Selling state owned enterprises to stay afloat

ByElsa Sc S

Doing her graduation from LUMS & a keen researcher


January 14, 2023

Selling state owned enterprises

Elsa Sc S describes a last ditch effort

The extremely difficult selling state owned enterprises faced by the Pakistani economy has compelled the coalition government to run from pillar to post asking for the desperately needed financial succour. The incumbent dispensation have done its best to convince IMF to budge from insisting on following its tough conditionalities but to no avail as almost all international financial lenders are showing their deep distrust of the Pakistani financial institutional behaviour that they have repeatedly encountered over the years. These institutions are also concerned about the safety of the financial assistance they render as the Pakistani economy has shown no signs of acquiring the wherewithal needed for meeting its debt requirements. Now the problem for Pakistani finance managers is to arrange for potent collateral for obtaining further financial assistance and this is the objective that they would place before both international lenders as well as friendly countries in the days to come.

It is with this eventuality in view that the incumbent Pakistani political leadership is now prepared to offer certain percentage of stakes of the state owned enterprises to friendly countries in return for obtaining finances. This need has emerged after an earlier visit of the incumbent PM to the UAE where in response to his request for seeking additional funding, the authorities of Dubai offered to buy stakes in listed government entities equal to $2 billion instead. In this context the government began finalising modalities of the entities it can offer and has now come up with some proposal that may be offered accordingly to the UAE. The primary focus of the proposal will be on advancing economic, trade and investment ties between the two countries and creating increased opportunities for the Pakistani workforce in the UAE.

While offering such assets it would be ensured that Pakistan retains majority stakes though in the current depressed market conditions this sale may not fetch enough amounts to enable the country to ward off risks of default for a longer stretch of time. It is reported that big entities such as OGDCL having 67% government stakes, PPL 68%, Sui Southern Gas Company Limited, 53%, PSO 22%, Sui Northern Gas Pipelines Limited 32% and Mari Petroleum Limited. One of the major difficulties to be encountered in this respect is PSO, SNGPL and SSGCL cannot be offered to the UAE as the government will lose management rights. Moreover, there was also opposition to another proposal that suggested handing over Qasim International Container Terminal (QICT) to the UAE until 2065.

It is reported that the government is reviewing the list of official corporate outfits proposed to be offered to the UAE for investment and this list includes PTCL. In case of PTCL the planners are conscious of the fact that the earlier privatisation of PTCL had resulted in a dispute over $800 million that remain outstanding. The current part owner of PTCL, UAE’s telecom giant Etisalat, holding 26% of the shares, is withholding the outstanding amount and this may constrain offering them 25% of additional shares. The issue of property commercialisation is also disputed as Pakistani authorities have linked the permission to commercialise with the payment of at least $500 million in outstanding PTCL dues. It is reported that if Etisalat is allowed to convert 33 properties of PTCL for commercial use it can raise Rs.40 billion that can be paid to Pakistan, but this may not be an agreeable solution from Pakistani perspective.

In addition it is reported that the coalition government has tacitly planned to sell two power plants to Qatar that may fetch an estimated $1.5 billion. In this context it is reported that these two power plants have been taken out of the list of state entities that were put for privatisation. The 2,460 megawatts (MW) capacity LNG-fired power plants are now planned to be put up on fast track to be disposed off. These plants are owned by the National Power Park Management Company (Private) Limited (NPPMCL), instead of the 70:30 debt to equity ratio benchmark allowed in NEPRA’s tariff for NPPMCL’s power plants and now are proposed to be sold under the Inter-governmental Commercial Transaction Act of 2022.

It is however pointed out by various circles that this process of privatisation is not a transparent exercise but exigency of the situation has compelled resorting to fast track disposal. However, the other point of view is that only 30% equity will be sold to Qatar and the price discovery will be based on known factors, reducing the element of discretion, hence ensuring adequate transparency. In August last year, Qatar assured the IMF board of making a $3 billion investment in Pakistan, including purchasing both the plants, aimed at bridging a financing gap identified by the IMF staff. Pakistan is reportedly engaged in re-engaging Credit Suisse to evaluate the price of the two LNG-fired power plants that Qatar wanted to buy for some time. TW


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