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Sell-off of PSM

Pakistan Steel Mills, known to be the country’s largest industrial unit incorporated in 1968 at a total cost of Rs 24.7 billion, with an annual designed production capacity of 1.1 million ton of steel products is reported to have suffered over the last few years’ accumulated loss of over Rs 100 billion. It may perhaps not be out of context at this stage to point out that Supreme Court of Pakistan in the case of earlier privatisation of Pakistan Steel Mills reported in PLD 2006 SC 697 had cancelled the sale of Pakistan Steel Mills following the privatisation.

This heavy cumulative loss of over Rs 100 billion has been suffered by Pakistan Steel Mills with overall liabilities of more than Rs 110 billion. Reasons briefly for this state of affairs are discussed below. This be viewed keeping in view that for the year 2004-2005 Pakistan Steel Mills had recorded sales of over Rs 30 million and net profit of Rs 6.00 million.

To cover up unchecked corruption, inefficiency and over-employment, Pakistan Steel Mills received a bail-out package of more than Rs 41.20 billion in 2009 onwards with total bail out grant of Rs 150 billion in the past five years. Pakistan Steel Mills in early September 2013 was running at mere 11% of its capacity. It does not even have enough working capital to support its operation beyond September 2013. It has now demanded a future bailout package of more than Rs 28 billion from the government.

Privatisation world-wide is a phenomenon and state-owned and operated business is fast receding. The US President Barack Obama has rightly remarked: “Government can get out of way, let the private sector do what it does best – innovate, create jobs and grow the economy.”

World Bank report is “The case by case approach to privatisation – Techniques and Example”. In India, unlike Pakistan, Research scholars and students of law have undertaken research in the field of privatisation and have written thesis on this subject published in shape of books. The suggested books from India are “Competition, Privatisation and Reforms in Indian Telecom Industry by Dr Poonam Mittal and Dr Shahid Ashraf; “Privatisation Evolution of Indian Thought” by R. K. Mishra, P. Geeta and B. Narin, “Privatisation of State Enterprises, Finance Commission Approach” by R. K. Mishra; “Privatisation Strategies and Techniques” by R. Nandagopal and Chaudhry Lakshmi Kumari, “Privatisation of State Level Public Enterprises in India” by Chaudhry Lakshmi Kumari and R. K. Mishra, “Privatisation of Public Sector Undertaking – Experimentation Abroad” by Gesiah Seloam. In Pakistan, the only known research work is published in PLJ 2004 Central Statutes 259 in relation to disinvestment in National Bank of Pakistan of 22.2% shares.

If one is to make broad generalisation on the basis of experience resulting from earlier privatisation in Pakistan, four lessons emerge. First, scope of privatisation in developed countries in terms of selling assets of public sector enterprises is limited; second, market environment for introducing competition in many development countries is not very conducive; and third, there are costs in the medium-term of a policy of liberalisation as concomitant to privatisation and finally any policy will therefore have to be selective country and sector specific within the socio-political economy and above all political will of the government in power.

Any debate on privatisation of loss making companies in Pakistan will be incomplete unless the capacity, existing performance and the potential of the private sector is fully utilised. This has to encompass the small, medium and large scale sectors, co-operative and non-co-operative sectors, joint sector and even areas like contracting and trading approach by employers in the private sector will have to be changed. The era of the law of Master and Servant has been relegated to medieval past by the free and independent judiciary of this country. Employers in the private sector will have to be enlightened, broad minded, and at no given point of time must ensure that they will rigidly enforce labour legislation in this country.

It has been observed that whilst effecting privatisation, Government does not undertake due diligence in most matters pertaining to labour. One area of research and work that must be necessarily undertaken by the Privatisation Commission is to collect all past settlements and agreements with CBA in SOE. Through legal opinion to be determined, it be ascertained as to how far they are binding on the employers, and to find out how the terms and conditions of service of the employees could be modified by subsequent agreements and what are the current terms and conditions of employment of the workers. Areas where prospective buyers, on the eve of privatisation, would possibly be suffering due to privatisation and the problems pertaining to labour, must all be identified. Short-term political advantage should be ignored. Exploitation of labour through hollow slogan must be avoided. Utilising labour, in state-owned enterprises, as a weapon to further strengthen political objectives of the political parties should be avoided. National interest above party’s interest should be guiding motive. This rule is repeated to the point of annoyance.

