rules and passage of needed laws and regulations will often be necessary before taking the transaction to market. Valuation of Property In order to obtain an independent assessment of the value of the property being privatised, the Commission relies primarily on external firms. The Financial Advisor, where engaged, carries out the valuation to obtain a “reference price” for the property. In other cases, the Commission contracts with an external valuation firm or accounting firm as specified in the rules on the valuation of property, which can be obtained from the PC website. The methods used for the valuation vary with the type of business and often more than one method is used in determining the value. These include the discounted cash flow method, asset valuation at book or market value, and stock market valuation. Despite using scientific methods, valuation remains more an art than a science. The true value is dependent on many difficult to quantify variables such as country risk, corporate psychology and strategy, investor specific synergies and perceptions of future macroeconomic performance. Only the market can determine the true value. Therefore it is important to focus on designing appropriate transaction structures, on advertising in relevant media, in choosing and implementing appropriate pre-qualification criteria for bidders, and in following an appropriate bidding process to obtain a fair price for the privatisation. Pre-bid and Bid Process Expression of Interest (EOI) are invited by advertising in the relevant media. The PC Ordinance 2000 spells out some of the advertising procedures. Depending on the kind of transaction, the EOI describes the broad qualifications that potential bidders must possess. Those submitting an EOI and meeting the broad qualifications are provided with the Request for Proposal (RFP) package, where required containing the detailed pre-qualification criteria, instructions to bidders, draft sale agreement, and other relevant documents. Interested parties then submit a Statement of Qualifications (SOQ), which is evaluated to determine whether an interested party meets the requisite qualifications. Pre-qualified bidders are then given a specified period to conduct their own due diligence, following which they are invited to pre-bid meeting(s) where their questions and concerns can be addressed. The meetings are useful in determining the bidding procedure to be followed (for example, open auction, sealed bids, or some combination) and could even determine the proportion of shares that the Government may want to offload. The bidding itself is done openly, with all bidders and media invited.


Post-bid Matters Following bidding and identification of the highest bidder, the Board of the PC makes a recommendation to the CCOP as to whether or not to accept the bid. The reference price is a major determinant in the recommendation, although the Board may recommend the sale even if the offer price is below the reference price. Once the bid price and bidder are approved, the PC issues a letter of acceptance or a letter of intent to the successful bidder, indicating the terms and conditions of the sale. Following negotiations with the bidder, the PC then finalises the sale purchase agreement, collects the sale proceeds, and transfers the property. Under PC’s current policy, privatisation proceeds are required to be paid upfront rather than over time, as had been the case for many earlier transactions. Within 30 days of the sale, the PC is required to publish the summary details of the transaction in the official gazette. In summary, the privatisation process is lengthy for major transactions, mainly to assure transparency in the process. After receiving CCOP approval for the privatisation, it typically takes about 18 months to close a major transaction, even when no major restructuring of the company is required (Figure 3). This includes about six or seven months to appoint a Financial Advisor and another three or four months for the FA to complete its legal, technical and financial due diligence and to propose a privatisation strategy. Following approval of the strategy, the marketing and bidding process may take five or six months (valuation efforts proceed in parallel), while it may take another two months after bidding to obtain approvals, finalise sale documents, and close the transaction. Additional delays in privatisation are often caused by waiting for the necessary regulatory framework and sectoral policies to be put in place and for any needed restructuring to occur.


Figure 3: Timetable for a StrateFigure 3: Timetable for a StrateFigure 3: Timetable for a StrateFigure 3: Timetable for a Strategic Salegic Salegic Salegic Sale Months

Activity 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 EOI invited for Financial Advisor RFP package sent to qualified FAs FAs submit technical and financial proposals Evaluation of FA proposal Board approval and contract negotiations

Due diligence and privatisation strategy Valuation Preparation of info memo and data room EOI invited for bidders Pre-qualification of bidders Due diligence by prequalified bidders

Pre-bid conference and bidding Board and CCOP approval Sale agreement and closing

Note: This is indicative time table which may vary from transaction to transaction.

Way Forward ---- Challenges & Opportunities Vision for the Future Our long-term vision is a government that focuses on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. This would generate employment, which is necessary to reduce poverty. In short, we believe that the Government has no business being in business. The Privatisation Commission can help to put business into the right hands while freeing the Government to focus on such matters as ensuring law and order and making sure that the enabling framework is conducive to investment while being fair to consumers and the taxpayers. The privatisation policy is expected to stimulate economic development through increased capital formation, widespread ownership of the privatised assets and reduction in the burden of subsidies. Direct participation of the Government in commercial activities should progressively reduce. In this regard the Government should focus on two broad areas. First, building up a stable governance and environment that encourages investment but, at the same time, safeguards the public interest through a strong and credible regulatory framework in case of key areas such as power, telecommunication, oil & gas and transport sectors. Second, helping to create a suitable physical and technological infrastructure required for the unhindered economic development of our rapidly growing society. Opportunities The current privatisation programme includes many transactions in the banking and finance, oil and gas, telecommunications, power, and industry sectors. However, the privatisation agenda is much broader. For example, while KESC is likely to be the first privatisation in the power sector following KAPCO, the Government is committed to privatising all its distribution companies and all its thermal generation plants. Preparatory work for this purpose is underway, with the distribution company (FESCO) Faisalabad and Generation Company Jamshoro likely to follow on the heels of KESC. Preparatory work for the privatisation of Peshawar Generation Company has also been initiated. Eventually a competitive market for power is envisaged. In some areas, such as the national flagship airline, PIA, the Pakistan Steel Mills, and Pakistan Railways, the Government strategy is to turn around the companies before considering the privatisation option. Similarly, the privatisation of airports, seaports, insurance companies, and shipping have all been studied or proposed at some point. There are other sectors where many such possibilities exist such as roads, water and sewerage etc. In short the potential privatisation agenda is large. Successful implementation of the existing agenda is key to ensuring further progress in privatisation in order to strengthen public finances and enhance the quantity and quality of Pakistan’s goods and services. Work in Hand The two-track strategy adopted by the Government i.e. focus on developing the enabling environment for larger transactions while carrying out relatively smaller transactions has borne fruit, as is evident from the proceeds generated over the last three years and the broadening of ownership, and deepening the stock market, and improving corporate governance.

Similarly, several larger transactions have matured which are expected to be finalized during the period November, 2002 to March, 2003. The strategy of setting the stage has paid off. A list of transactions targeted for bidding by June 2003 is given in Table ______. Table ______ provides a list of upcoming transactions that have been approved by Cabinet and are likely to be completed by June 2003. The transactions are focused in banking and finance, industry, oil and gas, power, and telecommunications. Additional transactions may be added to the privatisation list, while a few may be excluded. The type of sale envisaged is also provided, although this may change subject to market conditions and advice from the financial advisors or lead managers. An updated list of active transactions can be obtained from the PC website: www.privatisation.gov.pk. Following are the key measures, which are required to close the transactions and achieve the goals. The Government has already initiated actions in this regard:

• Committing to full gas price deregulation over the next four years with any subsidies coming through the budget

• Replacing the Gas Price Agreement for PPL with a new agreement that will bring in a phased manner the wellhead price of PPL in line with the pricing policy that prevails for the rest of the sector

• Overcoming the resistance of vested interest groups with a firm hand

• Strengthening the regulatory framework for telecommunications, power, and gas, establishing the regulatory agency for petroleum, and staffing regulatory agencies with professionals who are supportive of private participation in their sectors

• Resolving in outstanding tax issues affecting the banking industry, increasing the flexibility of banks to shut down branches, and permitting majority foreign ownership of banks

• Being realistic in the amount of proceeds that can be obtained from the transactions; in some instances, those opposed to privatisation inflate expectations of likely proceeds with the intention of raising controversy and undermining the privatisation process.

