The term 'privatisation' is used to describe a range of different policy initiatives designed to alter the balance between the public and private sectors. There are three main approaches to privatisation (i) The first and most common usage of the term refers to a change in the ownership of an enterprise from the public to the private sector; (ii) Denationalisation of nationalized assets by the government, which can proceed in a number of different ways. It can be brought about by the sale of equity to the public or the sale of the enterprise as a complete entity; deregulation – private sector entry into activities previously restricted to public sector enterprises, the removal of restrictions on market entry is intended to increase the role of competition; or where the provision of a product or service is transferred from public to private sector, while the government retains ultimate responsibility for supplying the service; (ii) The contracting out of public services and the leasing of public assets to the private sector or (ii) Public-Private partnership (PPP) where 51% or more equity of assets remain with the public sector and till 49% of the assets are sold or auctioned off to the private sector; or (iii) where BOGs are formed with private individuals constituting a bigger portion of the BOG in order to run the public sector government owned or autonomous enterprise on relatively more efficient market mechanism. Each of these methods has their own historic economic and administrative drawbacks and advantages.
The word privatisation, as a policy measure of PML-N government as well as of Musharraf’s regime, has historically meant selling off government assets to local or foreign buyers in order to use this money to pay off old loans (for debt management). But in the past this policy has backfired as most of what was sold off to the private sector were actually profit making enterprises, rather than those which were being run inefficiently and unprofitably. A large part of those that were sold off were sold at relevantly lower than their market price and not necessarily to the highest bidder; the process of these privatisation manoeuvres were not absolutely transparent and in the end the national debt increased, rather than being paid off from these proceeds.
Public private partnership in the shape of PTCL initially paid off transforming this enterprise into a more efficient and profit making unit, but on the long-term it has run into snags when the private owners and government policy makers have had disagreements on multiple issues of finance, assets and efficiency of PTCL.
It is interesting to note that there are many a unit of government owned enterprises which are on the privatization list of the PML-N government, but the following economic giants are an issue of political contention i.e. PIA; Pakistan Railways; WAPDA; State Oil, and Steel Mill of Pakistan etc.
Leading economist Dr Qais Aslam thinks it is also interesting to note that on one hand the PML-N government is interested in privatisation of these important state assets and corporations, this government in the Punjab as well as in the center and elsewhere busy constructing parallel state enterprises at colossal government expenses like the METRO transport system and the Orange Train transit system etc.
The government also runs a highly inefficient and corrupt Utility Store system for essential goods that provides substandard products of different kinds. All these enterprises are run inefficiently at public expense at the cost of the taxpayer who also pays for the embezzlement of their funds by their corrupt but highly paid management.
The BOGs formed in the Punjab of so called ‘companies’ formed to provide utilities like clean drinking water, parking, cattle markets etc. are also formed undemocratically and without any transparent mechanism and without consumer participation. All of these processes are against both the spirit of market mechanism as well as good service delivery by the public sector, which is the alternative arraignment for market inefficiencies and market failures.
PIA is a state carrier in aviation, a symbol of Pakistan’s participation in aviation industry and used to be the pride of Pakistan. It boasts one of the best pilots, engineers and technical staff in the world and is among the airlines with the least accidents recorded in all its existence since the independence of Pakistan.
The problem is that the air fleet of the carrier is aging, needs replacement and has become overstaffed as a ration to the air fleet of PIA. At the same time the upper echelon of the company is paid colossal amounts of money on basis of market returns. While the pilots and technical staff are being paid government salaries, creating on one hand a money gap between the higher administration and the working staff in salaries and perks, and on the other hand putting a burden on the national finances when the input-output ration of PIA has turned it into a less profitable enterprise.
Bureaucratic structures and administration mechanisms of PIA as with other government owned enterprises has promoted embezzlement of public funds and corruption in these enterprises rather than promoting efficiency and profit making activities. An example of this is that freight which was more lucrative business was sold off to Shaheen Air in the past and passenger service, which is less lucrative and includes more services, and ‘free’ tickets to public figures, government functionaries, PIA employees, and half fares to students and journalists etc. on tax payer’s expenses. This also decreases the capacity of PIA to improve its efficiency and capacity to compete with its rivals both on domestic as well as international routes.
Therefore who will lose if PIA is privatised? The ones who travel free of cost or at discounted rates on the national carrier or the large number of employees who will be jobless after the privatisation. I fear both, because both represent inefficient work and market behaviors. If the government has promised that no one will be fired or downsized, than the financial burden for which the company is being privatised remains. Therefore there seems no financial justification for the company to be privatized.
The lack of transparency and bad governance seems to be a greater issue in the context of all the workings of these public sector giants, especially PIA. The losses are due to corruption and embezzlement rather than due to market competition. The proceeds from sales of public assets are an issue of trenchancy which is lacking and therefore has become a political issue.
Who will buy is a greater issue, because money that has been embezzled over the years by subsequent governments and their functionaries was to a greater extent part of the black economy of the country. This ‘black money’ was whitened through ‘off shores companies of the same political and administrative people that stole the money in the first place and who are ready to reinvest their ill-gotten wealth in legal enterprises in Pakistan. Recently a scheme of 1% tax to untaxed money in Pakistan was launched, now with FDI having tax holidays and the new scheme a large part of the ‘black money’ has the potential of being ‘whitened’. And therefore this money needs an outlet to be invested in more lucrative already established businesses. What better opportunity than PIA!
In the words of political analyst Barrister Jalal Hussain the government has shown a lack of foresight and vision in this whole PIA fiasco. They should have anticipated the backlash from the unions and had a plan in place to ensure that the privatisation as originally planned was smoothly carried out. Instead they went in like headless chickens and dithered aimlessly resulting in this current mess. When the last government tried to privatise PIA, PML-N strongly objected and said that PIA should remain in government’s hands and suggested selling PIA’s assests (Roosevelt Hotel in New York) amongst other structural readjustments. Now when PML-N is in power, and has a majority in parliament for all its talk of an economic turnaround, they have exhibited an inability to tackle the various economic crises.
Hussain opined that from drawing up The Pakistan International Airlines Corporation (Conversion) Ordinance, 2015, to backtracking to structural readjustment and now being completely at sea in the face of union protests, the government has displayed a complete failure of leadership.
Hussain thinks that the PIA crisis encapsulates the classic debate between political expediency and economic pragmatism. As the situation stands, PIA has become a financial black hole, and since the government cannot turn things around the only option it is now left with is to privatise it. Tough decisions need to be made, the government cannot paralyse itself on this issue fearing a short term backlash, if they indeed want to go beyond hollow slogans, PML-N needs to weather the storm in order to save PIA.
He recommended that the first step to do so would be to appoint someone at the top whose integrity is beyond question, get the other political parties on board and involve them in the decision making process. This is an issue of national importance and the status quo needs to be on the same page to salvage PIA.
