Rs1 million/minute Capital suggestion

Dr Farrukh Saleem Sunday, September 15, 2013 From Print Edition Pakistan’s economic future depends on how PM Nawaz Sharif handles Pakistan’s state-owned enterprises (SOEs) – some 200 of them. Collectively, they manage to lose Rs500 billion a year or an equivalent of Rs1.5 billion a day or an equivalent of Rs1 million a minute every minute of the year. Imagine, there are 525,600 minutes in a year and SOEs lose Rs1 million per minute. In that sense, since June 5, the day Mian Muhammad Nawaz Sharif took the prime ministerial oath, SOEs have lost a colossal Rs135 billion. What are PM Sharif’s options? Answer: Business Process Reengineering, turnaround initiatives, sell strategic equity or straightforward divestment of equity. Business Process Reengineering “involves the radical redesigning of core business processes to achieve dramatic improvements in productivity.” Well, Lalu Prasad implemented a 3R model-retrenchment, repositioning and reorganisation. Under Lalu, the Indian Railways began “quitting difficult markets, deleting unprofitable product lines, selling assets, out-sourcing and downsizing.” During the retrenchment phase, Lalu’s emphasis was on “cutting costs and raising efficiency.” Honestly, what are the chances that business processes at PIA can be reengineered by the government? Honestly, what are the chances that PIA can ‘adopt a new value system’? Honestly, what are the chances that PIA can ‘reduce organisational layers’? Honestly, what are the chances that PIA can ‘eliminate unproductive activities’? The answer to all of the above questions: zero. How about government-led turnaround initiatives? Well, we have the Japanese government-led Enterprise Turnaround Initiative Corporation (ETIC). In 2009, the Japanese government contributed 20 billion yen and gave ETIC wide powers and a five-year mandate. ETIC’s mandate includes: to promote an overall revival of key industries; to undertake industrial reforms; to dispatch business revitalisation professionals and offer management support. ETIC is turning out to be a lemon – an entity that has done more harm than good. Honestly, what are the chances that the government of Pakistan can dispatch business revitalisation professionals to Pakistan Steel? Honestly, what are the chances that the government of Pakistan can reform Pakistan Steel? Can we succeed where the Japanese are failing? How about selling strategic equity? Well, we sold 26 percent of PTCL to Etisalat at $1.96 per share and PTCL shares are now trading at $0.20 per share. The government of Pakistan would have been far ahead of the game if we had sold all of PTCL. Selling 26 percent of PIA will be a mistake. The government of Pakistan will be far ahead of the game if 100 percent of PIA is sold. Honestly, the Rs500 billion loss is not entirely a loss because there are Pakistanis who are milking these SOEs day-in-day-out. And all these beneficiaries will continue to insist on Business Process Reengineering, turnaround initiatives and the sale of strategic equity just so that they can continue the milking. The ‘secretary’ in control of half a dozen such enterprises would never let them slip through. Honestly, SOEs are turning out to be a classic tug-of-war between beneficiaries of SOEs and PM Sharif. And while this tug-of-war continues PM Sharif’s government continues to lose Rs1 million per minute. And it is this tug-of-war that will eventually decide the PML-N’s fate. Honestly, the only way out of this is wholesale, complete divestment of equity – sell everything in sight for whatever is offered for it. The PML-N will only be able to deliver if it restricts itself to governing. The PML-N will only be able to deliver if it completely detaches itself from the goods producing sector of the economy. Honesty, I have been told, pays but it doesn’t seem to ‘pay enough to suit some people’.