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Economic Environment

Presented to:

Maam Syeda Farzana Manzoor

Presented BY:Soulat Khan # 06

Amir Raza Gujjar #10Ijaz Ahmed #23


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PRIVATIZATION

Privatization is the incidence or processof transeferring ownership of business

from the public sector (govt) to theprivate sector (business).


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Ways of privatization of public

sector business

There are three main methods of

privatization:

Share Issue Privatization (SIP)

Asset Sale Privatization

Voucher Privatization


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S

hareI

ssueP

rivatization(SIP)

selling shares on the stockmarket.

it is the most common type.


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AssetSale Privatization

selling the entire firms or part of it to

a strategic investor, usually by

auction.

Asset sales are more common in

developing countries


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VoucherPrivatization

shares of ownership are distributed to

all citizens, usually for free or at a

very low price.

It mainly used in the transition economies

of Central and Eastern Europe, such as

Russia, Poland, the and Slovakia. Its not

much applicable in Pakistan.


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Privatization Process:

Include steps:

Identification

Hiring of a Financial Advisor

Due Diligence

Enacting any Needed Regulatory andSectoral Reforms

Valuation of Property Pre-bid and Bid Process

Post-bid Matters


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Identification:

Firstly list the entities to be privatized.

Privatization Commission submits a

Summary of the proposed transaction to

its Board.

Once endorsed by the Board, it is

submitted to the Cabinet or itssubcommittee for approval.


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Hiring of a Financial

Advisor:

Transaction manager with the approval

of the Board hire a financial advisor.

Evaluation team is constituted

Short listed firms are invited to submit

technical and financial proposals.

The evaluation team scores the technicalproposals and the highest ranked firm is

invited for contract.


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Due Diligence:

To carry out the legal, technical and financial

attentiveness.

FA carries out this function for major

transactions.

Following due diligence, the FA finalizes the

privatization plan

The plan is then submitted to the Board for

approval.


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Enacting any NeededRegulatory

andSectoralReforms:

There may be rules determining

standards, penalties for non-compliance,the extent and timing of any proposed

deregulation.

Clarification of these rules, laws and

regulations will often be necessary

before taking the transaction to market.


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Valuation ofProperty:

The Financial Advisor carries out the

valuation for the property.

The methods used for the valuation varywith the type of business and often more

than one method is used in determining

the value.

These include:

the discounted cash flow method

asset valuation at book or market value

and stock market valuation s


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Pre-bid and BidProcess:

Expressions of Interest (EOI) are

invited by advertising in the relevant

media.

Interested parties then submit a

Statement of Qualifications (SOQ) .

Then meeting is conducted. It is useful

in determining the bidding procedure tobe followed and to determine the

proportion of shares.


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Post-bid Matters:

Identification of biggest bidder

Once the bid price and bidder areapproved, the PC issues a letter ofacceptance or a letter of intent .

PC then finalizes the sale purchaseagreement, collects the sale proceeds,

and transfers the property.Within 30 days, the PC is required to

publish the summary details of thetransaction in the official gazette.


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PRIVATIZATION IN PAKISTAN


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PRIVATIZATION IN PAKISTAN

Uses:

1) Development would be faster(due t

competition with the other private

parties)2) Innovative solutions (due to again

competition with the other private

parties)3) Effective & time bound results

4) Cost cuttings

5) Improves quality in work


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6) In turn more services to public arepossible7) Increase the productivity8) Significant Growth in the business9) Controlled monitoring of public

property gives public in turn good

services


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Possible Losses

1) Always a threat to working staff.2) As private parties try to extract workfrom minimum resources, downsizing

is the common problem3) Un-employment increases4) if the private party is inefficient, thereis every possibility of the business

winding up.

5) More restrictions on many things6) purely commercial in nature andlacks ethical / human morals at times.


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NawazSharif's privatization:

As Prime Minister Punjab, Nawaz Sharif

presided over the privatization of several

units of Punjab Industrial and Development

Board (PIDC) like Pasrur Sugar Mills,

Samundri Sugar, Rahwali Sugar, Paras

Textile, Harapa Textile and Ghazi Textile.

How and on what prices these units were

sold is still a secret but according to

Company Review in the daily DAWN in May1991, Pasrur Sugar Mills was sold to United

Sugar Mills of United group for a " token price

of Rs one only".


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Samundri Sugar Mills was sold to

Monoos and Rahwali Sugar to a

Muslim League politician Sheikh

Mansoor.


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In its first term, Benazir govt. tried toprivatize Sui Southern Gas Company andengaged a British Consultant MorganGrenfell and a Pakistani Consultant SidatHyder Aslam Rs However after considerablespade work, proposal to privatize Sui

Southern was dropped and it was decidedthat 10% shares of PIA, 30-40% shares ofPak-Saudi Fertilizer and 60% shares of MCBwill be privatized. The govt. however couldnot carry out the proposed plan and only

10% shares of PIA were divested beforeBenazir was dismissed on August 5,1990giving way to the first Nawaz Sharifgovernment


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Within Six weeks of coming into

power he privatized Muslim

Commercial Bank (MCB) to a

national group of 12 leading

industrialists led by Mian Mansha. A

Privatization Commission was set

up under the chairmanship ofGeneral Saeed Qadir.


