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Editor's Notes

• #4: Privatisation of state owned enterprises is not a new phenomenon in Pakistan 1960s-the first country to privatise factories built by the government to strengthen the private sector 1970s-reversal of the policy and the state started wholesale nationalisation 1980s-denationalisation of the enterprises nationalised during the previous decade 1990s-accelerated privatisation and deregulation which has been termed as the most successful privatisation program in South Asia, Central Asia and the Middle East More than 165 transactions fetched over $ 9 billion proceeds (Rs. 476,421 million) 80 to 100% state owned enterprises in the different sectors have been handed over to private sector. Most successful privatisation program in South Asia, Central Asia and the Middle East Over $ 9 billion proceeds (Rs. 476,421 million) 167 transactions 100% state owned enterprises in the chemical, textile, nitrogen fertilizer, cement, rice, roti and light engineering while 98% automobile industry, 96% ghee mills and 100% units of Phosphate fertilizer have been privatised Banking industry privatised substantially due to which 80% of the banking sector is under private ownership.
• #5: Privatization is an instrument of economic policy. It is the transfer of property or control of assets used to deliver goods or services from the public to the private sector.The narrow definition refers to privatization at the level of the firm or units within it. While there are different forms of privatization, a widely accepted definition of privatization encompasses the privatization of management as well as the privatization of ownership. Broadly defined, privatization is the abolition of barriers to private sector provision of services or the infrastructure necessary for their delivery. The broad definition refers to privatization at sector level (e.g., telecommunication, electricity, social security, etc.). It is more complex than enterprise level privatization as it often involves restructuring of a whole sector and not just one firm. It involves giving the private sector the right to use or access the public domain (radio spectrum, land, right of way, etc.) to build and operate a network industry. It also involves defining the “public service” dimension and licensing the private sector to deliver such services. The broad definition of privatization requires putting in place legal and regulatory mechanisms to ensure that private providers do not overlook the public dimension of the services they are licensed to deliver and do not fail to meet pre-announced policy objectives (coverage, access, etc.). Privatization, however, can also be used to refer to those measures taken by a government to increase the role of the private sector in an economy. It is in this sense that privatization was, and is, used in the case of the former socialist economies in Central and Eastern Europe and the former Soviet Union. But it can also be used in the case of some Arab economies that are undergoing transitions, albeit of a different kind. Some countries, such as Egypt and Tunisia in the 1980s and Algeria today, are striving to move from a state-controlled and dominated economy to a market-based economy where the private sector plays a much greater role. Other countries, such as the oil rich countries in the Gulf, have begun to realize the importance of privatization in diversifying their economic base away from a heavy reliance on the energy sector.
• #6: Poor Performance: PEs do not perform at the optimum level due to the problems mentioned above. In Pakistan the Government has been paying huge amounts in subsidies to keep these entities running. E.g. Pakistan Steel Mills had liabilities of Rs. 17 billion. Huge over-employment with 23,000 employees which were cut to 13,000. 70% duty on steel imports to provide support to PSM. Various reform initiatives failed to bring these PEs out of woods. PIDC was broken up into 11 corporations, which regrouped as 8; some of them clicked, others didn’t. Engineering sector generally made huge losses despite different reform packages. HMC with 55,000 employees is incurring Rs. 3.5 billion losses. PIA, PNSC, Rice Corp, Ghee Corp, State Cement Corp, are other examples. Pakistan has huge infrastructure deficits which do not allow the economy to perform to its potential. We shall need a lot of money to finance these Rising infrastructure needs of the economy. For this we need to save some money from these subsidies and earn money from taxes to be paid by a rejuvenated private sector. In addition direct private sector investment in infrastructure will take us out of the present situation. Government’s plan to create a national trade corridor will be implemented with the help of the private sector. Pakistan has limited financial resources. Financial requirements of loss making PEs create further financial constraints for the Government. Due to this Govt. money is not