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The privatization enigma

PM Shehbaz Sharif has ordered the authorities concerned to expedite the privatization process of our national airline, PIA. This is not a new story, though. The privatization of loss-makers like PIA and Pakistan Steel Mills (PSM) and several other small and medium enterprises (SMEs) has been on the cards for quite some time now.

For some reason, PIA and PSM, the biggest loss-makers, have proved to be great survivors and evaded going into private hands. The prime minister has also directed the authorities concerned to formulate proposals to reduce government expenditures and overhaul the national economic structure. It is time to get rid of public-sector organizations that cause perpetual losses to the exchequer.

The government has already committed to the IMF to accelerate the privatization process. Some politicians, however, oppose this decision. Leading among them are the PPP’s stalwarts, Bilawal Bhutto-Zardari and Sherry Rehman. They favour another formula instead of outright privatisation – public-private partnership. This is defined as a collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks and convention centres. Frankly, this approach is neither here nor there.

Many taxpayers fully understand that the word ‘public’ in this kind of arrangement means a financial dent to the government exchequer. When every grownup and newborn in the country carries a loan burden of Rs250,000, it is no laughing matter. These loss-makers are responsible for this sad state; PIA’s total loss alone runs in billions.

PIA put up its worst performance at the end of last year (2023) when it cancelled around 80 local and international flights in a week because its fuel supplier, Pakistan State Oil (PSO), refused to refuel its planes due to unpaid dues. At the time, PIA owed the oil supplier Rs26.7 billion, leading to a face-off between two state-owned organizations. As a result, the passengers suffered inordinate delays due to the cancellation of flights. However, the unions of these two entities still vow not to allow the government to privatize them. And the reason the government has so far failed to privatize these two loss-makers is perhaps the interference of politicians and bureaucrats in these organizations.

It is also important to analyze the outdated and cumbersome procedures for privatizing public enterprises. As a rule, it takes 460 days to prepare, discuss, make various proposals, and appoint consultants before an enterprise is privatized and handed over into private hands. Why can’t such a long duration be reduced by passing a new law to expedite the process of privatization? To emphasise the point, will any private entrepreneur maintain loss-making black holes in their list of enterprises for years? And is it adequate to require 460 days to part with them?

The PSM has been out of commission since 2015, but its employees are being regularly paid their salaries. Establishing commercial and industrial organizations must not be part of the government domain. Private enterprises should only be regulated by government rules and regulations and through the tax collected from them. Similarly, losses incurred by power companies cannot be overlooked.

Minister of Power Awais Khan Leghari recently said that the circular debt of power companies is around Rs3 trillion and an additional 700-800 billion is added to it every year. DISCOs were put on the list of privatization, but they survived as usual due to powerful political and private interests. Now, consumers have to bear the burden of ever-increasing electricity bills. Even now, an increase in both power and gas bills is in the offing.

It is worth quoting the glaring example of how an organization after privatization operates not only profitably but also entirely up to consumers’ satisfaction. A case in point is Pakistan Telecommunication Company Limited (PTCL). After 26 per cent of its shares, including its management rights, were sold to a foreign investor, its performance improved phenomenally.

The company brought about a positive change in its working style to serve its consumers better. It laid down fibre optic cables in cities to provide high-speed internet and TV facilities to its consumers. Even the PTCL staff became efficient and receptive towards clients. There is a lot of potential in Pakistani companies. All they need is a push in the right direction.

Iftekhar A Khan, "The privatization enigma," The News. 2024-03-28.
Keywords: Economics , Economic structure , Industrial organizations , Taxpayers , Privatization , Awais Khan Leghari , Pakistan , PSM , PIA