• Ensuring that federal investigation teams carry out their work with an open mind and in a professional manner so as not to demoralize investors and others involved in the privatisation process and allow the Board of the Privatisation Commission and CCOP to take decisions based on sound business practices.

Table 2: List of Upcoming TransactionsTable 2: List of Upcoming TransactionsTable 2: List of Upcoming TransactionsTable 2: List of Upcoming Transactions

Company Type of Sale Envisaged Targeted

Bidding Date

Telecommunications Pakistan Telecom Co Ltd (PTCL)

15-26% strategic sale

1st qtr 2003

http://www.privatisation.gov.pk/

Oil and Gas Attock Refinery Ltd (ARL)

35% public offer through Stock Exchange

1st qtr 2003

Pakistan Oilfields Ltd (POL) 35% public offer through Stock Exchange

1st qtr 2003

Oil and Gas Devt Corp Ltd (OGDCL) 51% strategic sale 1st qtr 2003 Pakistan State Oil (PSO) “ Dec. 2002 Pakistan Petroleum Ltd (PPL) “ 4th qtr 2003 Sui Northern Gas Pipelines Ltd (SNGPL)* “ 4th qtr 2003 Sui Southern Gas Corp Ltd (SSGCL)* “ 4th qtr 2003

Banking and Finance

Allied Bank Limited (ABL) 49% block sale 2nd qtr 2003 Muslim Commercial Bank (MCB) 9% public offer

through Stock Exchange End October,

2002 Habib Bank Limited (HBL) 51% strategic sale 1st qtr 2003

Power

Karachi Electric Supply Corp (KESC) 51-74% shares 1st qtr 2003 Faisalabad Electric Supply Co (FESCO) 26-51% shares 2nd qtr 2003 Genco 1 (Jamshoro) 26+% strategic sale 2nd qtr 2003

Industry and Real Estate Pak-Arab Fertilizer Limited Pak-American Fertilizer Limited Karachi Shipyard & Engineering Works Faletti’s Hotel

Others National Investment Trust (NIT)

Under process Asset sale 58% shares

1st qtr 2003 3rd qtr 2003 1st qtr 2003 1st qtr 2003

Investment Corporation of Pakistan (ICP) Right to manage fund 4th qtr 2002

* If sold as integrated companies on an as-is basis

Frequently Asked QuestionsFrequently Asked QuestionsFrequently Asked QuestionsFrequently Asked Questions 1) An important objective of privatisation is to reduce public debt. Yet, in the 10 years

since privatisation was begun in Pakistan, why has debt grown exponentially? Little privatisation in Pakistan has occurred during the last 10 years. There have been only been several major privatisations involving a transfer of management control: a large power generation company, KAPCO, two major banks, MCB and ABL, and a fertilizer company, Pak Saudi Fertilizer. Instead of using taxpayer funds to bail out MCB bank, as was done with other publicly owned banks to the tune of Rs 31 billion in 1998, MCB has prospered and contributed taxes. The other privatisation transactions either kept management control with the government (such as PTCL) or were small industrial units. Privatisation proceeds to date are only about Rs.94 billions, which is just over three percent of the government’s total debt. In the meantime, additional debt continues to be incurred, partly to fund the losses of public sector entities, particularly in power, banking, transport, and infrastructure. 2) Various governments have made privatisation the cornerstone of their economic

programme and announced the planned privatisation of many major units. Yet, why is the pace of privatisation so slow and why have so few major privatisations been done?

Privatisation of major units such as utilities requires a stable and attractive investment climate, appropriate pricing policies, and adequate regulatory frameworks. It also requires support from the relevant ministry, the relevant regulator, and the management of the entity being privatised. These take time to build up. Absence of these factors has made it difficult to close major privatisation transactions. The problems have been exacerbated by excessive litigation. To overcome these factors, this administration took several measures to improve the enabling environment and enhance transparency. It was rewarded for its attempts by many expressions of interest for some large transactions last summer. However, the disruptions following the September 11 events have made most investors shy away, forcing delays to the programme. 3) Privatisations have often been followed by employee layoffs. Does this not exacerbate

the serious unemployment problem in Pakistan? While some privatisations will generate net employment as a result of expanding production or services, employment in many privatised entities may decrease after privatisation. This is because State owned enterprises often have many more employees than needed for efficient operation of the company. Many of the employees perform little or no work and/or have low productivity. This implies that either taxpayers end up subsidising their salaries or consumers pay for it through higher prices. The extra amounts paid by taxpayers or consumers leaves less money in the hands of people who might otherwise spend it in a way that promotes productive employment. The privatisation program as a whole, by injecting new investment, introducing better management, improving competitiveness, and leaving more money in the hands of the public, is likely to result in increased employment opportunities. At the same time, laid-

off workers are often given generous severance packages that can be used to start business or obtain training to help them prepare for a new job. 4) Why has there been so much doubt cast on transparency in past privatisations? Why are so many unpaid amounts outstanding from past privatisations? Much of the dissatisfaction arises because of a perception that the sale price was too low or that it was not paid in full. Perceptions of what constitutes an appropriate sale price are based on reference prices calculated by independent valuers or by the officials of the entity being privatised. What is not fully appreciated is that valuation is not an exact science. Only by offering the entities in an open and transparent manner to the public can the true market value of the company be determined. In any case, public officials are rarely competent to estimate the sale price. Moreover, if the sale price is considered too low, the Cabinet Committee on Privatisation, which approves every sale transaction, can always turn it down. However, this has not stopped the federal investigative agencies to question the sale price. Fuelling the zeal for prosecution are political rivalries, inadequate public dissemination of the objectives and process of privatisation, lack of training of investigative agencies in privatisation matters, and a general distrust of public officials. This has sometimes delayed or stopped the sale of many companies, which has allowed for the continuation of inefficiencies and mismanagement via pilferage, misappropriations, embezzlement, fraud, undue or misused perks, and appointment of staff and managers on political or nepotistic grounds. There are 21 transactions (out of 122) where the sale price has not been paid in full. While the number of transactions is large, the total amount outstanding, including mark-up, accounts for only 4.7 percent of total privatisation proceeds. As many of the disputes stemmed from staggered payment arrangements or from discrepancies in joint audits carried out to adjust for the value of the company between the bidding date and the handover, the PC now has a policy to seek full payment at the time of handover. While the old policy of receiving staggered payments may not have been a sound one, there is little evidence that it was motivated by personal gain. 5) How do we know that the private sector will be any more efficient than the public sector? After all private companies go bankrupt and close down all the time and corruption is not limited to the public sector. Worldwide experience has shown private companies to be more efficient than public ones. The incentives all work towards having greater efficiency in the private sector. However, even with improved efficiency some private companies will go bankrupt while some private managers may also be corrupt. The big difference is that the loss will be borne mainly by its private shareholders, rather than by taxpayers. 6) What has been the evaluation of privatisation in Pakistan? A study funded by the Asian Development Bank in 1998 found that the 92 privatisations carried out between 1991 and 1997 were an overall success. The privatisation programme achieved, at least partially, most of its objectives, including improving the efficiency of enterprises and the economy, improving state finances, widening and deepening capital

ownership, and protecting the interests of employees. In a detailed analysis of 21 enterprises, the study concluded that there had been economic benefits in 10, poorer performance in 5, and in 6, the position was roughly neutral.

