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Friday March 29, 2024

Economic reforms: Part - IX

By Waqar Masood Khan
January 16, 2018

The second Benazir government (Oct 1993-Nov 1996) started off with considerable poise and maturity. The privatisation programme was to continue apace, despite numerous misgivings developed in the context of a few transactions executed under the previous government. A young and energetic Naveed Qamar, MNA, was appointed chairman of the Privatisation Commission to lead the process.

His team prepared a large number of transactions comprising almost all sectors – industry, banking and finance, telecommunications and power sub-sectors. The favoured strategy was to find the strategic investor and give him 26 percent and promise another 25 percent after some time (to be valued on market prices with the first right of refusal for the strategic investor), and when the upside of initial investment was visible for the government to benefit from value addition by the strategic investor.

There were a handful of novel and challenging transactions also. First, a two percent stock of PTCL was divested in the market at around Rs30. But soon thereafter a foreign offering of 10 percent shares was made in the London Stock Exchange in the form of global depository receipts (GDR) at an attractive price of Rs55. The deal amounted to $900 million, which was considered exceptional at the time. However, the sale to a strategic investor could not be finalised and there were concerns expressed by various stakeholders after the share price slumped to only Rs27.

The most significant sale was that of the Kot Addu power project (Kapco) of Wapda, which set a solid example that the power monopoly could eventually be transferred to private investors. It was sold to a strategic investor in June 1996 through international competitive bidding, and the successful bidder was a highly reputable British power utility, National Power. Soon thereafter, and unlike the desired strategy of divesting the remaining holding after some time when valuation would further improve with the better management of private investor, another 10 percent shares were divested to the same investor.

The government succeeded in privatising about 20 industrial units, one financial institution (Bankers Equity), the Kot Addu power project and 12 percent shares of PTCL. There were plans for the sale of UBL, OGDCL and SSGC but they did not mature.

The process soon ran into difficulties created by an acrimonious political atmosphere. While attempting to promote investment, especially in privatisation, the government ignored how its actions against businessmen who bought privatised units under the previous regime would impact investors’ sentiments. All significant transactions made earlier were considered suspect.

Allied Bank’s purchase by Employees Management Group (EMG) was undone as the leader of the group and the then president of the bank, Khalid Latif, was arrested. MCB survived because of its management’s proximity with the seat of power but the real owners were prevented from coming home from abroad or to play any role in its affairs. Pakistan PVC was sold to its previous owner Riaz Shafi, as per the general rules framed way back in 1978, after he matched the highest bid received during the auction. He was also arrested and brought to Islamabad from Karachi.

The most important arrest was that of the former chairman of PC, Lt General (r) Saeed Qadir, a former QMG, who served for a long time in Zia’s cabinet as minister for production, Railways and the National Logistics Board. The Sharif family, including the elder Sharif, also faced all kinds of arrests and criminal investigations. These developments sent shockwaves across the system and the investment environment was hugely diluted.

UBL’s privatisation, even though the transaction was readied for bidding, was prevented from going through. Benazir herself became wary and there was pressure from the labour union, considered the most unruly among the unions of the nationalised commercial banks.

The Senate was then under PML-N control and frequently objected to privatisation proposals and raised questioned about the propriety of the transactions. It was particularly vocal against the proposed privatisation of UBL and OGDC.

Yet another surprising development was the misgivings that developed on the subject with the then president of Pakistan, a senior leader of the PPP, who objected to the privatisation of OGDC (and UBL), saying it would be against the national interest. He also wrote a letter to the prime minister, raising serious questions of propriety in a proposal approved by the ECC (which was chaired by the prime minister) for sale of majority shares of Burmah Oil in PPL to some foreign and local investors. A similar charge would feature in the president’s charge sheet when he dismissed the Benazir government in November, 1996.

The presidential intervention reflected deep fissures within the party ranks. Bruised from a long-running insurgency in Karachi, political turmoil in Punjab, where she supported two successive minority governments of the PML-J, the Supreme Court’s decision of March 1996 that removed all high court judges she had appointed, the murder of her brother in September 1996 and the opposition’s non-stop movement for removal of her government, Benazir Bhutto was deeply affected by this discord with the president. The economic agenda of the government was thus thrown in disorder and the journey from here was only downhill.

This is a curious study of behaviour of two governments, both carrying nearly identical agendas of economic reforms yet their political interests would frequently collide, in the process preventing any scope of cooperation and promotion of shared values. They would see a transaction, which they otherwise would approve economically, in the hands of their opponent as an attempt to loot and plunder. It was all due to their political conditioning from the days when Z A Bhutto was removed in a military coup, and the long rule of Gen Ziaul Haq that followed. To Benazir, Nawaz Sharif appeared to be a reincarnation of Ziaul Haq, while Nawaz never hesitated in castigating the legacy of ZA Bhutto, which he saw truly personified in Ms Bhutto. This feuding consumed precious national energies.

To be continued

The writer is a former finance secretary. Email: waqarmkn@gmail.com