“Positive thinking will let you do everything better than negative thinking”-Zig Ziglar American Author

Presently the monthly salary bill of Pakistan Steel Mills is almost Rs 480-500 million. This payment has to be made to the employees even if the Mills is non-operational unless other suggested measures are adopted. State-owned enterprises (SOEs) cost the nation Rs 500 billion annually. During the past five years, these SOEs have drained off $5 billion. During the past five years, Pakistan Steel Mills received a bailout grant of Rs 150 million. It is for the present government to decide after discussing with all stakeholders as to what is in the best interest of the country. Since 1991, Pakistan has sold off 167 state-owned enterprises at a price of Rs 476.212 billion. Undergoing privatisation of Pakistan Steel Mills will not therefore be in negation to any law much less Constitution provided it is within the ambit of law with no mala fide involved. It is understood that some policy is being drafted by the former finance minister Shaukat Tarin who owns a private bank, in consultation with a Lahore-based industrialist. Tarin is advising the government on disinvesting power companies, oil and gas sector, PIA, Wapda, Pakistan Railway, Pakistan Steel Mills, banks and insurance companies.

Present analysis is only with a view to ensuring that as a result of privatisation, there is no major labour unrest created in the country. Two options are open for the present government: Either to continue dolling out bailout packages with the expectation that the mill will in due course of time turn out to be a profitable organisation and or in the alternative to ensure that the government privatize key entities, which privatisation will also be in conformity to the IMF conditions for any future bailout package given to the country. However, unlike private sector who terminate the services of their employees on either payment of notice salary and or gratuity or even apply for permission to close down the establishments, the State has an additional responsibility to ensure that it parts with its employees without least labour trouble or unrest. By and large employees of Pakistan Steel Mills have now started realising that this is a loss making venture. Sooner or latter it is to be privatised. With the present strength of labour, perhaps privatisation may not bring about desired bids as the private sector may not necessarily be in a position to introduce Golden Hand Shake pay package unless intended buyer is foreign investor who is prepared to come forward and make additional investment and contribute towards “Golden Pay Package.”

The only other alternative left is for the government to introduce, initially in the first stage, Voluntary Golden Hand Shake Pay Package offer. This should be restricted and confined for a limited period of 15 days. If within these fifteen days period, the response of acceptance of Golden Handshake Pay Package is not encouraging, two options are open to the Government:

a) To effect retrenchment of less than fifty percent workmen on payment of one month salary in lieu of notice and other legal dues binding in law on assignment of reasons;

b) To apply to Labour Court for permission to close down the establishment which is a long, tedious, time consuming route;

Finally the apprehension of judicial intervention in any privatisation be next examined. In the case of earlier privatisation of KESC which was challenged before Supreme Court of Pakistan in the case of Wattan Party vs Federation of Pakistan comprising of Nine Learned Judges of Apex Court reported in PLD 2006 SC 697 at 737, Supreme Court of Pakistan in Para 57 of the judgement authored by Chief Justice Mr. Justice Iftikhar Muhammad Chaudhry observed as under:-

“It is a well settled that normally in exercise of the power of judicial review, this Court will not scrutinise the policy decision or to substitute its own opinion in such a matter as held in M/s Elahi Cotton Mills case.”

Furthermore in the case of Balco Employees Union vs Union of India case reported in AIR 2002 SC 350, Indian Supreme Court has more or less taken the same view. Supreme Court of Pakistan has referred to this judgement of Supreme Court of India in Para 57 of the judgement at page 737 and has reproduced finding as follows:-

“Process of disinvestments is a policy decision involving complex economic factors. The courts have consistently refrained from interfering with economic decisions as it has been recognised that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the Courts would decline to interfere. In matters relating to economic issues, the Government has while taking a decision, right to “trial and error” as long as both trial and error are bonafide and within limits of authority.”

Supreme Court of Pakistan in the earlier case of privatisation of KESC in Para 57 not only reproduced above observations of Supreme Court of India but have even observed and endorsed the view as under:-

“This view is in line with this Court’s view as given in Elahi Cotton ibid. Similar view was taken by the Indian Supreme Court in Delhi Science Forum vs Union of India (AIR 1996 SC 1356).”

