IN its rush to secure an economic bailout package from the International Monetary Fund, the government has committed to an ambitious plan for the privatisation and restructuring of about 65 public sector entities — most of them loss-making — to reign in budgetary support, despite an adverse investment climate and macroeconomic indicators.

The government will announce a strategy by September 30 for the privatisation of 30 public sector enterprises (PSEs) and a plan by December 31 for the strategy to deal with the remaining 35 entities.

Ever bleeding PSEs, because of corruption, mismanagement and political interference, coupled with an inefficient bureaucracy running them in recent years, have become one of the four major components of the federal expenditure — debt servicing, defence and development.

To its credit, the PML-N government realised the challenge at the outset of its coming into power in June. “A difficult business climate has contributed to a sharp fall in private investment. Weak performance in large public enterprises in key industries constitutes a further drag on public finances and on growth,” even though Pakistan remains a country with abundant potential, given its rich natural and human resources and its important geographical locations, says Finance Minister Ishaq Dar.

To fulfil the requirement of the IMF programme as one of the structural benchmarks on which future disbursements would depend, the government plans to improve the business climate so that the business community at home and abroad could be motivated to take interest in upcoming privatisation transactions.

“We will step up efforts to reform public sector enterprises, focusing on limiting poor performance and improving public sector resource allocation,” wrote Mr Dar in his memorandum of economic and financial policies (MEFP) that was submitted to the IMF.

He said the government was now working on a time-bound strategy for 65 PSEs approved for privatisation by the Council of Common Interest (CCI) to facilitate decisions to either privatise the firms, restructure those with prospects of profitability but which the government wishes to retain in the public sector, or close nonviable firms. The strategy will include information on the financial statements of these firms, with detailed information on government liabilities.

Although moving at a snails’ pace, the government has already begun the process of hiring professional chief executives and board members for corporate bodies to run on commercial lines. It is in the process of “developing medium-term action plans to restructure Pakistan International Airlines (PIA), Pakistan Steel Mill and Pakistan Railways. The action plans include partial privatisation of companies through initial or secondary public offerings”.

But there are question marks too. A government that could not appoint chief executives of most of these companies in three months now could be hardly expected to pursue such an aggressive sell out plan.

Moreover, foreign firms generally look the other way because of the prevailing security situation, energy shortages and adverse court decisions against some of the key privatisation deals.

However, in view of a government move to give access to the Federal Board of Revenue (FBR) to peep into bank accounts and tax movable assets, domestic depositors may be forced into purchasing shares through initial and secondary public offerings, which may encourage the deepening of market capitalisation.

Aging equipment, outstanding loans, and incomplete pass-through of fuel costs weigh on the profitability of the national carrier. Under the structural benchmark, the government has given an undertaking to the IMF to privatise 26 per cent shares of PIA to strategic investors by end-June 2014, after it is bifurcated into two separate entities.

The restructuring plan includes stripping the non-viable components of PIA under a separate public sector enterprise — PIA2 — by end-December 2013. The government will service the guaranteed past loans of PIA2, apply a voluntary ‘handshake’ plan for the excess work force, and liquidate it by end-June 2014.

The PIA will retain some liabilities that it can service, streamline its workforce, and will receive capital injection from the government. By the time its 26 per cent shares are sold to strategic investors by June 2014, PIA will continue to lease more efficient airplanes and rationalise routes. Shifting non-flight activities to a new subsidiary company could be among the options in order to focus on core activities.

To restore operations of the Pakistan Steel Mills (PSM), hit hard by the collapse in steel prices during the global recession, the government claims to have appointed a professional board and secured a commercial credit line, mostly from private banks, to pay for loans, wages, and raw materials.

The privatisation commission and the Cabinet Committee on Restructuring will fast-track the decision making process to approve a new comprehensive restructuring plan for PSM by end-September 2013, with implementation to begin immediately thereafter.

Regarding Pakistan Railways, the government said its aging, and shortage of, equipment, as well as overstaffing and large debts continue to hamper its operations. “By end-March 2014, we will develop a comprehensive restructuring plan for Pakistan railways, and the railways company will be converted from a government department to a state-owned limited liability company,” said the MEFP

The government said it had identified a number of other companies that can quickly be privatised in the financial and energy sectors. The strategy will include plans for block sales, secondary public offerings for institutional and general public, or international listings.

“We will hire transaction advisors by end-December 2013 to sell residual shares in two major companies already in private hands. The sequence will be calibrated to match market conditions,” the MEFP elaborated.

Minority stakes of two blue chip companies — most probably OGDCL and PPL — will be sold after gauging investors’ appetite and global market conditions, for which transaction advisors would be hired by end-December 2013. In the medium-term, energy companies would also be included among the entities to be privatised. —Khaleeq Kiani