available for development. Overstaffing, old technology, inefficiency etc. are the bane of the public sector. In comparison the private sector always prefers to work with cutting edge technology and smart and lean management. Privatization has led to the growth (in terms of market capitalization) and deepening (in terms of numbers of shareholders) of financial markets, as well as increasing their liquidity. Share issue privatization was the main driver behind the development of capital markets worldwide. It is noteworthy that privatized firms are the most valuable companies in 7 of the 10 largest non-US stock markets, and in almost all emerging markets possessing stock exchanges. Furthermore, 35 of the 42 largest common stock issues in history are either privatizations or capital increases by recently privatized firms. Finally, privatizations have not only increased the liquidity of stock markets, but they have exponentially increased the number of shareholders around the world. Privatisation has broadened and deepened the base of Pakistan’s capital market and increased its capitalization from Rs. 951.446 billion in 2003 to Rs. 4.329 trillion in 2007. More units have been listed on the stock exchanges due to this initiative. Moreover, new investors have joined the business and volume of the stock exchanges have risen over the years. The current levels of the KSE would have been impossible without this initiative. During 2003 the KSE 100 Index touched the highest level of 4604.02 while in 2007 the highest point was 14,814.85. International investors look towards overall policy environment. The investor prefers a free market economy with all its essential ingredients like liberalization, deregulation and privatisation.
• #12: Once the FA or valuation firm (for industrial transactions) completes the valuation, it is considered to be the reference price and is presented to the Board and CCOP for approval. Board holds its meeting in PC which acts as its Secretariat. Prior to the bidding, a pre-bidding conference is held to address investor concerns and questions. While project team or FA propose the bidding process, it must be approved by the Board and media has to be invited to it according to law.
• #14: The buyer has to deposit the whole amount before taking over the entity. 25% (including earnest money) is to be paid within 15 days. Remaining 75% is to be paid within 45-90 days. On full payment LOA is issued after obtaining approval of the Board of PC and CCOP. If the successful bidder does not make payment within stipulated time then the earnest money deposited by him is forfieted. This earnest money is deposited by all pre-qualified bidders before actual bidding process starts. Bidding Process Round One: a) On the Bidding Date, when the Commission is satisfied that the Bidding Process can commence, the Commission shall request each of the Qualified Bidders to place the sealed envelopes containing their Bid Letter into the bid box. b) The Commission will open each of the sealed envelopes and announce the value of the bid received from each Qualified Bidder and will enter the same on the record sheet to be established by the Commission for this purpose. The omission of a Qualified Bidder ’ s signature on the record sheet shall not invalidate the contents and effect of the record. Any Bid Letter that does not conform to the format prescribed at Annexure ‘ D ’ shall be declared as non-compliant and shall be rejected. c) The Bidders with the highest three bids ( “ Three Highest Bidders ” ) in Round One shall stand eligible for participation in Round Two. Round Two: (Open Auction or Out Cry) a) The Commission shall immediately thereafter, invite the Three Highest Bidders who participated in Round One to participate in Round Two and bid through an open auction. The Three Highest Qualified Bidders invited for Round Two must not submit bids that are lower than the highest bid which has been submitted in Round One. The open auction shall commence from the highest bid submitted in Round One with a minimum raise of Rupees Five (Rs. 5.00) per share or multiples thereof. Where the sale does not involve shares an appropriate amount is determined for the raise. b) In the event, the highest Bid received by the Commission on conclusion of Round Two is lower than the minimum price acceptable to the Commission, the Three Highest Bidders shall be requested by the Commission to equal or exceed the ‘ minimum price acceptable to the Commission ’ in a manner starting first with the Highest Bidder in Round Two and thereafter, in descending order of the respective Bids. If one of the Three Highest Bidders equals or exceeds the ‘ minimum price acceptable to the Commission ’ then the bidding process will stand concluded and no further rounds will be held. All bids are required to be valid for a period of ninety (90) Business Days from receipt. Bidding takes place normally with three or more bidders but at least two are required to move ahead.