It can therefore be safely concluded, that in principle, Supreme Court of Pakistan is of the view that process of disinvestment is government policy decision which involve complex economic factor which include huge financial accumulated losses and that Courts have refrained from interfering in such economic decisions so taken by the Government which are based on economic expediency. The only reason and ground on which Apex Court will interfere, as was done by the Apex Court in earlier privatisation in Pakistan Steel was that the decision was in violation of Constitutional and legal limits and on power abhorrent to reason. The court was conscious of the fact that at the material time Pakistan Steel Mills was a profit-making undertaking with the sale of Rs 30 million and net profit of Rs 6.00 million. Other reasons and grounds taken by the Apex Court in striking down earlier privatisation need not detain us any further as those reasons and grounds apparently may not be available at present unless they are equally repeated by the present Government. So long as this privatisation is fair, equitable, reasonable and within limit laid down by the law and the Constitution, our Judiciary apparently even recognised the fact that in matters relating to economic issues, the Government can take a decision and even has a right to trial and error so long as such trial and error is bonafide and within limits of law and authorities and is not tainted with malice or malafide will not interfere. In fact in earlier judgement of PLD 2006 SC 697 Supreme Court of Pakistan have held that Privatisation Commission Ordinance, 2000 is not ultra vires the Constitution of Pakistan and that Supreme Court while exercising power of judicial review will not interfere in the policy making domain of the executive so long as such privatisation is not vitiated by acts of omission and commission on the part of the certain state which reflect violation of mandatory provision of law and the rules framed there under which either effect adversely the decision both prequalification, violation of the project terms offered to successful bidder. Superior Court will only strike down either a law or a decision on the touchstone of the Constitution which is supreme law and any law or decision contrary to it or this provision alone will be struck down by the Court as duty and function of the Superior Court is to enforce the Constitution and the law. In Elahi Cotton Mills Limited vs Federation of Pakistan case reported in PLD 1997 SC 582 at page 675, Supreme Court of Pakistan have held as follows:-

“The courts while interpreting laws relating to economic activities view the same with greater latitude than the laws relating to civil rights such as freedom of speech, religion etc, keeping in view the complexity of economic problems which do not admit of solution through any doctrinaire or strait jacket formula as pointed out by Holmes, Justice in one of his judgements.”

The policies of the Government ought not and cannot remain static. With the change in economic climate, the wisdom and the manner for the Government to run commercial ventures may require reconsideration. What may have been in the public interest at a point of time may no longer be so now. The Government can take a policy decision that it is in public interest to disinvest in Pakistan Steel Mills. While it was a policy decision to set up Pakistan Steel Mills as a company owned by the government, it can equally be a change of policy that disinvestment now take place. If the initial decision could not be validly challenged on the same parity of reasoning the decision to privatize or disinvestment also cannot be impugned without showing that it is against any law or is mala fide.

No doubt recently the Supreme Court of Pakistan have struck down the decision to privatize Coal-Fired Lakhra Power Plant while the matter was sub judice and when the Court was seized with a dispute over the grant of lease of the plant to a private company. The Court declared 20 years lease as illegal and void being non transparent. This supports the plea that privatisation should be transparent, within the ambit of law and the Constitution and based on well considered economic reasons and considerations with no political or other motives involved.

We should equally be conscious of the fact that so far 166 SOEs have been sold. Asian Development Bank in its report have concluded that 22 percent of the privatised units performed better than before, 44 percent remained as before, while about 34 percent performed worse. Those in the later category include privatisation to those who were interested more in land to construct multi-storeyed buildings, and or units purchased by those who were neither known industrialists, businessmen but out to make millions through the process of privatisation. It is thus essential that in due process and due diligence the business, industry background of the person bidding in the process of privatisation be also taken care of. Finally, once privatisation has been effected, government should not subsidise the unit anymore, as this will be in negation to the process of and defeat the purpose of privatisation.

“The way to get started is to quit talking and begin doing”

Walt Disney American Co Founder of Walt Disney Company

Mahmood Abdul Ghani, "Sell-off of PSM," Business recorder. 2013-09-16.
Keywords: Economics , Economic system , Economic policy , Economy , Economic issues , Economy-Pakistan , Economic crisis , Economic growth , Corruption , Industries-Pakistan , Privatization , President Obama , NBP , PSM