Islamabad 13 October, 2016
This is in response to a news item reported by Mr. Ashraf Malkham and carried by the Daily Jang on October 11 and The News on October 12, 2016, wherein certain baseless and factually incorrect assertions have been made against the Privatisation Commission (PC).
In the report, the reporter has falsely accused the Privatisation Commission of spending a lucrative amount of USD 40 million on hiring of financial advisors for different transactions. He also states that the entities to be privatised were selected by the Privatisation Commission alone without keeping the relevant stakeholders, including line ministries or management of entities on board during the process. The reporter further insinuates that the hiring of the FAs and the achieved work by them has been a complete waste of public money as it has yielded no results. Perhaps, if the reporter had familiarized himself with the PC Ordinance, 2000, and the procedures legally mandated for implementing the privatization program, and verified the contractual commitments made to the Financial Advisors on board, he would perhaps have desisted from filing such an inaccurate report.
Firstly, the reporter should have been familiar with the objective of the overall Privatisation Program, which is not only limited to privatisation as reflected in the news item but also includes restructuring. To carry out both privatisation and restructuring in a transparent and professional manner, it requires a detailed study of each entity in terms of its financial, technical, HR, and legal aspects. To conduct these studies, PC Ordinance, 2000 mandates PC to hire Financial Advisor (FA) through a competitive process, which is done while also complying with the PPRA requirements.
Once the FAs have completed the due diligence, the proposed transaction structure is taken to the Transaction Committee. This committee represents different stakeholder groups and includes senior representatives from both the public and private sector, including the regulators of the relevant sector and the management of the entity to be privatised. It is therefore not correct when the reporter states that line ministries and management of relevant entities are not taken on board during the process, as they are among the key members of the transaction committee. Rather it is the transaction committee which deliberates on the structure – any feedback or further input provided is taken into consideration – and only then is the final structure presented to the PC Board for their deliberation.
It is then the PC Board, who decides whether there is a need to carry out any reforms or restructuring to improve the entities performance, or to go ahead with its privatization. If the decision is to go forward with the transaction, then the FA is asked to present options for the transaction structure. PC Board’s approved recommendations are then considered by the CCoP, which can accept, reject or modify them. It should also be noted that the CCoP includes economy-related federal ministers, governor SBP, chairman SECP and chairman BOI, and they are the final decision-maker on the transaction.
Addressing the reporter’s allegation that the work of the FAs has been a waste of money, the reporter seems to be unaware of the content and objectives of the due dilligence reports being carried out. The due dilligence reports are invaluable for their data and situation analysis, as they form the basis for improved decision-making for all concerned stakeholders. Furthermore, the findings and analyses in these reports play an important role in understanding the real problems and issues pertaining to each entity and assist the government in taking reformatory steps like restructuring, which would lead to significant operational efficiencies and reduction in financial burden on the exchequer. The PC would like to further emphasize that all aspects are taken into consideration during the due diligence process. This includes the political environment which focus on labor unions but especially the welfare of the employees of the entities.
It is therefore strange to read that the reporter can so bluntly state that the PC executed the program without ‘doing homework’ and ‘without consultation’ with relevant stakeholders, as the PC Ordinance has identified a clear and broad based decision making process as described above, which is being fully implemented by the Privatisation Commission, thus making all concerned a part and parcel of all ‘homework’ and ‘decision making’.
It also may be mentioned that the financial figures quoted by the reporter in terms of payments for the Financial Advisor services, are completely baseless and wrong. Whereas the news report states that the Privatisation Commission has spent USD 40 million on FA services so far, the fact remains that the PC has so far paid a sum of only USD 2.5 million against a contracted obligation of USD 25 million, which constitutes only 10% of the committed amount. Actual payments shall be made in accordance with the milestones achieved for each of the 17 transactions, including PIA, PSM and 15 power entities. In case of any transaction being stopped or delayed for any reason, payments are only made for the achieved milestones only. Furthermore all agreements with FAs are furnished to NAB for their vetting and checking.
It is further clarified that IMF does not ‘dictate’ GOP about which entities to privatize. The entities are selected by the Cabinet Committee on Privatisation (CCoP). The CCoP then decides which entities are to be included in the ‘early implementation program’. After the present Government assumed power in June 2013, the first meeting of CCoP was held in October 2013. In this meeting, 69 entities were approved for privatisation and restructuring based on input from the line ministries. Therefore it is a completely wrong allegation that the entities to be privatised are selected by the PC without taking the relevant ministries on board.
Finally, it needs to be understood that this government isn’t ‘selling off’ all government stakes in the mentioned entities; rather, GoP is seeking strategic private sector investors to turn around these entities, while GoP intends to retain significant stakes in each of these entities in order to ensure their functioning in line with the desired public interest. It should also be pointed out that PC is only the implementation arm of GoP for implementing the privatization policy of the government.
The Privatisation Commission remains committed to ensuring utmost integrity and transparency in all its working, and to serve the people of Pakistan to the highest professional standards. It is therefore important to us that any reporting of the work being carried out by the PC is reported on factual basis and not based on personal opinions and allegations, which have no documented grounds.