The study found very little impact on employment—in the 21 companies sampled there was a slight increase in employment. The social impact and impact on consumers was positive as was the impact on capital markets and ownership. On the negative side, some first-time shareholders suffered from buying shares in companies that did not get restructured, that were not operating under a proper regulatory framework, and that had no strategic shareholder. A reference to the study and other useful information can be found at www.privatisation.gov.pk. 7) The Privatisation Commission seems quite confident of achieving the objectives of privatisation. What if they are not achieved? Who will be held responsible and accountable? A better question to ask is who is responsible if the public sector entity is not privatised? Who is accountable for delaying the privatisation of UBL so that it required Rs 21 billion equity injection in 1998 and an additional Rs 8 billion in 2002? Who is responsible for delaying the privatisation of PTCL so that its value today is roughly one-quarter of what it once was, while its services and coverage during this period were inadequate? Who is responsible for picking up losses of WAPDA or KESC and for putting up with power cuts that deter businesses and cause huge hardships to households? While investigative agencies are quick to question actions leading to privatisation, the costs associated with inaction in privatisation matters or a decision not to privatise are often enormous. Such decisions are never investigated. Annex: Proceeds From Privatisation Transactions

From 1991 toJune 30, 2002 Rs (in millions)

Sr. No Unit Name Sale Proceeds

Date of Transfer

Buyer Name

Banking and Finance Bank

1 Allied Bank Limited (51%) 971.6 Feb-91 EMG 2 Muslim Commercial Bank (75%) 2,420.0 Apr-91 National Group 3 Bankers Equity (26%) 618.7 Jun-96 LTV Group 4 Habib Credit & Exchange (70 %) 1,633.9 Jul-97 Sh. Nahyan bin Mubarik

Al-Nahyan 5,644.2 Capital Market Transaction

5 Muslim Commercial Bank (6.8%) 563.2 Jan-01 MCB Employees-PF & Pension Fund

6 Muslim Commercial Bank (4.4%) 364.0 Nov-01 MCB Employees-PF & Pension Fund

7 NBP (37.3 million shares) 373.0 Feb-02 Listing/Public Offer Total 1,300.2 Total Banking & Finance: 6,944.4 Energy Sector

8 Mari Gas (20%) 102.4 Apr-94 Mari Gas Company Ltd. 9 Kot Addu Power Company (26%) 6,707.6 Jun-96 National Power

10 Kot Addu Power Company (10%) 2,370.7 Nov-96 National Power 11 Kot Addu (Escrow A/c) 1,033.0 Apr-02 National Power 12 SSGC LPG business 369.0 Aug-00 Caltex Oil Pak.(Pvt) Ltd. 13 SNGPL LPG business 142.0 Oct-01 Shell Gas LPG Pakistan 14 Badin II (Revised) 511.1 25-06-02 BP Pakistan & Occidental

Pakistan 15 Adhi 681.4 04-05-02 Pakistan Oil Field 16 Dhurnal 230.7 04-05-02 Western Acquisition 17 Ratana 32.0 04-05-02 Western Acquisition 18 Badin I 8,599.1 25-06-02 BP Pakistan & Occidental

Pakistan 19 Turkwal 120.3 25-06-02 Attock Oil Company

Total 20,899.3 Telecommunications

20 PTCL (2%) 3,032.5 Aug-94 Through LocalStock Exchange

21 PTCL (10%) 27,525.9 Sep-94 Through DR form Total 30,558.4

Industrial Units

Automobile 22 Al-Ghazi Tractors Ltd. 105.6 Nov-91 Al-Futain Industires (Pvt)

Ltd. UAE 23 National Motors Ltd. 150.4 Jan-92 Biboojee Services 24 Millat Tractors Ltd. 306.0 Jan-92 EMG 25 Baluchistan Wheels Ltd. 276.4 May-92 Abdul Qadir & Saleem I.

Kapoorwala 26 Pak Suzuki Co. Ltd. 172.0 Sep-92 Suzuki Motors Co. Japan 27 Naya Daur Motors Ltd. 22.3 Jan-93 Farid Tawakkal & Saleem

I. Kapoorwala 28 Bolan Castings 69.2 Jun-93 EMG

Total 1,101.9 Cement

29 Maple Leaf Cement 485.7 Jan-92 Nishat Mills Ltd. 30 Pak Cement 188.9 Jan-92 Mian Jehingir Ellahi & Ass

31 White Cement 137.5 Jan-92 Mian Jehingir Ellahi & Associates

32 D.G Khan Cement 1,972.8 May-92 Tariq Sehgal & Associates33 Dandot Cement 636.7 May-92 EMG 34 Garibwal Cement 836.3 Sep-92 Haji Saifullah & Group 35 Zeal Pak Cement 239.9 Oct-92 Sardar M. Ashraf D.

Baluch

36 Kohat Cement 527.9 Oct-92 Palace Enterprises 37 Dandot Works - National Cement 110.0 Jan-95 EMG 38 General Refractories Limited 18.9 Feb-96 Shah Rukh Engineering 39 Wah Cement 2,635.5 Feb-96 EMG

Total 7,790.1 Chemical

40 National Fibres Ltd 756.6 Feb-92 Schon Group 41 Kurram Chemicals 33.8 Feb-92 Upjohn Company USA 42 Pak PVC Ltd 63.6 Jun-92 Riaz Shaffi Reysheem 43 Sind Alkalis Ltd 152.3 Oct-92 EMG 44 Antibiotics (Pvt) Ltd 24.0 Oct-92 Tesco Pvt) Ltd. 45 Swat Elutriation 16.7 Dec-94 Sahib Sultan Enterprises 46 Nowshera PVC Co. Limited 20.7 Feb-95 Al_syed Enterprises 47 Swat Ceramics (Pvt) Limited 38.6 May-95 Empeiral Group 48 Ittehad Chemicals 399.5 Jul-95 Chemi Group 49 Pak Hye Oils 53.6 Jul-95 Tariq Siddique Associates50 Ravi Engineering Limited 6.5 Jan-96 Petrosin Products Pte 51 Nowshera Chemicals 21.2 Apr-96 Mehboob Ali Manjee 52 National Petrocarbon 20.8 Jul-96 Happy Trading 53 National Petrocarbon (add’l 10%

shares) 2.3 Mar-02 Happy Trading

1,610.2

Engineering

54 Karachi Pipe Mills 18.9 Jan-92 Jamal Pipe Industries 55 Pioneer Steel 4.4 Feb-92 M. Usman 56 Metropolitan Steel Mills Limited 66.7 May-92 Sardar M. Ashraf D.

