Without homework: Privatisation – all hype, no policy

ISLAMABAD: The current privatisation policy is business light, government heavy. I am a Nike-just-do-it privatisation person, and will argue for meaty policy reforms to boost privatisation in a transparent manner. First things first. There is no new policy, as correctly pointed out by the opposition leader the other day. The effective regime of privatisation currently was defined in 2009, which pursuant to Pakistan Peoples Party manifesto, was protective of the ‘public’ rather than ‘private’ interests. The party stood true to its promise by devising a privatisation policy, which favoured labour unions over private investors. The onus was on the PML-N government to start afresh and define a new privatisation policy according to its own manifesto. Instead, they started with a list of state-owned enterprises (SOEs) to be privatised without understanding, or may be without reading, that the current policy regime is actually anti-privatisation. They started on the wrong foot. The current government manifesto, and the effective privatisation regime, does not come from the same book! More than that, the currently operational policy guidelines of privatisation effectively suck out the appetite from investors. Consider yourself. The guidelines, for example, make it compulsory for privatised units to reserve 12% shares for employees. As a matter of fact, this was the only part of the policy, which was implemented in the previous regime under the name of Benazir Employees Stock Option Scheme (Besos). The total price tag of Besos comes out to be around Rs200 billion to be distributed across 78 SOEs through payment of dividend on 12% shareholding and payment of buyback claims to employees on ceasing to be employees. In 64 SOEs, trusts have been established to implement it whereas 306,473 employees currently stand to benefit from this. Not only this, 235,855 employees have already received unit certificates. They have become legal shareholders. Now rest assured that no bidder can walk away without striking a deal with them. It is unfair to expect from the new owner to exercise independence and undertake risky business decisions in presence of such bureaucratic gridlocks. Brown-field investments Another problematic policy is the exclusivity of the Privatisation Commission itself on brown-field investments. The current policy stipulates that “at the federal level the Privatisation Commission will have exclusivity to undertake brown-field PPP transactions as envisaged in the PC Ordinance 2000. Any other ministry/ department of the federal government will route its PPP transactions through the Privatisation Commission for implementation.” Effectively, it means that if an SOE currently under the control of the Ministry of Defence Affairs, of which PIA is the most prominent, undergoes a brown-field investment through a PPP mode, it can only do so while coming under the blessings of the Privatisation Commission. Why a body established to dilute government control over business is so anxious to concentrate controls under its own feathers? Contractually binding plan Another big naysayer to prospective investors is the condition of submission of “contractually binding” business plans. The policy prescribes that a stringent pre-qualification structure will be put in place that will include a contractually binding business plan and provisions with regard to management, default, termination, penalties and dispute resolution. Only a business certain of all possible future outcomes can make the folly of submitting a ‘contractually binding’ business plan as part of its bid. Every firm evolves business plans but then keeps them flexible enough to adjust to changing market demands and external shocks that may arise from competition. A privatised entity should be guaranteed independence from such contractual obligations. A hoax As a matter of fact, the so-called, public-friendly, labour-friendly, soft image of privatisation that the government is projecting through its statements is a hoax. Privatisation is transfer of ownership of assets from the government to the private hands. Full stop. While that should indeed be the case, the government should be ready to take the blame of brutal effects which it will inevitably bring and prepare everyone for the consequences. Possible loss of jobs is just one of them. Asset stripping of the firms, whose only value is land, is another. These are all necessary, painful consequences as we move towards serious reforms. That the government can appease both its voters, and its political opponents, is a very costly, self-deceiving spin. It is time to work on the desk. The new Privatisation Commission has a herculean mission ahead. It is frustrating to see it has not even defined a friendly, predictable and clear roadmap for itself. The writer is executive director of PRIME, an independent free market economy think tank based in Islamabad Published in The Express Tribune, February 10th, 2014.