By Sabihuddin Ghausi
It was in 1978 that General Ziaul Haq introduced the privatisation process in Pakistan. Now that another military ruler, General Musharraf, is holding the fort, the process has gained momentum.

Many financial writers want us to believe that the process of privatisation was initiated in 1991 and not in 1978. The Privatisation Commission website also misinforms the public that privatisation began from Jan 22, 1991 in the country.

In 1978, General Ziaul Haq handed over Ittefaq Foundry to the Sharifs of Lahore without inviting any bids. In fact, two other nationalised units, Nowshera Engineering in the NWFP and Hilal Ghee in Multan, were handed over to their original owners. Subsequently, a Transfer of Managed Establishments Order 1978 was enacted as a law to provide legal cover for this imperial gesture of kindness.

In 1985, the Committee on Disinvestment, Deregulation and Privatisation was constituted with the then president of the Federation of Pakistan Chambers of Commerce and Industry, Aziz Zulfikar as its head. It had a few sub-committees that did some preliminary work. In 1988, the Benazir government also formed a privatisation committee and made a French consultant prepare a report on the subject. A small number of PIA shares were offered to the public for the first time as a modest beginning towards privatisation.

After obtaining ownership of the Ittefaq Foundry without getting involved in any hassle of bidding in 1978, Nawaz Sharif’s business empire went on expanding with every passing day and his political power also grew by the day. After becoming prime minister in 1990, Nawaz Sharif himself initiated the privatisation process as per policy of his government. The first entity on his government’s hit list was the Muslim Commercial Bank. The whole process was done in indecent haste. Advertisements for inviting bids for 26 per cent of the shares of the MCB appeared in newspapers in the third week of December, 1990. Bidders were not allowed any due diligence. Only 11 days were given to the bidders as the last date of submission was December 26. Five bids were received and were opened in the conference room of the State Bank of Pakistan by a bidding committee that was headed by the then Governor of State Bank of Pakistan, I.A. Hanfi.

Abdul Qadir Tawakul was the highest bidder who offered Rs56-a-share. The total payment came to Rs838.8 million. Tawakul was refused and his offer was turned down on the ground that the colour of the money he was offering was a bit black. Tawakul made a lot of noise and threatened to take the case to the highest level of the judiciary. But, bankers say, he was promised and later given two billion rupees bank loan to withdraw from the race. Tawakul obtained the loan entirely on bogus documents and is now in jail because of it.

After a series of hectic consultations and meetings, a national group of 10 businessmen was given the management and ownership of the MCB on April 8, 1991. The MCB was then the “pick of the lot” with a reserve fund of Rs970 million, a safe investment of Rs1.55 billion in Bearer National Fund Bonds and Wapda bonds that gave a return of Rs705 million in one year and real estate properties in Karachi, Hyderabad, Sukkur, Quetta, Lahore, Multan, Faisalabad, Rawalpindi, Peshawar and many other places. The bad loans of the MCB were hardly 10 to 11 per cent of its advances as against 33 to 35 per cent in the four other nationalised banks. It had a small and manageable branch network.

Hussain Lowai, a banker who led the national group while taking over the MCB, is not in Pakistan for the last several years after having been declared an absconder in a gold import case. Mian Mansha was also not in Pakistan between 1994 and 1996 when the PPP was in power and Lowai was Chairman and Chief Executive of the MCB. Mansha is now the majority shareholder of the MCB and many of the original 10 members of National Group are no more the co-owners of the bank. For Mansha and Lowai, the MCB has been a game of fluctuating fortunes. Who knows what will happen tomorrow?

Mansha emerged as one of the biggest players in the privatisation game. Along with his in-laws, Mansha enjoys a monopolistic position in cement production in the Northern Areas. He aspired to get the United Bank but was elbowed out in the second bidding as was the case with the MCB where he got the bank and Tawakul was sidelined. He also took over Adamjee Insurance and has now become a big force in the financial sector.

Gul Mohammad Adamjee, the only surviving brother of the late Wahid and Dawood Adamjee, participated in the MCB bidding but could not get any attention from the bidding committee or the Privatisation Commission. He was not even given the right of first refusal. The Adamjees founded the MCB and are considered to be the architect of Muslim business in undivided India and the founding fathers of Pakistan’s modern economy. It is said that the salaries of Pakistan government employees in the initial months after 1947 were paid by the Adamjees. They suffered a lot because of the separation of East Pakistan in 1971. Subsequently, the Adamjees also lost their insurance company.

