Omer Zaheer Meer - Public enterprises and organisations are those that are owned by governments. They can be governmental departments or government owned/ controlled corporations. Privatisation is a controversial phenomenon commonly defined as the transfer of ownership of property or businesses from a government to a privately owned entity. It is also described as the transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange.

Privatisation is put forward as a solution to the economic woes of a country by a section of economists led by the likes of International Monetary Fund (IMF) and World Bank (WB). One of the main arguments for the advocates of privatisation of publicly owned operations is the supposed positive change in efficiencies resulting from private ownership driven by a focus on profit maximisation. While this theory has its merits, one needs to consider the local context to appraise the potential outcomes. Past experiences can always be a handful when deriving objective conclusions. Unfortunately the above argument does not seem to hold merit for Pakistan. Moreover the economic detractors of privatisation argue that vital services needs to be efficiently provided by the state and the fact that privatisation does not have a very bright history in third world countries.

Besides, an interesting economic phenomenon has been in the making for past few decades with public sector enterprises turning towards efficiency based corporate models while still ensuring the provision of cost-effective services/ products to the local populace. They then expand into foreign territory and use their capital bases to derive profits which are funneled to grow the organisation and subsidise the local population. A case in point is Etisalat, a public sector enterprise from UAE currently controlling a privatised public sector enterprise PTCL in Pakistan. This is phenomenal as it nullifies all the arguments of pro-privatisation proponents in Pakistani context as a foreign public sector enterprise is now running the major section of telecommunications services in Pakistan.

Pakistan certainly has its own dynamics to consider with lessons to be learnt from past privatisation experiments. The privatisation of PTCL (Pakistan Telecommunications Company Limited) to the UAE-based Etisalat group by the ex-President Pervez Musharraf’s regime has been a disaster of sorts. Firstly the control of PTCL was transferred for a paltry stake of 26pc. Moreover, PTCL which was generating profits of billions of PKR before privatisation has been reporting heavy losses since despite increased tariffs and with a falling standard of customer service often complained about by masses. Moreover, the initial investment was allowed to be made in installments with a material amount ($800 million) still outstanding. This was perhaps a one-off badly executed privatisation transaction as stated by Zubair Umar, the Chairman of Privatisation Commission. So let us briefly touch upon another privatisation experiment in Pakistan.

The now infamously inept KESC was also privatised with high hopes of a turnaround with substantial investments forecasted by the new private stakeholders in decaying infrastructure. Unfortunately none of the expectations have been met. The efficiency has gone down. Rather than investing in the infrastructure, the private party has sold the premium copper wires replacing them with cheap stuff resulting in increased line losses and breakdowns. In fact it has become a bigger strain on public resources then before privatisation still requiring continuous rescue injections by the government. But the new private owners continue to happily remit their profits abroad.

Not only has the government of Pakistan lost revenues from the healthier dividends’ streams and resulting taxes, it has also lost by falling share prices of its remaining stake in these entities. The public has suffered a deteriorating service and higher prices. The question then is as to what could be an effective solution to deal with the loss-leading white elephants within the realms of the public sector?

In developed countries strict legislation is in place to ensure the common pitfalls of privatisation are avoided, interests of all shareholders are protected and the continuation of a minimum standard of services. This needs to be done in Pakistan too in order to address the issues already facing us from past privatisation ventures which effectively handed over whole of public sector enterprises (PSEs) for a paltry minority stake in ownership.

Going forward, a proper plan of action is needed for loss generating entities like PIA, Pakistan Railways, etc. With a proper plan and political will there is no reason why the government cannot introduce checks and balances along with necessary incentives to induce a turnaround they expect from private investors. While some proponents of the privatisation point out the previously failed attempts at turning-around of state institutions, they conveniently ignore the major reasons of failure in undue interference, political appointments and misappropriation by government officials which can be avoided.

The success stories like the successful turnaround of a loss-making steel mill into a profitable enterprise are also conveniently forgotten. The same institution is again in ruins but can revert to its’ past standards. The privatisation proponents also choose to set aside the fact that if enterprises like PIA are privatised, which have the highest ratio of employees per aircraft of almost 500 compared to international standards of fewer than 150; it will still lead to layoffs and resulting backlash which can be better handled within the realms of a public sector restructuring.

Establishment of an independent and empowered restructuring institution (RI) to overhaul PSEs can make the restructuring process less resented compared to a private venture while still ensuring provision of cost-effective quality services to the masses from a revenue-generating asset of the nation. Competent professionals of utmost integrity can be placed at top positions based solely on merit to run the PSE’s with introduction of a system of appropriate checks and balances run by professionals. Performance based packages can be offered spurring motivation and ensuring excellence via improved performances.

This can be further elaborated in that all successful private businesses hire top-notch professionals at lucrative packages with performance based pays. The results are professionally run and highly profitable ventures. There is no reason why the services of similar professionals cannot be engaged by Government which can even convert PSEs into Public Corporations which while still adhering to Government regulations will be allowed to follow professionalism, efficiency and mechanics of a modern enterprise.

If for some reasons a privatisation is still deemed necessary then appropriate selection of non-vital and loss making PSEs along-with stringent laws safeguarding the national interests as well as protecting the masses should be ensured. The process should be transparent and properly outlined with ground work done to attract best possible investments. This can help reduce lower efficiency by private investors, increased unemployment, inflation, loss of revenues and forced government bailouts as witnessed in the past.