Baluch 57 Pakistan Switchgear 8.9 Jun-92 EMG 58 Quality Steel 13.2 Apr-93 Marketing Enterprises 59 Textile Machinery Co 27.9 Oct-95 Mehran Industries 60 Indus Steel Pipe 47.4 Jul-97 Hussien Industries

187.4 Fertilizer

61 Pak China Fertilizers Company Limited

435.4 May-92 Schon Group

62 Pak Saudi Fertilizers Ltd. 7,335.9 May & Sep-02 Fauji Fertilizers Total 7,771.3 Ghee

63 Fazal Vegetable Ghee 21.2 Sep-91 Mian Mohammad Shah 64 Associated Industries 152.0 Feb-92 Mehmoob Abu-er-Rub 65 Sh Fazal Rehman 64.3 Apr-92 Rose Ghee Mills 66 Kakakhel Industries 55.3 May-92 Mehmoob Abu-er-Rub 67 United Industries 15.5 May-92 A. Akbar Muggo 68 Haripur Vegetable Oil 30.1 Jul-92 Malik Naseer & Assoc. 69 Bara Ghee Mills 27.8 Jul-92 Dawood Khan 70 Hydari Industries - Aug-92 EMG 71 Chiltan Ghee Mills 47.5 Sep-92 Baluchistan Trading Co. 72 Wazir Ali Industries 31.9 Dec-92 Treat Corporation 73 Asaf Industries (Pvt) Limited 23.8 Jan-93 Muzafar Ali Isani 74 Khyber Vegetable 8.0 Jan-93 Haji A. Majid & Co. 75 Suraj Vegetable Ghee Industries 10.2 Jan-93 Trade Lines

76 Crescent Factories Vegetable Ghee Mills

46.0 Jan-93 S. J. Industries

77 Bengal Vegetable 19.1 Mar-93 EMG 78 A & B Oil Industries Limited 28.5 Mar-93 Al-Hashmi Brothers 79 Dargai Vegetable Ghee Industries 26.2 Nov-97 Gul Cooking Oil Industries80 Punjab Veg. Ghee 18.7 May-99 Canal Associates 81 Burma Oil 20.1 Jan-00 Home Products Intl 82 E&M Oil Mills 94.0 Jul-02 Star Cotton Corp. Ltd. 83 Maqbool Oil Company Ltd. 27.6 Jul-02 Madina Enterprises

767.8 Mineral

84 Makerwal Collieries 6.1 Jul-95 Ghani Group of Industries Rice

85 Sheikhupura 28.0 May-92 Contrast Pvt Ld. 86 Faizabad 21.2 May-92 Packages Ltd. 87 Siranwali 16.2 Jul-92 Enkay Enterprises 88 Hafizabad 20.0 Sep-92 Pak Pearl Rice Mills 89 Eminabad 24.1 Nov-92 Pak Arab Food Industries 90 Dhaunkel 79.2 Jun-93 Dhonda Pakistan Pvt Ltd. 91 Mabarikpur 14.3 Nov-93 Maktex Pvt) Ltd. 92 Shikarpur 32.5 Mar-96 Afzaal Ahmad

235.5 Roti Plants

93 Gulberg, Lahore 8.7 Jan-92 Packages Ltd. 94 Peshawar 2.6 Jan-92 Saleem Group of Ind 95 Head Office, Lahore 10.2 Jan-92 Hajra Textile Mills 96 Hyderabad 2.6 Jan-92 Utility Stores Corp. 97 Faisalabad 11.5 Jan-92 Azad Ahmad 98 Bahawalpur 1.6 Feb-92 Utility Stores Corp. 99 Multan 2.5 Feb-92 Utility Stores Corp.

100 Quetta 4.8 Feb-92 Utility Stores Corp. 101 Islamabad 3.6 Mar-92 Utility Stores Corp. 102 Taimuria, Karachi 9.2 Jun-92 Spot Light Printers 103 SITE, Karachi 5.1 Sep-92 Specialty Printers 104 Multan Road, Lahore 3.5 Dec-92 Utility Stores Corp. 105 Korangi, Karachi 4.1 Apr-93 Utility Stores Corp. 106 Mughalpura, Lahore - Jun-96 Pakistan Railways 107 Gulshan-e-Iqbal, Karachi 20.2 Mar-98 Ambreen Industries

90.2 Textile

108 Quaidabad Woollen Mills 85.5 Jan-93 Jehingir Awan Associates109 Cotton Ginning Factory 1.2 Jun-95 Hamid Mirza

86.7 Total (all Industrial Units) 19,647.2 Miscellaneous

110 National Tubewell Const Corpn 18.6 Sep-99 Through Auction 111 Duty Free Shops 12.5 Sep-99 Weitnaur Holding Ltd. 112 Republic Motors (Plot) 6.3 Nov-99 Muhammad Mushtaq 113 Al Haroon Building Karachi 110.0 Sep-02 LG Group

147.4 Newspapers

114 N.P.T Building 185.0 Oct-93 Army Welfare Trust

115 Mashriq – Peshawar 26.6 Jun-95 Syed Tajmir Shah 116 Mashriq – Quetta 6.2 Jan-96 EMG 117 Progressive Papers Ltd. 46.1 May-96 Mian Saifu-ur-Rahman 118 Mashriq – Karachi 6.5 Aug-96 EMG

270.4 Tourism

119 Cecil's Hotel 190.9 Jun-98 Imperial Builders 120 Federal Lodges - 1- 4 39.2 Jan-99 Hussain Global Assoc. 121 Dean's Hotel 364.0 Dec-99 Shahid Gul & Partners

594.1 1,011.9

Total upto 30-6-2002 79,061.2

Annex: Proceeds From Privatisation Transactions

During the peroid July 2002 to 15th Octber, 2002 Rs (in millions)


Date of Transfer/ Bidding

Buyer Name


1 United Bank Ltd. (51%) 12,350.0 Oct-02 Consortium of Bestway & Abu Dhabi Group

Capital Market Transaction 2 Muslim Commercial Bank (CDC) 360.0 15 Oct, 02 Stock Exchange 3 POL (CDC) 70.0 15 Oct, 02 Stock Exchange 4 ICP Lot - A 175.0 Sep-02 ABAMCO 5 Bank Al-Falah 621.0 Sep-02 Abu Dhabi Group Total 1,226.0 Total Banking & Finance 13,576.0 Fertilizer

6 Pak Saudi Fertilizers Ltd. (10%) 815.0 Sep-02 Fauji Fertilizers Ltd. Cement

7 Thatta Cement 718.0 Jul-02 Iqbal Alimuhammad & Consortium

Total 15,109.0 128 Grand Total todate 94,170.2

GlossaryGlossaryGlossaryGlossary

ABL Allied Bank Limited CCOP Cabinet Committee on Privatisation EOI Expression of Interest FA Financial Advisor GHS Golden Hand Shake GOP Government of Pakistan HBL Habib Bank Limited IPO Initial Public Offering KAPCO Kot Addu Power Company KASB Khadim Ali Shah Bokhari KESC Karachi Electric Supply Corporation LPG Liquefied Petroleum Gas MCB Muslim Commercial Bank NBP National Bank of Pakistan NEPRA National Electric Power Regulatory Authority NGO Non-Government Organisation NWFP North Western Frontier Province OGDCL Oil and Gas Development Corporation Limited OGRA Oil and Gas Regulatory Authority PC Privatisation Commission PPL Pakistan Petroleum Limited PSO Pakistan State Oil PTCL Pakistan Telecommunications Company Limited RFP Request for Proposal SNGPL Sui Northern Gas Pipeline Limited SOQ Statement of Qualifications SSGC Sui Southern Gas Company UBL United Bank Limited VSS Voluntary Separation Scheme WAPDA Water and Power Development Authority

Financial Statements and Auditor’s Report

Government of Pakistan Ministry of Privatisation

Privatisation Division ***

Subject:- MATERIAL FOR THE YEAR BOOK FOR 2001-2002 Introduction

The Ministry of Privatisation comprising Privatisation Division was

created on 28th November, 2000. Privatisation Division has been allocated the following

business under the Rules of Business, 1973 :-

(i) Privatisation Policies.