Privatisation in Pakistan has remained a controversial matter, if not a dirty game. Three of its chairmen, retired Lt-General Saeed Qadir (1990-93), Naveed Qamar (1994-96), and Khawaja Asif (1997-1999) were put in jail for one reason or another after the dismissal of their respective governments.

The Allied Bank was the second bank that was privatised in 1991 and given to an employee management group for a negotiated price. The ABL privatisation was done under the Employees Stock Ownership Plan (ESOP). Some 7,500 employees were given shareholding but were denied any role in its management. The ABL story is tragic. It is full of treachery, deceit and greed. The government agreed to accept Rs70-a-share offer from Khalid Latif who was the founding father of the Employees-Management Group of the ABL and was the first head of the privatised ABL. It was handed over to the employees management on August 8, 1991. A split occurred in the group within weeks after the takeover and rival groups got involved in a litigation process. Khalid Latif was removed and arrested after the dismissal of the IJI government in 1993. His successor too was removed and arrested after the PPP government was dismissed in November 1996. Rashid Chowdhry took over as ABL chief. He and his three colleagues, from the senior management of the ABL, were found guilty by a State Bank committee of being involved in helping and abetting a Hyderabad-based powerful business group in giving an advance loan and then arranging re-purchase of ABL shares from the employees.

The State Bank prepared a detailed report on the episode. Four top executives and two senior officials were removed from the ABL and were declared unfit for employment in any bank for life. But no further action was taken against the business group that got loan using fictitious documents and used the money to buy back shares from the employees to get management control. The National Accountability Bureau did not move at all in this case.

Since its inception, privatisation has come under severe criticism because instead of creating employment, the process has done just the opposite. Besides, some economists believe that privatization has also led to massive corruption in many a case


Bankers estimate a loss of Rs6 billion sustained by the Allied Bank after it came under the control of people who outdid each other as far as loot and plunder went. The ABL did not publish any annual report from 1999 to October 2004 because according to Shahid Hasan Siddiqui, a bank researcher, “The entire capital of the bank was wiped out.” This loss, according to Siddiqui, is much more than privatisation proceeds. These also exceeded the total profit earned by all the banks that were merged into one to form the ABL since 1942.

From 1991 to 1999, the Privatisation Commission completed 109 transactions worth Rs132 billion. One of the stated objectives of privatisation is to “facilitate the government’s policy of deregulation and liberalisation of the national economy through transparent and equitable privatisation of state-owned enterprises. Privatisation is envisaged to foster competition, ensuring greater capital investment, competitiveness, and modernisation, resulting in enhancement of employment and services to the consumers and reduction in the fiscal burden.” Another objective is to safeguard interests of consumers and investors. “The process of privatisation has been a big source of corruption in many cases,” writes Shahid Hasan Siddiqui in his book, Economic Growth and Stabilisation: Myth or Reality. National Fibre used to be a real gem as far as Pakistan’s national industrial assets were concerned, and its capital cost was less than only that of Pakistan Steel’s. It was sold away to a Karachi-based business group that has now left Pakistan and the unit of National Fibre has ceased to exist. Equipped with state-of-the-art machinery, National Fibre boasted one of the best trained cadres of chemical engineers and technicians. Hardly anyone of them now lives in Pakistan. Siddiqui’s work on implications of privatisation has been adopted by the alliance of religious parties, the Muttahida Majlis-i-Amal (MMA) as its policy document.

The privatisation of National Fibre, Bankers Equity, Zeal Pak, Naya Daur and some other classic failures still cast their dark shadows on Pakistan’s national economy. There are many other instances that can be mentioned. The privatisation of Bankers Equity and its subsequent operations are nothing but a fraud.

Since its inception, privatisation has come under severe criticism from the public because of lack of transparency as is evident from the above-mentioned examples. Instead of creating employment, the process has caused massive unemployment. The government invested more than Rs50 billion, threw out more than 12,000 employees from the United Bank (literally at gun point in 1997) and from Habib Bank to make these entities tempting for investors. In addition to it, these banks were given tax concessions. Employees were offered golden handshakes from the funds obtained against a World Bank loan. What the government did was to raise its debt liability, render more than 10,000 employees jobless, and spend more than Rs50 billion of tax payers’ money to tempt two foreign groups pay for acquiring management control and shareholding in the UBL and HBL.

