What happened: On Monday, Cabinet Committee on Privatisation (CCoP) approved the transaction structure for the divestment of 96.6 per cent shares of Heavy Electrical Complex (HEC), and constituted a committee to improve upon the transaction structure for Pakistan Steel Mills (PSM).
PSM was once the pride of Pakistan for being a state-owned equity. Z.A. Bhutto built this industry which changed the face of Pakistan’s economy but as Pakistan moved towards the abyss of crisis, privatization became a reality.
Background: International financial institutions (IFIs), with the help of liberal scholars, are selling privatisation as a great remedy for economically troubled and debt-ridden developing countries. Although the first example of privatisation comes from a fascist regime of Italy, today it is a favourite tool of IFIs. Proponents always highlight efficiency, higher productivity, better management and in some cases debt retirement. Unfortunately, there is less debate on the welfare impact including income distribution, poverty, job loss, wages, etc.
What Pakistan is doing: The federal government, in consultation with the International Monetary Fund (IMF), has prepared a list of 12 organisations which will be privatised in a phased and sequential manner.
According to sources, the Cabinet Committee on State-Owned Enterprises (CCoSOEs) recently considered a summary submitted by the Finance Division and accorded in-principle approval to the proposed list of entities for privatisation and restructuring categories.
Entities placed in proposed categories were discussed one by one, sources said, adding that the committee had advised that the placement of SOEs for privatisation should be done in a phased and sequential manner.
The government shall retain only those SOEs that were essential for its functions, besides those which the private sector was unable to undertake.
One does not see any serious policy effort to privatize as a move to open, market-based economy. It has not contributed to improve the efficiency, profitability and competitiveness of the SOEs. Privatization transactions lack transparency. Privatization is a short-term solution with long-term negative implications. Moreover, it is not a wise strategy to sell assets instead of fixing problems.