(ii) The Transfer of Management Establishments Order 1978 (PO-12 of 1978).

(iii) Administration of Privatisation Commission Ordinance 2000,

LXII, 2000.

(iv) Negotiations with International Organisations relating to the Functions of Privatisation Division in consultation with Economic Affairs Division.

(v) Any Item incidental or ancillary to the above.

The business allocated to the Privatisation Division is being carried out

through the Privatisation Commission, a body corporate established under Privatisation

Commission Ordinance 2000 promulgated on 28th September, 2000.

The Privatisation Commission and its Board The Privatisation Commission (PC), since its inception in 1991 functioned

as an integral part of the Finance Division. However, the Commission has now been

established as a body corporate under Privatisation Commission Ordinance 2000 since

28th September, 2000. The Board of the Privatisation Commission is headed by the

Chairman, and comprises 13 other permanent members. Ten of the members are

prominent professionals from the private sector and are working on honorary basis. The

four Government members include the Chairman and the Secretary, Privatisation

Commission, the Secretary General Finance and the Chairman of Securities & Exchange

Commission of Pakistan. In addition, the Secretaries of the respective Division whose

matter are being discussed at a Board meeting are ex-officio member for the issue under

consideration.

Cabinet Committee on Privatisation (CCOP)

Presently, the Cabinet Committee on Privatisation (CCOP) is headed by

the Minister for Finance and includes the Ministers for Commerce and Industry,

Communication and Railways, Petroleum and Natural Resources, Privatisation,

Environments, Local Government, Labour and Water & Power, Deputy Chairman,

Planning Commission and the Chairman, Board of Investment. According to its Terms

of References, issued in February, 2000, the Cabinet Committee on Privatisation (CCOP)

is to:

• Formulate the Privatisation Policy for approval of the Government/Cabinet

• Approve the State Owned Enterprises to be privatised on the

recommendation of the Privatisation Commission or otherwise

• Take policy decisions on inter-ministerial issues relating to the privatisation process

• Review and monitor the progress of privatisation

• Instruct the Privatisation Commission to submit

reports/information/data relating to the privatisation process or any matter relating thereto

• Take policy decisions on matters pertaining to privatisation,

restructuring, deregulation, regulatory bodies and Privatisation Fund Account

• Approve the Reference Price in respect of the State Owned Enterprises

being privatised

• Approve the successful bidders

• Consider and approve the recommendations of the Privatisation Commission on any matter

• Assign any other task relating to privatisation to the Privatisation

Commission.

Overall Perspective The Privatisation program is part of the economic reforms agenda of the Government that focuses on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. Privatisation efforts began in earnest after the creation of the Privatisation Commission on January 22, 1991. Although the PC’s mandate was initially restricted to industrial transactions, by 1993 it had expanded to also include power, oil and gas, transport (aviation, railways, ports and shipping), telecommunications, and banking and insurance. The Government took a fresh look at the privatisation program after taking over in October 1999. Unfortunately the privatisation process had gotten stalled during 1997-1999 and had to be started afresh. A lot of initial work had to be done to improve the enabling environment by way of promulgation of Privatisation Law, creation of Ministry of Privatisation, resolution of foreign investor disputes and establishing and strengthening regulatory frame work. Early in its tenure, the Government realised that the reasons for slow progress on privatisation during the last administration lay in an inhospitable enabling environment, legal challenges to privatisation, lack of resolution of key issues impacting the transactions, absence of a focused program with clearly identified state owned entities on the privatisation list, public opposition to privatisation, and lack of adequate regulatory frameworks for the privatisation of utilities. Recognizing the need to tackle the above issues on an emergent basis, the Government in its first two years undertook to prepare an enabling environment conducive to successful and fruitful privatisation program. Some of the measures taken by the Government in this regard included: Promulgating a Privatisation Commission Ordinance that provides legal cover to

challenges, comforts investors, assures transparency in sale process, and mandates distribution of proceeds

Restructuring and strengthening the Privatisation Commission to make it a leaner,

more transparent and more effective institution Appointing the Chairman as Minister for Privatisation to enhance the stature of

privatisation and facilitate the privatisation process Improving the public’s understanding of privatisation rationale and process via

seminars, interviews, publications, and a revamped website

Establishing and/or strengthening regulatory frameworks in power, oil and gas, and telecommunications to clarify the “rules of the game”

Carrying out sectoral reforms related to deregulation and pricing so that prices of goods and services bear a closer relation to their true cost and provide correct incentives to consumers and producers


Anticipating problems that the prospective investor may face in running the privatized entity and their timely resolution.

With the continuing improvement in the macro economic outlook, the pace of privatisation picked up momentum in the last one year in spite of various shocks to the economy like the 9/11 event, the Afghanistan crisis, amassing of troops by India on our Eastern border and terrorists activities inside the country. The success of the Government’s endeavor is evident form the fact that Privatisation Commission undertook transactions amounting to about Rs.35 billion since October 1999 as compared to transactions worth Rs.59.5 billion from the period November 1991 to October 1999. In fact, from 1997-1999 (the tenure of the pervious government), the privatisation proceeds were only Rs.2.35 billion.

Recent Progress During the financial year 2001-02, the Commission successfully completed privatisation of 15 transactions including privatisation of major projects like GOP Working Interests in 6 Oil Concessions, Pak Saudi Fertilizers Ltd., and sale of shares of MCB and NBP. Total sale proceeds amounted to Rs.19.656 billion. This included US$ 127.423 million received from the sale of Oil Concessions in foreign currency. Out of these proceeds, the Commission transferred Rs.8.351 billion to the Government of Pakistan for debt retirement and poverty alleviation programs. Besides, instructions for transfer of foreign currency funds amounting to US$ 125.979 million are awaited from Finance Division. In addition, the Commission has transferred Rs.730.0 million to the SNGPL, SSGC, SBP, AHP, PIA and Custom Welfare Fund as part of their respective share in different entities (Annex – I). Finance Division had allowed the Privatisation Commission to open interest bearing account both in US Dollars as well as in Pak Rupees where the funds received from bidders are retained till the final closure of transactions. The Commission earned a markup of Rs.14.9 million by maintaining these accounts. The Commission also recovered fee amounting to Rs.8.6 million in line with CCOP approval. As a result, the Commission had a surplus of income over expenditure by Rs.23.2 million thereby reducing the requirement of funds through supplementary contribution from privatisation fund, to nil.

The momentum of privatisation process was maintained even after closure of the financial year. The Commission during three months period from July 2002 to September 2002 has sold 51% GOP stake in UBL, additional 10% shares of Pak Saudi Fertilizer Limited and has concluded two Capital Market Transactions amounting to Rs. 13.595 billion. Moreover, bidding of Thatta Cement, ICP Lot A and 28% shares of Bank Alfalah has successfully been carried out which would procure another Rs. 1.514 billion.