A study of the Asian Development Bank found “very little impact on the employment,” to quote a privatisation website. The ADB surveyed 21 privatised entities and found five were in a poor condition, six were roughly neutral and 10 showed some economic benefits.

After taking over the government on October 12, 1999, General Musharraf, in his first televised address, did not touch upon the privatisation issue. But within a week, he was briefed by international financial institutions on the matter and on October 19, 1999, the government came out with a policy statement on privatisation that aimed at disinvesting and privatising virtually everything. A new privatisation law was framed in the year 2000 and a new privatisation ministry was created.

Ironically, investment and disinvestment responsibilities have been merged into one office. Technically, what is being offered as disinvestment of state entities is now the investment. In the current fiscal year, the government has shown about two billion dollars (Rs120 billion plus) privatisation proceeds, the highest in any single year, and to quote a minister, it exceeds direct foreign investment during the year.

The pace of privatisation gained momentum after 2002 when the impact of 9/11 started to subside and the government resorted to aggressive marketing for privatisation to Arab investors. The KESC, the PTCL and recently Pakistan Steel are important entities, whose privatisation has raised a lot of questions.

The Privatisation Commission was found bending backwards when it came to offering the PTCL to the UAE-based Eitesalat. The group did bid the highest but virtually backed out. Instead of calling off the bid and confiscating the bidding amount according to declared rules, the PC went on extending the payment period. President Musharraf himself intervened in the PTCL cause and talked to UAE rulers on the sidelines of the Makkah summit. All facilities were provided to accommodate the investor. This caused considerable heartburn among the local investors who believed that they were being discriminated against. Eitesalat is a UAE state entity, so where is privatisation? This is another question that is being raised.

Total proceeds from privatisation since 1991 to this day amounts to Rs395.24 billion. Out of this sum, transactions worth Rs217.91 billion were finalised in the last eight months. Under the law, 90 per cent of privatisation proceeds are for debt clearance and 10 per cent for poverty alleviation. “We instantly remit every paisa of privatisation proceeds to the finance ministry,” a spokesman of the Privatisation Commission replied when asked if he could give a breakdown of how the proceeds were being spent.

Trade unions are unable to fight their case against privatisation in a convincing manner. The voice against the process supports the status quo by default. That the KESC was a badly managed entity is a fact that very few would dispute. How could management be improved is a question to which no convincing answer was given.

But the PTCL had shown considerable improvement as far as service goes and there’s no apparent reason for a hasty disinvestment. The Steel Mill disinvestment is a transaction on which the government has not been able to convince the public and it is bound to become a live issue in the next election campaign.


Steely resolve?
In January 2004, the chief executive of the Saudi group Al-Tuwairiqi, Tariq Barlas, came to Karachi to announce a $100million steel billet project for Pakistan in which Pakistan Steel Mill would also have a 10 per cent equity share in the form of land.

“The plant will export billets worth $250 million annually to Saudi Arab, the UAE, Kuwait, Muscat and some other countries of the Gulf,” reported a national newspaper in Karachi while quoting the chief executive in January 2004. The plan, according to the chief executive, was to manufacture one million tons of billets in the first year and then expand it to more than five million tons annually in the next five years.

The Al-Tuwairiqi group, according to Mr Barlas, would have 55 per cent equity in the project, Pak-Kuwait 15 per cent, while 20 per cent would be raised from the public, and Pakistan Steel would have a 10 per cent share in the form of land.

In one year or so, some time in the year 2005, the group was given the choicest plot of 220 acres located between the sea and water intake channel and the sea water disposal channel belonging to the Pakistan Steel Mill. A 10 per cent shareholding in the $100million project is $10million or Rs600 million. It means that Pakistan Steel’s 220 acres of prime land has been given to Al-Tuwairiqi at Rs600 million or at Rs2.73 million per acre whereas the minimum market price is Rs10 million for an acre. The official price for developed land is Rs3 million an acre.

The Central Board of Revenue did not take much time to declare the 220-acre plot ‘the Al-Tuwairiqi Export Zone’. All import of inputs and machinery for the project would be exempt from taxes. In January 2006, a government SRO gave a special status to the project on the 220-acre plot of Pakistan Steel already declared the Export Zone. This project will have the permission to market the 100 per cent products in the tariff area of Pakistan. The 97 projects in the Export Processing Zone under an SRO can market only 20 per cent of their products in the tariff area of Pakistan while 80 per cent has to be exported.

