Sartaj Aziz defended the allegation in " The privatization of Ghee Mills, a rejoinder to FACC" released at a press conference. This is how he responded to the allegation that several state enterprises were sold at a price below those suggested by valuateors.
" No arbitrary fixation of price took place at all. The reason for any deviation from the figures worked out by the consultants have been explained in detail in review note of the valuation of each unit. The Privatization Commission, with approval of the Cabinet Committee on Privatization (CCOP) had agreed to adopt a uniform basis for the value of the goodwill in case of profitable units, as two years purchase of average profit, net of tax. Similarly in the case of loss-making units two years average losses net of tax credit were to be considered. Also a uniform rate of depreciation based on the normal tax depreciation rate was to be considered for depriciable fixed assets. These factors have been uniformally applied to arrive at the reference prices of all units offered for disinvestment without any exception".
The transparency in deciding the sale price is evident from the statement above which is not easy to comprehend. But the crux of what it said is " YES, WAYS WERE FOUND TO CHANGE THE REFERENCE PRICES FIXED BY THE EVALUATORS". Selling the units at a price far below the reference price was not limited to ghee units alone. At least half of the industrial units have been sold much below the reference price, on one ground or another.
In May 92, Pak-China Fertilizer was also sold to Schon group for Rs 456 million and handed over on a payment of Rs 182 million. A balance of Rs 240 million was outstanding against the group but no effort was made to recover it. Instead, Bhutto govt. approved the sale of Pak-Saudi Fertilizer to front-man for the Schon group but thanks largely to the alarm raised by the workers union and intervention by President Farooq Leghari the deal did not go through.
After taking over the management of National Fibre, Schon applied to the Corporate Law Authority (CLA) for the consent to issue shares in the stock market for Rs 35 per share because the company was poised to launch a major expansion programme of Rs 1,700 million. The permission was granted but Karachi Stock Exchange took the plea that the share was overpriced and therefore, the share price was reduced to Rs 26.50. The offer was oversubscribed but on Dec 30,1992 the annual general meeting of the company was called " to approve the management of surplus funds by Schon Management (Pvt.) Limited, an associate company of the group". Both National Fibre and Pak-China Fertilizer have been closed since their privatization.
Several cases were registered against members of the Schon group by the caretaker govt. of Meraj Khalid and second Nawaz govt. However, the chairman of the group Akhtar Hussain and his sons managed to escape and are currently living in exile in United States. Under an agreement whose details have not been revealed, despite questions in the Senate and National Assembly, shares of Schon Bank and real estate of Schon Bank have been auctioned by the Ehtasab Bureau for Rs 620 million. An additional amount of Rs 300 million was deposited by the group with the Ehtasab Bureau. Several other properties including two Rolls Royce cars, 12 aircrafts of Schon Air and a plot owned by the Schon Refinery are proposed to be auctioned in near future.
A report in daily, the News, Islamabad March 27, 1998 said that Ehtasab Bureau has released an amount of Rs 123 million to clear the outstanding payments to the workers of Pak-China fertilizer and that factory would soon resume operation. A clarification issued by the Ehtasab Bureau, as published in daily, The News, Islamabad two days later said that Bureau had also provided Rs 150 million to the Schon group to start the factory so that 600 factory workers can resume employment. It was not clear as to how Schon group was allowed to continue managing the factory while absconding from law. It was also not clear from the report, from which account Senator Saif-ur-Rehman of Ehtasab Bureau had released Rs 123 million for clearing the bills of Pak-China Fertilizer which for all practical purpose is a private company and not owned by the government.
Sikandar Jatoi also bought Zeal Pak Cement on Oct 19,1992, for Rs 293 million and was handed over the unit, after a down payment of Rs 95 million. The Privatization Commission repaid Rs 56 million by way of government contribution in Golden Handshake. The units is closed since its privatization. Jatoi also played a key role in the dubious privatization of UBL and deposited the earnest money on behalf of succesful bidder Basharahil through a cheque drawn on Muslim Commercial Bank, courtesy its president Hussain Lawai.
UBL earned Rs 236 million profit in 1991, Rs 258 million in 1992 and Rs 275 in 1993 which went down to Rs 59 million in 1994 and gave a loss of Rs 720 million in 1995. During three years of Benazir govt. overdue advances jumped from Rs 12 billion to Rs 18 billion and 30 loans worth Rs 2 billion were rescheduled, scores of loans were written off.
In 1996 UBL had 3,000 ghost workers, Rs 700 million per annum was being spent on the union whose office bearers were in possession of 190 bank vehicles. The employees of the bank had extracted unrecoverable loans worth Rs 800 million. The bad loans amounted to Rs 17 billion (25% of all advances) and the bank was working with a net negative worth of Rs 12 billion. It was for this reason that Consultant Credit Lyonnais, Deloitte Touche Tohmatsu and Khalid Majid Hussan Shah Rehman had recommended " that the bank can not be sold without the govt. first pumping in at least Rs 15 billion to make it a viable operation."
Without taking into consideration the recommendation of Credit Lyonnais, the Privatization Commission decided to dispose of UBL on " As is, where is basis", and invited bids on Oct 6,1995. Eight bids were received. Six were rejected on the ground that the bidders did not have the required capital worth of Rs 1,500 million or were defaulting on loans. Surprisingly those who were disqualified included Saigols, Atlas-Bank of Tokyo and a consortium of Crescent and Dewan groups. The Crescent-Deewan joint bid was rejected on the ground that they were defaulting in the payment of a loan obligation.
After a charade of negotiations during which Chairman of the Privatization Commission made a pilgrimage to Saudi Arabia, the bid of dubious Basharahill was accepted at Rs 15.30 per share. However the deal had to be called off when it was found out that even the earnest money of Rs 300 million was made available by Muslim Commercial Bank and was deposited by Sikandar Jatoi.
Both Nawaz and Benazir tried to sell Pak-Saudi Fertilizer to front man but the sales could not be carried out because of hue and cry raised by union and the press. When bids were invited first by Nawaz Sharif in 1991, two serious bidders emerged, both claiming to represent workers since Employees-Oversees Investors Buy-out was accepted by the government, although it did not meet the payment conditions of the Privatization Commission and sought to make the final payment by launching a modaraba. Advertisements in the national newspapers by PSFL union claimed that the real force behind the successful bidder was a friend of General Saeed Qadir, Chairman, Privatization Commission. The deal had to be called off.
During second Benazir govt. a UAE-based company was declared successful but it transpired that the company was a front for Schon Group which enjoyed cordial relations with Asif Zardari. The bid was aborted like previous one.
The Master Stroke
Table of Contents
Brief History of Privatization
Barons of Pakistan