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A Brief History of Privatization

The demand for denatioanlization gained currency towards the end of Z A Bhutto era when nationalization of nearly 3,000 rice-husking, cotton-ginning and vegetable ghee (cooking oil) manufacturing units created widespread resentment among the middle level businessmen and industrialists.

Mian Masud, a former president of Rawalpindi Chamber of Commerce and Industry (RCCI) is still mourned by his family members as a victim of Bhutto's nationalization since he died of shock when his family lost Fazal Vegetable Factory in Islamabad and another in Multan. Youngest of seven brothers, Mian Masud had taken upon himself to compaign for the denationalization of the vegetable ghee units and his family and friends attribute his death to his tireless but apparently futile campaign. His children and brothers have risen again in Multan-based Fazal (Fatima) group to join the rank of 44 industrial families in Pakistan in 1997. ( See Rise of Chaniotis)

The white paper on " Economy under Bhutto" released by General Zia un 1979 charged that " in the name of social-justice, ill-conceived, ill-prepared and inadequately analysed changes were introduced in a hurry, with only short-term policy objectives in view, with the result that instead of achieving social goals of better social justice these only succeeded in stifling growth". It argued that " nationalization intended to break the economic potential of any possible political opposition and at the same time it placed with the govt. tremendous economic power of patronage, resources and employment opportunities which could be used for the support of the party". It charged that nationalization was discriminatory and particularly mentioned the case of Ittefaq Foundary, as an exemple of victimization since "some small units belonging to political opponents were taken over while much larger units were not touched........The nationalization of Ittefaq Foundary which was only one of the large number of several units was an obvious exemple of selection of units on political criterion".

Zia set up a Commission headed by PICIC Chairman N M Uqaili to look into the state of the State enterprises which recommended that govt. should denationalize sick units. Three units namely Ittefaq Foundary, Nowshera Engineering and Hilal Vegetables were returned to the previous owners while cement and fertilizers which were the monopoly of the govt. were opened to the private sector. Vegetable Ghee Denationalization Order was promulgated to denationalize cooking oil factories but the move was opposed tooth and nail by the bureaucracy which was heading the nationalized units.
 
 

Nawaz Sharif's privatization.

As Chief Minister Punjab, Nawaz Sharif presided over the liquidation/ 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 May 1991, Pasrur Sugar Mills was sold to United Sugar Mills of United group for a " token price of Rs one only".

Samundri Sugar Mills was sold to Monoos and Rahwali Sugar to a Muslim League politician Sheikh Mansoor, following single line advertisement in newspapers under the caption, " Bids invited for Rahwali Sugar Mills". The recklessness and favoritism shown in privatization of the PIDB units by Chief Minister Nawaz Sharif was to become the hallmark of his privatization as Prime Minister.

British Prime Minister from 1979-90 Margaret Thatcher carried out one of the most successful privatization programme under which nearly four dozen govt. entities including British Steel, British Airways, the telephone system, water, electric and gas companies, the coal mines and the railroads were sold for nearly 100 billion dollars. Her promise to " roll back the frontier of the State" got the fancy of many world leaders. Both Benazir who ruled Islamabad as prime minister in 1988 and Nawaz Sharif who was the uncrowned King of Punjab during Bhutto's rule started peddling privatization as the linchpin of their economic agenda.

In April 1989, within four months of coming into power, Benazir govt. employed N.M.Rothschild & Sons to undertake study of privatization strategy and selection of projects suitable for privatization. The consultants who submitted report on 22nd May, 1989 suggested a strategy of widespread ownership and identified 14 units for privatization in two phases. These units were Muslim Commercial Bank, Habib Bank, PIA, PSO, Sui Northern Gas Pipeline, Sui Southern, Pakistan National Shipping, Pak-Saudi Fertilizer, National Refinery, Pak-Suzuki Motors, Gharibwal Cement, Al-Ghazi Tractors, Millat Tractors adn Mustehkam Cement.

In its first term, Benazir govt. tried to privatize Sui Southern Gas Company and engaged a British Consultant Morgan Grenfell who were paid US $ 39,431 and a Pakistani Consultant Sidat Hyder Aslam was paid Rs 4,20,000. However after considerable spade work, proposal to privatize Sui Southern was dropped and it was decided that 10% shares of PIA, 30-40% shares of Pak-Saudi Fertilizer and 60% shares of MCB will be privatized. The govt. however could not carry out the proposed plan and only 10% shares of PIA were divested before Benazir was dismissed on August 5,1990 giving way to the first Nawaz Sharif government.

Nawaz Sharif was a reaction to Zulfikar Ali Bhutto and like Bhutto's nationalization his privatization was swift. He lacked Bhutto's chrisma but he countered Bhutto's idealogy, by imitating him. In many ways he imitated Bhutto better than Bhutto's own daughter Benazir.

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 of Nishat . A Privatization Commission was set up under the chairmanship of General Saeed Qadir who sold off the State enterprises as hearily as he had poured billions of tax payer's money into building them as Minister for Production under Zia ul Haq.