By the end of September 2002, the Government of Pakistan had completed or approved 128 transactions at gross proceeds of Rs 94.170 billion.

About 61% of the gross receipts were turned over to the Federal Government and 8%, realised from Concessions, is in process of transfer, 6% was used for restructuring expenses associated largely with golden handshakes, 3% was returned to companies on whose behalf shares were sold, and 4% was used by PC essentially for transaction/privatisation-related expenditures.

While almost all the transactions were settled in local currency, about two-thirds of the proceeds were received in foreign exchange from transactions namely PTCL (IPO of 12% shares), Kot Addu Power Plant (KAPCO), Seven Oil & Gas Concessions, Habib Credit & Exchange Bank (now Bank Alfalah) and United Bank Limited. Annex - I provides a list of the transactions by date and amount of proceeds. Despite the PC’s increased activities and workload, Privatisation Commission was successful in containing the administrative costs. Annual expenditures incurred for the year under review stand at Rs.44.609 million which is approximately 0.24 % of the revenues during the year. This compares quite favorably with the expenditure of Rs.43.742 million in FY2001 which was 4.6% of the revenue in that year. The confidence shown by the investors in the investment climate in Pakistan is a matter of great satisfaction. Especially the recent acquisition of UBL by a consortium of overseas Pakistanis Group in partnership with Middle Eastern investors will send a strong signal to other overseas Pakistanis Group to look at investment opportunities in Pakistan. This is the largest investment by any overseas Pakistani in the country. Moreover, such large investment just before the October 2002 elections demonstrates the investor confidence in the economic policies of Pakistan.

Summary of Key Activities in the lastSummary of Key Activities in the lastSummary of Key Activities in the lastSummary of Key Activities in the last one year one year one year one year Some of the major activities undertaken by the Privatisation Commission in the last one year include: -

a) Divestment of 51% shares of United Bank Limited to a consortium of Abu-Dhabi Group and Bestway Group for Rs.12.35 billion.

b) Divestment of GoP’s Working Interests in several oil & gas

discoveries (namely Badin-I, Badin-II – Revised, Turkwal, Adhi, Ratana, Dhurnal) for Rs. 10.154 billion

c) Strategic Sale of 100% shares of Pak Saudi Fertilizer Limited to a

consortium led by Fauji Fertilizer Limited for Rs.8.151 billion.

d) Divestment of 49 million shares of Muslim Commercial Bank for Rs. xxx billion.

e) Divestment of 20% shares of National Bank of Pakistan for Rs.

xxx billion.

f) Sale of four industrial and property units totaling Rs. 1.5 billion.

g) Divestment of 30% shares of Bank Alfalah for Rs.620 million.

h) Divestment of management rights of 12 Investment Corporation of Pakistan (ICP) mutual funds (Lot “A”) for Rs. 175 million.

i) Approval of the transaction structures for Oil and Gas

Development Company (OGDC), Pakistan State Oil Company Limited (PSO), Karachi Electric Supply Company (KESC), National Investment Trust Limited (NITL), Investment Corporation of Pakistan and Habib Bank Limited (HBL).

j) Marketing of OGDCL, PSO, KESC, HBL, NITL, ICP and Pak

Arab Fertilizer Limited.

k) Strengthening of Policy and Regulatory frameworks in the telecommunications, oil and gas sectors including the promulgation of the Oil and Gas Regulatory Ordinance, notification of tariff and licensing rules etc.

l) Initiation of preparatory work on several transactions like Karachi

Shipyard and Engineering Works, Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines Limited (SNGPL), Faisalabad Electricity Company (FESCO) and Jamshoro Power Company (JAMCO).

m) Notification of Privatisation Commission’s various sets of rules

and regulations Realizing the reasons for slow progress on privatisation lay in an inhospitable enabling environment, legal challenges to privatisation, public opposition to privatisation, and lack of adequate regulatory frameworks for the privatisation of utilities, efforts were taken to remedy the above situation. Some of the specific measures as part of the overall program included:

• Strengthening of the regulatory regime in telecommunications and Power and establishment of Oil and Gas Regulatory Authority.

• Pursuant to Privatisation Commission Ordinance, 2000 promulgation of

Privatisation (Modes & Procedure) Rules 2001, Privatisation Commission (Valuation of Property) Rules, Privatisation Commission (Hiring of Valuers) Regulations 2001 and Privatisation Commission (Hiring of Financial Advisor) Regulations. Other set of rules & regulations are under process of publication/finalization.

• Coverage arrangements through print & electronic media were made regarding

the projection of on going transactions of Privatisation Commission and the meetings of various dignitaries/delegations with the Minister for Privatisation. Interviews of the Minister with the national and international news agencies and journalists were also arranged.

Key transactions such as PSO, OGDCL, PTCL, Habib Bank, KESC and Pak-Arab Fertilizer have been brought to a very advanced stage, which are expected to be finalized in the period November, 2002 to March, 2003. The confidence shown by the investors in the investment climate in Pakistan is a matter of great satisfaction. Specially the recent acquisition of UBL by a consortium of overseas Pakistanis Group in partnership with Middle Eastern investors will send a strong signal to other overseas Pakistanis Group to look at investment opportunities in Pakistan. This is the largest investment by any overseas Pakistani in the country. Moreover, such large investment just before the October 2002 elections demonstrates the investor confidence in the economic policies of Pakistan. Way Forward Our long-term vision is a government that focuses on good governance and regulation, while fostering conditions that provide incentives for the private sector to invest in providing goods and services efficiently. This would generate employment, which is necessary to reduce poverty. In short, we believe that the Government has no business being in business. The Privatisation Commission can help to put business into the right hands while freeing the Government to focus on such matters as ensuring law and order and making sure that the enabling framework is conducive to investment while being fair to consumers and the taxpayers. The privatisation program is expected to continue to play an important part in further stimulating the economic development through increased capital formation, widespread ownership of the privatised assets and reduction in the burden of subsidies. Direct participation of the Government in commercial activities should progressively reduce. In this regard the Government should focus on two broad areas. First, building up a stable governance and environment that encourages investment but, at the same time, safeguards the public interest through a regulatory framework in case of key areas such as power, telecommunication, oil & gas and transport sectors. Second, helping to create a suitable physical and technological infrastructure required for the unhindered economic development of our rapidly growing society. The List of upcoming transactions is available at Annex-II. Details of privatised transactions and sale proceeds can also be seen at Annex-III.

Annex-I

Table 1 : Number of privatised transactions

(Rupees in Million

From 1991 to Jun 01 From Jul 01 to Jun 02 From Jul 02 to Oct 15, 2002

To Date

Sector

No.

Amount

No.

Amount

No.

Amount

No.

