Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
WorldOctober 1 2014

Giving Pakistan's privatisation drive a push

Having had a long and successful career in the commercial sector, Mohammad Zubair, Pakistan's privatisation minister, understands the importance of the country's privatisation drive. But, not everybody shares his enthusiasm, with the heavily unionised companies putting up resistance to the privatisation plans, and foreign investors wary of the country's less-than-perfect track record in denationalisation deals.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Privatisation in Pakistan has a chequered history, to say the least. When prime minister Nawaz Sharif offered Mohammad Zubair the post of privatisation minister in late 2013, a colleague urged him not to take it. His reason? Everyone that had held the position before had gone to jail. Mr Zubair slept on it, and then took the job anyway.

Privatisation is a must-do if the Pakistani government is to continue to meet the International Monetary Fund’s budget deficit reduction targets. But it also chimes with the Pakistan Muslim League party’s centre-right leanings. “Government should have no role in running business,” says Mr Zubair. “We just want to create a conducive environment for it.”

Along the right lines

In wanting to minimise the role of the state in the economy, the party line echoes Thatcherism and Reaganomics, says Mr Zubair.­ It is a line he should find easy to espouse, since he spent most of his working life moving around the world with IBM, ending up as chief financial officer for the Middle East and Africa region. Then, he decided it was time he did something for his country.

Pakistan's government has driven its way into virtually every sector of the economy, including power, transport, finance and insurance, trading, and oil and gas. “All agree that their quality of service to the people of Pakistan is dismal,” says Mr Zubair. “And they are losing [money] heavily.”

In the last financial year their collective losses were about $6bn, he says, and growing. Pakistan International Airlines (PIA) and Pakistan Steel – both politically sensitive operations –­ lose $1bn a year between them. Half the electricity-generating companies and all the energy-distribution companies are in the public sector, and together they lose about $4bn. If it just gave them all away, the government would give its budget a boost.

The government has earmarked 68 companies for privatisation and, if all goes to plan, sales could raise $5bn over the next two years. One political problem is that many of the enterprises concerned are greatly overstaffed and heavily unionised. Another is that privatisation has a reputation in Pakistan as an opaque and corrupt process, in which the family silver is sold off cheap to insiders.

“So a stringent process has been laid down,” Mr Zubair stresses, adding that transparency is essential if foreign investors are to be attracted into the process.

Political hot potatoes

Foreign investors were key to the present administration’s first big capital market sale, of its final 19.8% stake in listed United Bank. The deal, 81% of which went to foreigners, raised $387m. With Credit Suisse and Karachi-based Elixir Securities as advisors, it was rushed through before the end of June, when the financial year ended.

A 5% stake in listed Pakistan Petroleum was also sold to domestic investors for nearly $150m, also just in time to be recorded as part of the 2014 financial year.

A number of other stakes in quoted companies are due in the current financial year. The biggest is a 41.5% holding in Habib Bank (HBL), which could be worth $1.3bn, and which will be split into two tranches for sale via the London Stock Exchange. The same venue will host the sale of 10% of the profitable Oil & Gas Development Company for a possible $800m, although its unions are threatening to strike. Bank of America Merrill Lynch, Citi and KASB Bank have been appointed to advise on the deal. 

A 10% stake in listed Allied Bank, worth perhaps $100m, is also on the table. State Life Insurance is promised an initial public offering. But as Mr Zubair admits, these stock market sales are the easy ones. “Strategic sales, because they are private, are very sensitive,” he says. Few are as sensitive as national flagship carrier PIA, overstaffed and desperately in need of new aeroplanes.

PIA will be restructured before sale, split into its core and ancillary businesses. Mr Zubair believes that the core will become profitable as soon as it is separated, and only about half of it will be sold. Dubai Investment Bank is advising on the sale, not least because Mr Zubair would like Dubai-based airline Emirates to be the strategic investor.

Emirates is not the only option, however, and even Australian airline Qantas is interested. “Qantas has a fantastic fleet, but not the passengers,” says Mr Zubair. “We have the passengers but not the aeroplanes."

Was this article helpful?

Thank you for your feedback!

Read more about:  Asia-Pacific , Pakistan