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In addition to Privatization Commissionof Saeed Qadir, govt. set up aCommission for Privatization of WAPDAheaded by former Secretary Abdul Rahim

Mahsud, a committee for privatization ofPakistan Telecommunication underDeputy Chairman Planning CommissionA G N Kazi and another for privatizationof banks headed by Governor State Bank.

Completely diverse and independentprocedures were worked out forprivatization of units of these fourentities.


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Nawaz Sharif had earmarked 115

units for privatization and when his

government was dismissed on April

18,1993, he had privatized two

banks, 68 industrial units and 10%

Shares of Sui Northern Gas Pipeline

for a consideration of Rs 12,018million.


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BenazirBhutto's (Late) privatization

(1993-96):

MAYHER SOUL REST IN PEACE


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Benazir Bhutto summed up the

corruption in Nawaz Sharif's

privatization when she told the

workers of Larkana Sugar Mills in

August 1996 that " Ab karkhana sahi

keemat perbikey ga aur sahi aadmi

ko meelay ga, (Now the factories willbe sold to right people, at right

price)".


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One of her first move, on coming topower, for the second term was toreconstitute Privatization

Commission, merging into it theother three committees dealing withprivatization of WAPDA, PakistanTelecommunication and banks,

appointing Naveed Qamar, a closefriend of her husband Asif AliZardari, as its chairman.


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In her second term, Benazir

privatized 20 industrial units, one

financial institution, Kot Addu

Power Plant and 12% shares of

Pakistan Telecommunications Ltd.


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WHY PRIVATIZATION IS

NECESSARY

FOR ECONOMIC GROWTH IN

PAKISTAN?


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A massive redistribution of national

assets from the private owners to

the state. Transfer of money from

the richer to the poor


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Inefficient provision of services andproduction of sub standard goods. It was acommon knowledge that getting a telephoneconnection in Pakistan required years not

months and that too with the help of favourand exchange of bribes. No wonder thecountry was able to install less than 3 milliontelephones in the entire 50 years of its historywhile under a private sector an additional 6 to7 million mobile phone connections weregiven to Pakistanis from all walks of lifewithout any favor or discrimination in one yearalone i.e. 2004.


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Markets are the best known vehicle for

efficient allocation and utilization of

resources and thus the decisions as what

goods and services to produce, howmuch to produce, distribute and trade

can be done well only by the private

sector and not by the bureaucrats. This

division and redefinition is also essentialto reduce corruption and generate

sustained and equitable growth in the

country


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The main logic behind this divestiture is

that it will promote efficient allocation

of scarce resources, optimal utilization

of resources, making sound, timely andmarket responsive investment choices,

winning and retaining customers

loyalty through better service standards

and lower product prices or usercharges and contributing to the

expansion of the economy through

taxes, dividends etc.


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In 1997 when the restructuring, down-sizing and privatization of thenationalized commercial banks pickedup speed there were 105,000 employees

working in the financial sector. Afterprivatization was completed, thebanking industry has expanded and thework force has expanded to 114,000. Itis true that the pattern of employment

has changed and more productive andskilled workers have been taken in atthe expense of low skilled or unskilled.


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Industry estimates that 100,000 new

jobs will be added during next 3 5

years. The substitution of unskilled jobs

in the PTCL by the skilled jobs in thetelecom industry as a whole will raise

the productivity of the sector as well as

that of the user companies and

institutions.


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DRAWBACKSO

PRIVATIZATION


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The most tragic consequence of privatization

was the closure of manyunits whicharelisted

below:

ZealPakCement

Naya DaurMotors

NationalCement

QualitySteel

Indus SteelPipe

PakChina Fertilizer Karachi PipeMilsetc

The closure of theseunitshas playedhavoc to the

nationaleconomy


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The GDPgrowth which wasabove 6% in the

1980sdeclinedto around4%in the post

privatization period.

Units weresoldout without checking the credit

worthiness of the party.

Pak Saudi Fertilizer wasa veryprofitable public

sectorunit producingurea. Ithas beensold to a

group ledbyFauji Foundation.


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Aleading financial institution was closedasa

result of privatizationand ithad thestrong

negative impact on financialmarkets.

Among the other majorunits which closedafter

privatization wasZ

ealPakCement. The b

uyerwasnot interestedto run the factorybut

strippingtheassets. This isa frequent curse of

privatization.


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conclusion


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Privatization contributes toeconomicgrowth throughproductivitygains,efficientutilization

of resources, bettergovernanceandexpansion in outputandemployment. The ordinaryconsumergetsa be privatesectorfirms in the form of befit only throughcompetitionamongcontinue


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lower pricesandbetter

servicesashas beendemonstrated in the cases ofbanking, telecommunications

andmore recently inair travel.Aseverythinghas its brightanddarkeffects the

privatization in Pakistanhasnot met its objectives for thereasonsnotedabove.


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suggestions


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At present it is innational interest to

remove PSO, OGDC, HBL andNBP from thelist of privatization,as

their privatization wouldbe

strategicallydangerousandeconomicallyunjustifiable.

Moreover, IBF'snextdemandwill

be to privatizeManglaandTarbela

dams, which wouldbringan

complete messup theeconomy.

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