Privatisation of strategic assets
The list of State Owned Enterprises (SOEs) includes prime engineering units such as Heavy Electrical Com-plex (HEC) at Hattar and Pakistan Machine Tool Factory (PMTF) at Karachi.
Earlier, the minister had assured that stakeholders including the employees would be taken on board before finalising the on-going privatisation process to make it pro-worker and pro-people. The SOEs on privatisation list, as already approved, are to be reviewed accordingly. This has not been done in real earnest. Engineering units like Pakistan Steel, Heavy Mechanical Complex (HMC), HEC and PMTF are of national strategic importance and should not be sold to the private sector.
PPP Co-Chairman Asif Ali Zardari had reportedly directed the Privatisation Commission (PC) in May, to drop strategic units from the sell-off programme. These are Pakistan Steel Mills, Pakistan State Oil (PSO), Oil and Gas Development Co (OGDC), Pakistan Petroleum Limited (PPL), Sui Southern Gas Co (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL). The PC has done this. On the same principle, the remaining units of strategic importance, namely HEC, PMTF and PECO, which all are at present managed by the State Engineering Corporation, should be taken off the privatisation list.
The previous government had de-listed Karachi Shipyard & Engineering Works (KSEW) and Heavy Mechanical Complex (HMC), the two heavy engineering units, from privatisation programme. Both the companies are profitable and viable.
The private sector has been allowed to invest, rather in a big way, in power generation sub-sector, while strengthening and development of transmission and distribution (T&D) sub-sector remains the sole responsibility of public sector. Plans are being implemented to almost double the present installed power generation capacity by the year 2015. To connect additional generation capacity a number of 500 kV and 220 kV transmission lines are planned for construction countrywide. This will create huge market demand for power transformers that are being produced by HEC. A rough estimate is of 580 . transformers required during next five years, costing about Rs15 billion.
HEC has an annual installed capacity of producing 148 power transformers of a wide range. It is a single-product single-customer manufacturing facility and as such not very attractive for the private sector in following the present production programme that has long payback period too.
The divestment of the Complex therefore may weaken the base created for high voltage electrical equipment, and, in such case, the government has to resort to import of power transformers, draining further on foreign exchange resources. Nonetheless, it is a matter of concern that the PC invited the Expressions of Interest (EOIs) for sale of 90 per cent shares of HEC along with its management in November 2006 but there has been no tangible progress on its transfer of ownership as yet. If the prevalent situation continues for some more time, the Complex could turn into a sick unit.
Similar is the case of PMTF for which the EOIs were invited from the prospective investors by December 26, 2007. The poor response forced the PC to extend last date for receiving the EOIs two times, to January 22, 2008 and then to February 7. It reflects on the lack of will on the part of private sector to continue to run the company operations in future, as required by the PC. PMTF is the only unit of its kind in the country and has contributed largely towards industrialisation. The facility was created for indigenous manufacturing of machine tools, under technical collaboration and technology transfer agreements with the world-reputed machine tool manufacturers. Subse-quently, its design and manufacturing capabilities were upgraded and modernised a number of times.
A well-developed machine-tools sub-sector is essential for reproducing technologies and adoption of advanced manufacturing processes. Unfortunately, the private sector has never come forward to invest in this area in formal sector. On this premise, it is likely that the prospective buyer would only be interested in acquisition of PMTF’s real estate, which is spread over an area of 226 acres in prime location of Landhi, Karachi. The trend was witnessed in the sell-off of other engineering units in the past that ceased operations on take over by the private sector. The company also produces modern defence equipment that could come to a halt in case of its divestment.
During 1992-95 six industrial units of the State Engineering Corporation were sold, at a paltry sum of total Rs140 million. Most of these units have been closed down since change of ownership, resulting in loss of revenue, unemployment and economic regression. Privatisation of these engineering companies was counter-productive. Karachi Pipe Mills, Metropolitan Steel Corporation (MSC) and Quality Steel Works, all located in Karachi, were highly profitable entities, but were privatised since “it’s not government’s business to do business.” On the other hand, assets of Pakistan Switchgear Limited (PSL), Lahore and Textile Machinery Co, Karachi were disposed of for the reason that these companies were incurring losses. All these SOEs were privatised without doing proper homework, and the vested interests played their role in divestment of its valuable assets at throwaway prices. Another unit, Pioneer Steel Mills, was returned to its owner of pre-nationalised days.
Engineering industry is termed as prime mover for the economic growth. To achieve import substitution and export promotion it is essential to strengthen the national engineering industry, which has stagnated over the last many years. This can best be done in public sector, given the conditions.
The writer is former Chairman of State Engineering Corporation of the Ministry of Industries, Production and Special Initiatives.