The Commission invited bids for 25 units between March and July 1991 but the results were not encouraging since no bid was received for nine units and the response for the remaining units was also poor. In August 1991 the Commission invited bids for 100 units and the national newspapers described it as the world's single biggest lot offered for privatization. A total of 235 bids for 81 units were received for which 26 bids were accepted by the govt.

In addition to Privatization Commission of Saeed Qadir, govt. set up a Commission for Privatization of WAPDA headed by former Secretary Abdul Rahim Mahsud, a committee for privatization of Pakistan Telecommunication under Deputy Chairman Planning Commission A G N Kazi and another for privatization of banks headed by Governor State Bank. Completely diverse and independant procedures were worked out for privatization of units of these four entities.

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 12,018 million. As opposition leader, Benazir hounded his privatization with charges of corruption and leading to concentration of wealth in few hands. So widespread were the charges of concentration of wealth that his government was forced to set up a committee headed by former Finance Secretary H U Beg to investigate into it. The report of the committee never saw the light of the day.

A committee was also set up in the Monoply Control Authority to look into the allegations that cement prices have escalated in the market because of the monoply created by the privatization of five cement factories to Mian Mansha and his associates. Out of 88 industrial units privatized to date, 19 were vegetable ghee units and 16 roti plants and rice-husking units while 20 bigger units accounted for more than half of the privatized assets and it were these units which were privatized to the big business.

Mansha and his associates walked away with MCB and five cement plants, Schon group got Pak-China Fertilizer and National Fibre, Takakkal got Baluchistan Wheels adn Naya Daur Motors while Bibojee group of Habib Ullah Khattak got back the National Motors (Originally Gandhara Motors). An unknown person Sikandar Jatoi was successful in bidding for Metropolitan Steel, Zeal Pak Cement and Shikarpur Rice.

When Nawaz was dismissed on April 18,1993, the Dissolution Order listed " the lack of transparency in the process of privatization and in the disposal of public/ govt. properties" as one of the grounds for dismissal. The Attorny General in his written reply and arguments before the Supreme Court charged that the process of privatization lacked transparency, the reference prices were changed, methodology for fixing the reference prices was not made within the stipulated time and the mode of transfer of management enabled the new owners to pay the balance from windfall profits.

Although Nawaz government was restored by Supreme Court, three judges found its privatization to be faulty and in conflict with the provisions of the constitution. The dissenting Justice Sajjad Ali Shah found corruption in privatization as a valid ground for dismissal of the government.
 
 

Benazir Bhutto's privatization (1993-96)

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 per bikey ga aur sahi aadmi ko meelay ga, (Now the factories will be sold to right people, at right price)". Her choice of words conveyed that she was fully aware that under Nawaz Sharif, units had been privatized to front men at throwaway prices. But instead of plugging the loopholes in the privatization procedures used by her predecessor she capitalized on them. Though, being an amateur in corporate matters, and because of poor craftiness of Naveed Qamar as compared to his predecessor, her bids to privatize United Bank (UBL), Pak-Saudi Fertilizer, Oil and Gas Development Corporation (OGDC) and sale of Pakistan Petroleum Limited (PPL) to front men and favorites were aborted by the hue and cry raised by the opposition, labour unions, press and presidential intervention.

One of her first move, on coming to power, for the second term was to reconstitute Privatization Commission, merging into it the other three committees dealing with privatization of WAPDA, Pakistant Telecommunication and banks, appointing Naveed Qamar, a close friend of her husband Asif Ali Zardari, as its chairman.

Privatization in Pakistan, policy and programme published in January 1994 said that the new government has carried out a review of the privatization work of Nawaz Sharif and was preparing to implement its own new mandate.

About Nawaz Sharif's privatization it simply said that " the policy pursued in recent past, both in its concept and implementation specifically suffered from poor and hasty planning and a naive assumption taht a complex procedure could be reduced to the level of ordinary auction. The failure was compounded by weak legal arrangements adn inconclusive labour issues.

"All this deprived the nation of the fruits of privatization, which were well within reach" it lamented and went on to identify what PPP government felt was a meaningful privatization and what ought to be its objectives.

" In many countries, benefits of privatization have trickled down to the consumers, workers, investors as well as government. Large investments were made by new owners, subsequent to privatization to expand and diversify production. As a result domestic welfare improved. This we intend to replicate in Pakistan. The privatization policy envisages the creation of a mechanism for the reduction of debts so that our children inherit an industrialized, not a bankrupt nation", the document declared.

" The govt. believes that one of the principal benefits to the nation from privatization of its public assets is by way of reduction of our public sector debt burden. The burden of domestic and international debt can be reduced from the sale of those very assets for which the debt was partially created", it said.

In her second term, Benazir privatized 20 industrial units, one financial institution, Kot Addu Power Plant and 12% shares of Pakistan Telecommunications Ltd.
 
 

Some Landmark Cases

Table of Contents

Big Cover Ups

Robber Barons of Pakistan