On March 30, 2006, President Musharraf laid the foundation stone of The Al-Tuwairiqi Steel Mills. No reference was made of Pakistan Steel as a partner in the project. On March 31, the bidding for auction of 75 per cent shares of Pakistan Steel was held and Al-Tuwairiqi’s bid at Rs16.80 per share was accepted. The group was asked to pay Rs21.68 billion for 75 per cent shares.

Was the process transparent? It is a question that was answered by the sequence of events since the arrival of the Al Tuwairiqi executive in Karachi in January 2004 and the developments took place thereafter. The acting privatisation minister did not waste time or money on convening the meeting of the Cabinet Committee on Privatisation (CCoP) headed by the prime minister and instantly issued a letter of acceptance. Acting Privatisation Minister Awais Leghari explained on a TV channel the reasons for issuing a letter of acceptance without the approval of the CCoP. He said the meeting of the CCoP cost money for air fare and hotel accommodation. It took some time for all the members to get together. The next day, the statement was changed. The CCoP was said to have given prior approval to the acting minister to issue a letter of approval. “But all members of the CCoP are residents of Islamabad and after all the CCoP has been holding meetings to approve transactions in the past,” a bewildered observer remarked and wanted to know why not in case of Pakistan Steel.

The successful bidder paid 25 per cent of the money on April 21 and an agreement for the purchase of 75 per cent shares of Pakistan Steel was signed on April 24. In all likelihood, the successful bidder would be given physical charge of the Pakistan Steel Mill by May 29 next.

On May 29, the successful bidder will take control of Pakistan Steel spread over an area of 4,500 acres that has the infrastructure to sustain more than three million tons of steel products in a year. Market observers say that the upcoming Al-Tuwairiqi project will fully benefit from the infrastructure of Steel Mills.

It wouldn’t be a surprise if in the next one or two years the entire project — the new as well as the privatised one — will be declared the export zone. — S.G.


Politics and economics
Privatisation in Pakistan was initiated by General Ziaul Haq for obvious reasons. But it is these days going on with religious zeal because of the Musharraf-Shaukat regime. It is also considered to be the backlash against the late Zulfikar Ali Bhutto’s decision to nationalise industries, banks, insurance and shipping companies in 1972.

Mr Bhutto was the leader of a political party, the Pakistan Peoples Party, and contested the 1970 elections by offering a manifesto to the people of Pakistan. The manifesto announced nationalisation of 12 categories of industries plus banks, insurance companies, shipping and other areas of public interest. This can be read on a website now.

Many other political parties participating in the 1970 elections, including the Awami League and the National Awami Party, offered radical economic programmes. Even the Council Muslim League offered a radical programme and promised agrarian reforms. Only the Jamaat-i-Islami showed too much attachment to private property and personal belongings.

Following the separation of East Pakistan and Pakistan Army’s surrender, Zulfikar Ali Bhutto took over power on a wintry night of December 1971. He came out with an Economic Reforms Order in 1972 followed by nationalisation of shipping according to the promises made to the voters during the elections.

The tragic events of 1971 had badly shaken Pakistani businessmen who were brought up in a virtual greenhouse environment with state patronage. State capitalism was the only way out for any government that would be in power. The private sector had neither the capacity nor the vision in 1971. Even now it can’t take up projects like Steel Mills, Heavy Mechanical Complex, Heavy Forge and Foundry, Heavy Electrical Complex, Port Qasim, National Fibre, fertiliser and cement projects.

What were the options left to the government for offering jobs to the people? To address this issue, avenues in the Middle East were opened but the three per cent annual growth in population demanded more opportunities.

Back in 1968, the late Dr Mahbubul Haq spoke of 22 families that controlled 68 per cent of industrial assets, 86 per cent of banking assets and many other sources of income generation. Mahbubul Haq went on to join the World Bank and returned home as adviser to Gen Ziaul Haq.

Shahid Javed Burki too is a World Bank man who is now warning of a “casino culture” enveloping Pakistan’s economy. He is concerned that the bubble might burst any moment and compares Pakistan with the Mexico of 1996. According to the 1970 PPP manifesto, “Pakistan’s economy is a prisoner of bankers.” Is it not the case even now? — S.G.


Regards,
Sardarzada

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God is dead! God remains dead! And we have killed him! How shall we console ourselves, the most murderous of all murderers? The holiest and the mightiest that the world has hitherto possessed, has bled to death under our knife....