Amount

Banking 4 5,644 1 12,350 5 17,994 Capital Market Transaction

1 563 2 737 4 1,226 7 2,526

Energy 4 9,549 8 11,349 12 20,898 Telecom 2 30,558 2 30,558 Automobile 7 1,102 7 1,102 Cement 11 7,790 1 718 12 8,508 Chemical / Fertilizer

14 2,045 2 7,338 1 815 17 10,198

Engineering 7 187 7 187 Ghee Mills 19 646 2 122 21 768 Rice / Roti Plants

23 326 23 326

Textile 2 87 2 87 Newspapers 5 270 5 270 Tourism 3 594 3 594 Others 4 44 1 110 6 154 Total 106 59,405 15 19,656 7 15,109 128 94,170

Annex-II

List of Upcoming TransactionsList of Upcoming TransactionsList of Upcoming TransactionsList of Upcoming Transactions

Company Type of Sale Envisaged Targeted

Bidding Date

Telecommunications Pakistan Telecom Co Ltd (PTCL)

15-26% strategic sale

1st qtr 2003

Oil and Gas Attock Refinery Ltd (ARL)

35% public offer through Stock Exchange

1st qtr 2003

Pakistan Oilfields Ltd (POL) 35% public offer through Stock Exchange

1st qtr 2003

Oil and Gas Devt Corp Ltd (OGDCL) 51% strategic sale 1st qtr 2003 Pakistan State Oil (PSO) “ Dec. 2002 Pakistan Petroleum Ltd (PPL) “ 4th qtr 2003 Sui Northern Gas Pipelines Ltd (SNGPL)* “ 4th qtr 2003 Sui Southern Gas Corp Ltd (SSGCL)* “ 4th qtr 2003

Banking and Finance

Allied Bank Limited (ABL) 49% block sale 2nd qtr 2003 Muslim Commercial Bank (MCB) 9% public offer

through Stock Exchange End October,

2002 Habib Bank Limited (HBL) 51% strategic sale 1st qtr 2003

Power

Karachi Electric Supply Corp (KESC) 51-74% shares 1st qtr 2003 Faisalabad Electric Supply Co (FESCO) 26-51% shares 2nd qtr 2003 Genco 1 (Jamshoro) 26+% strategic sale 2nd qtr 2003

Industry and Real Estate Pak-Arab Fertilizer Limited Pak-American Fertilizer Limited Karachi Shipyard & Engineering Works Faletti’s Hotel

Others National Investment Trust (NIT)

Under process Asset sale 58% shares

1st qtr 2003 3rd qtr 2003 1st qtr 2003 1st qtr 2003

Investment Corporation of Pakistan (ICP) Right to manage fund 4th qtr 2002

* If sold as integrated companies on an as-is basis

Annex-III Annex: Proceeds From Privatisation Transactions

From 1991 toJune 30, 2002 Rs (in millions)


Date of Transfer

Buyer Name


1 Allied Bank Limited (51%) 971.6 Feb-91 EMG 2 Muslim Commercial Bank (75%) 2,420.0 Apr-91 National Group 3 Bankers Equity (26%) 618.7 Jun-96 LTV Group 4 Habib Credit & Exchange (70 %) 1,633.9 Jul-97 Sh. Nahyan bin Mubarik

Al-Nahyan 5,644.2 Capital Market Transaction

5 Muslim Commercial Bank (6.8%) 563.2 Jan-01 MCB Employees-PF & Pension Fund

6 Muslim Commercial Bank (4.4%) 364.0 Nov-01 MCB Employees-PF & Pension Fund

7 NBP (37.3 million shares) 373.0 Feb-02 Listing/Public Offer Total 1,300.2 Total Banking & Finance: 6,944.4 Energy Sector

8 Mari Gas (20%) 102.4 Apr-94 Mari Gas Company Ltd. 9 Kot Addu Power Company (26%) 6,707.6 Jun-96 National Power

10 Kot Addu Power Company (10%) 2,370.7 Nov-96 National Power 11 Kot Addu (Escrow A/c) 1,033.0 Apr-02 National Power 12 SSGC LPG business 369.0 Aug-00 Caltex Oil Pak.(Pvt) Ltd. 13 SNGPL LPG business 142.0 Oct-01 Shell Gas LPG Pakistan 14 Badin II (Revised) 511.1 25-06-02 BP Pakistan & Occidental

Pakistan 15 Adhi 681.4 04-05-02 Pakistan Oil Field 16 Dhurnal 230.7 04-05-02 Western Acquisition 17 Ratana 32.0 04-05-02 Western Acquisition 18 Badin I 8,599.1 25-06-02 BP Pakistan & Occidental

Pakistan 19 Turkwal 120.3 25-06-02 Attock Oil Company

Total 20,899.3 Telecommunications

20 PTCL (2%) 3,032.5 Aug-94 Through LocalStock Exchange

21 PTCL (10%) 27,525.9 Sep-94 Through DR form Total 30,558.4

Industrial Units Automobile

22 Al-Ghazi Tractors Ltd. 105.6 Nov-91 Al-Futain Industires (Pvt) Ltd. UAE

23 National Motors Ltd. 150.4 Jan-92 Biboojee Services 24 Millat Tractors Ltd. 306.0 Jan-92 EMG 25 Baluchistan Wheels Ltd. 276.4 May-92 Abdul Qadir & Saleem I.

Kapoorwala 26 Pak Suzuki Co. Ltd. 172.0 Sep-92 Suzuki Motors Co. Japan 27 Naya Daur Motors Ltd. 22.3 Jan-93 Farid Tawakkal & Saleem

I. Kapoorwala 28 Bolan Castings 69.2 Jun-93 EMG

Total 1,101.9 Cement

29 Maple Leaf Cement 485.7 Jan-92 Nishat Mills Ltd. 30 Pak Cement 188.9 Jan-92 Mian Jehingir Ellahi & Ass

31 White Cement 137.5 Jan-92 Mian Jehingir Ellahi & Associates

32 D.G Khan Cement 1,972.8 May-92 Tariq Sehgal & Associates33 Dandot Cement 636.7 May-92 EMG 34 Garibwal Cement 836.3 Sep-92 Haji Saifullah & Group 35 Zeal Pak Cement 239.9 Oct-92 Sardar M. Ashraf D.

Baluch 36 Kohat Cement 527.9 Oct-92 Palace Enterprises 37 Dandot Works - National Cement 110.0 Jan-95 EMG 38 General Refractories Limited 18.9 Feb-96 Shah Rukh Engineering 39 Wah Cement 2,635.5 Feb-96 EMG

Total 7,790.1 Chemical

40 National Fibres Ltd 756.6 Feb-92 Schon Group 41 Kurram Chemicals 33.8 Feb-92 Upjohn Company USA 42 Pak PVC Ltd 63.6 Jun-92 Riaz Shaffi Reysheem 43 Sind Alkalis Ltd 152.3 Oct-92 EMG 44 Antibiotics (Pvt) Ltd 24.0 Oct-92 Tesco Pvt) Ltd. 45 Swat Elutriation 16.7 Dec-94 Sahib Sultan Enterprises 46 Nowshera PVC Co. Limited 20.7 Feb-95 Al_syed Enterprises 47 Swat Ceramics (Pvt) Limited 38.6 May-95 Empeiral Group 48 Ittehad Chemicals 399.5 Jul-95 Chemi Group 49 Pak Hye Oils 53.6 Jul-95 Tariq Siddique Associates50 Ravi Engineering Limited 6.5 Jan-96 Petrosin Products Pte 51 Nowshera Chemicals 21.2 Apr-96 Mehboob Ali Manjee 52 National Petrocarbon 20.8 Jul-96 Happy Trading 53 National Petrocarbon (add’l 10%

shares) 2.3 Mar-02 Happy Trading

1,610.2

Engineering

54 Karachi Pipe Mills 18.9 Jan-92 Jamal Pipe Industries 55 Pioneer Steel 4.4 Feb-92 M. Usman 56 Metropolitan Steel Mills Limited 66.7 May-92 Sardar M. Ashraf D.

