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Big Cover up in Corruption in Privatization

Corruption in privatization under Benazir and Nawaz Sharif governments during 1990-97 has made legends. Volumes can be written about corruption in their privatization simply by compling the charges that they have traded with each other. It would appear that not a single deal of privatization during the last seven years has been free from corruption. Yet the full story of corruption in privatization has not been told because the leadrs of of the two parties talked about each other's corruption when in opposition. But when in power they displayed a vested interest in covering up others corruption.

In fact interviews by the author, with present and former cabinet ministers and officials of the Privatization Commission have revealed that Meraj Khalid govt. in which Shahid Javed Burki, Senior Vice-President of World Bank served as Finance Minister took a conscious decision to sleep over the scandalous default in the payment of balance amount due to the Privatization Commission by new owners of privatized units.

According to an exercise undertaken by caretaker govt. Benazir and Nawaz govts. had privatized 88 industrial units till October 15,1996, for a consideration of Rs 15,409 million, of which Rs 4 billion was in default against owners of 30 privatized units. Of them 13 had not paid a single penny after assuming control of privatized units.

A federal minister dealing with economic affairs in the caretaker govt. of Meraj Khalid told the author that the cabinet was aghast at the amount in default to the Privatization Commission from the owners of privatized units but decided to let the matter pass to the elected government since they had their hands full. " We were already dealing with the scandal of Rs 120 billion bank loans default and could not afford another scandal of default in the payment to Privatization Commission", the minister said.

The cover up of default of Rs 4 billion to the Privatization Commission pales into insignificance in relation to the transfer of liabilities that have only been technically passed over to the new owners. But first a look at the default of balance amount due to the Privatization Commission.

Companies defaulting in payment to Privatization Commission.
  Name Bid Price in Rs Millions Date of Privatization Amount Overdue in Rs Millions
1 National Cement Dandot 110 28.5.92 84
2 Pak PVC Ltd 63.57 8.2.92 46.37
3 Ravi Engineering - 7.1.96 12.28
4 Textile Machinery Corp 28.8 5.10.95 22.89
5 National Petro Carbon 189 - 37.45
6 Bara Vegetable 30.5 26.7.92 22
7 Crescent Factories 63 5.1.93 24
8 A&B Industries 36 16.3.93 26
9 Suraj Ghee 14.58 5.1.93 0.9
10 Pak Hayee Oil - 25.7.95 59
11 Dhaunkat Rice 79.2 28.6.93 74
12 Shikarpur Rice 42.28 - 10
13 Wah Cement 2,750 25.5.92 2,179
14 Baluchistan Wheel 270.58 3.2.92 116
15 National Fibre 756.64 6.5.92 56.03
16 Pak-China Fertilizer 456.84 12.1.93 240.32
17 Naya Daur Motors 40.52 1.10.92 40.48
18 Sindh Alkali 152.3 - 13.07
19 Sindh Ceramics 60.2 31.5.92 13.65
20 Metropolitan Steel 66.67 23.5.92 28.49
21 Sh Fazal ur Rehman Ghee Mills 64.28 25.1.93 30.37
22 Quaid Abad Woolen Mills 86 8.7.92 14.17
23 Haripur Vegetable  30.1 19.5.92 25.15
24 Kakakhel Industries 52.28 5.1.93 1.5
25 Asif Industries 13.2 26.7.92 12.06
26 Chilton Industries 49.7 5.1.93 24
27 Crescent Industries 63 - 180
28 Pak Dyes & Chemicals 17 - ?
29 Ittehad Chemicals 452 - 180

(The above table was compiled from charts namely 1) Payment schedule up to October 15,1996 and 2) Statement showing balances up to and after October 15, 1996 prepared by the Privatization Commission under the caretaker govt.)

The cover up of corruption in privatization is also evident from the fact that both Benazir Bhutto and Nawaz Sharif considered the feasibility of " the repossession of privatized units" because of the gross irregularities committed in their privatization and breach of agreement by the new owners.

In a meeting on January 13, 1995 the cabinet presided by Benazir Bhutto considered the matters relating to the privatization of several industrial units by Nawaz Sharif and took the decision that " the Privatization Commission should submit a schedule for repossession of such privitazed public sector units which were now closed or abandoned".

In April 1997, the Priatization Commission headed by Khawaja Asif sought the advice of Ministry of Law whether or not the Privatization Commission can take over the privatized units in which the new owners have breached the contract. The letter sent by the Privatization Commission asked the Ministry of Law to examine;

A)- Whether the PC can repossess subject units, Naya Daur Motors Ltd. which is operational and other units, in which sales agreements contain the re-possession clauses and buyers have committed breaches in implementing the provisions of the agreement and the units are otherwise operating.

B)- The legal formalities which will be required to be completed before the re-possession action is taken and whether serving of a show cause notice upon the buyer is a necessary requirement under the law?

The Privatization Commission also asked the Ministry of Law " to examine the issue of promulgating a law empowering the govt. to repossess the privatized public sector units in the case of default".

In its reply of May 28,1997, Ghulam Rasul, Joint Secretary, Ministry of Law stated that the Denationalization Act of 1992 had provided that the govt. can not "compulsorily acquire or take over privatized unit, for any reasons whatsoever, once it has been transferred." However, Ministry was of the opinion that the transfer deed is not complete until the new owners complete the terms of agreement signed with the Privatization Commission. The letter stated clearly that the Privatization Commission "enjoyed powers to repossess Naya Daur Motors." The matter was discussed by the Cabinet which decided to let the matter rest and continue with business of privatization, as usual.

Brief History of Privatization

Table of Contents

How units are evalued

Robber Barons of Pakistan