Baluch 57 Pakistan Switchgear 8.9 Jun-92 EMG

58 Quality Steel 13.2 Apr-93 Marketing Enterprises 59 Textile Machinery Co 27.9 Oct-95 Mehran Industries 60 Indus Steel Pipe 47.4 Jul-97 Hussien Industries

187.4 Fertilizer

61 Pak China Fertilizers Company Limited

435.4 May-92 Schon Group

62 Pak Saudi Fertilizers Ltd. 7,335.9 May & Sep-02 Fauji Fertilizers Total 7,771.3 Ghee

63 Fazal Vegetable Ghee 21.2 Sep-91 Mian Mohammad Shah 64 Associated Industries 152.0 Feb-92 Mehmoob Abu-er-Rub 65 Sh Fazal Rehman 64.3 Apr-92 Rose Ghee Mills 66 Kakakhel Industries 55.3 May-92 Mehmoob Abu-er-Rub 67 United Industries 15.5 May-92 A. Akbar Muggo 68 Haripur Vegetable Oil 30.1 Jul-92 Malik Naseer & Assoc. 69 Bara Ghee Mills 27.8 Jul-92 Dawood Khan 70 Hydari Industries - Aug-92 EMG 71 Chiltan Ghee Mills 47.5 Sep-92 Baluchistan Trading Co. 72 Wazir Ali Industries 31.9 Dec-92 Treat Corporation 73 Asaf Industries (Pvt) Limited 23.8 Jan-93 Muzafar Ali Isani 74 Khyber Vegetable 8.0 Jan-93 Haji A. Majid & Co. 75 Suraj Vegetable Ghee Industries 10.2 Jan-93 Trade Lines 76 Crescent Factories Vegetable Ghee

Mills 46.0 Jan-93 S. J. Industries

77 Bengal Vegetable 19.1 Mar-93 EMG 78 A & B Oil Industries Limited 28.5 Mar-93 Al-Hashmi Brothers 79 Dargai Vegetable Ghee Industries 26.2 Nov-97 Gul Cooking Oil Industries80 Punjab Veg. Ghee 18.7 May-99 Canal Associates 81 Burma Oil 20.1 Jan-00 Home Products Intl 82 E&M Oil Mills 94.0 Jul-02 Star Cotton Corp. Ltd. 83 Maqbool Oil Company Ltd. 27.6 Jul-02 Madina Enterprises

767.8 Mineral

84 Makerwal Collieries 6.1 Jul-95 Ghani Group of Industries Rice

85 Sheikhupura 28.0 May-92 Contrast Pvt Ld. 86 Faizabad 21.2 May-92 Packages Ltd. 87 Siranwali 16.2 Jul-92 Enkay Enterprises 88 Hafizabad 20.0 Sep-92 Pak Pearl Rice Mills 89 Eminabad 24.1 Nov-92 Pak Arab Food Industries 90 Dhaunkel 79.2 Jun-93 Dhonda Pakistan Pvt Ltd. 91 Mabarikpur 14.3 Nov-93 Maktex Pvt) Ltd. 92 Shikarpur 32.5 Mar-96 Afzaal Ahmad

235.5 Roti Plants

93 Gulberg, Lahore 8.7 Jan-92 Packages Ltd. 94 Peshawar 2.6 Jan-92 Saleem Group of Ind 95 Head Office, Lahore 10.2 Jan-92 Hajra Textile Mills 96 Hyderabad 2.6 Jan-92 Utility Stores Corp. 97 Faisalabad 11.5 Jan-92 Azad Ahmad 98 Bahawalpur 1.6 Feb-92 Utility Stores Corp. 99 Multan 2.5 Feb-92 Utility Stores Corp.

100 Quetta 4.8 Feb-92 Utility Stores Corp. 101 Islamabad 3.6 Mar-92 Utility Stores Corp. 102 Taimuria, Karachi 9.2 Jun-92 Spot Light Printers 103 SITE, Karachi 5.1 Sep-92 Specialty Printers 104 Multan Road, Lahore 3.5 Dec-92 Utility Stores Corp. 105 Korangi, Karachi 4.1 Apr-93 Utility Stores Corp. 106 Mughalpura, Lahore - Jun-96 Pakistan Railways 107 Gulshan-e-Iqbal, Karachi 20.2 Mar-98 Ambreen Industries

90.2 Textile

108 Quaidabad Woollen Mills 85.5 Jan-93 Jehingir Awan Associates109 Cotton Ginning Factory 1.2 Jun-95 Hamid Mirza

86.7 Total (all Industrial Units) 19,647.2 Miscellaneous

110 National Tubewell Const Corpn 18.6 Sep-99 Through Auction 111 Duty Free Shops 12.5 Sep-99 Weitnaur Holding Ltd. 112 Republic Motors (Plot) 6.3 Nov-99 Muhammad Mushtaq 113 Al Haroon Building Karachi 110.0 Sep-02 LG Group

147.4 Newspapers

114 N.P.T Building 185.0 Oct-93 Army Welfare Trust 115 Mashriq – Peshawar 26.6 Jun-95 Syed Tajmir Shah 116 Mashriq – Quetta 6.2 Jan-96 EMG 117 Progressive Papers Ltd. 46.1 May-96 Mian Saifu-ur-Rahman 118 Mashriq – Karachi 6.5 Aug-96 EMG

270.4 Tourism

119 Cecil's Hotel 190.9 Jun-98 Imperial Builders 120 Federal Lodges - 1- 4 39.2 Jan-99 Hussain Global Assoc. 121 Dean's Hotel 364.0 Dec-99 Shahid Gul & Partners

594.1 1,011.9

Total upto 30-6-2002 79,061.2

Annex: Proceeds From Privatisation Transactions

During the peroid July 2002 to 15th Octber, 2002 Rs (in millions)


Date of Transfer/ Bidding

Buyer Name


1 United Bank Ltd. (51%) 12,350.0 Oct-02 Consortium of Bestway & Abu Dhabi Group

Capital Market Transaction 2 Muslim Commercial Bank (CDC) 360.0 15 Oct, 02 Stock Exchange 3 POL (CDC) 70.0 15 Oct, 02 Stock Exchange 4 ICP Lot - A 175.0 Sep-02 ABAMCO

5 Bank Al-Falah 621.0 Sep-02 Abu Dhabi Group Total 1,226.0 Total Banking & Finance 13,576.0 Fertilizer

6 Pak Saudi Fertilizers Ltd. (10%) 815.0 Sep-02 Fauji Fertilizers Ltd. Cement

7 Thatta Cement 718.0 Jul-02 Iqbal Alimuhammad & Consortium

Total 15,109.0 128 Grand Total todate 94,170.2

Source: http://www.privatisation.gov.pk/ 09/05/2003

http://www.privatisation.gov.pk/

Documents

Annual Report 2002 of Privatisation - United Nationsunpan1.un.org/intradoc/groups/public/documents/apcity/... · · 2013-01-25various units such as Ravi Rayon Limited and liquidation