Judicial activism in Privatisation
Published 2013-09-02 EBR DAWN
As the PML-N government prepares to go ahead with privatising a large number of state-owned enterprises, it may find the superior judiciary not endorsing some of its decisions.
This became evident last month when a bench headed by Chief Justice Iftikhar Muhammad Chaudhry showed annoyance over coming to know that the government has decided to privatise the 150MW coal-fired Lakhra power plant while the matter was sub judice and that the court was seized with a dispute over the grant of lease of the plant to a private company. The Chief Justice (CJ) remarked that ‘the court would not allow anyone to sell national assets’.
The court later declared the 20-year lease illegal and void for being non-transparent.
The counsel for the petitioner produced a copy of the prime minister’s office in the court, which was forwarded by Finance Minister Ishaq Dar for approval of privatisation of the Lakhra power plant, the Muzaffargarh Power Company, the Islamabad Electric Power Company (IESCO) and Faisalabad Electric Power Company (Fesco).
The CJ admonished the water and power secretary for concealing the facts of privatisation from Wapda’s counsel and the additional attorney general. The IESCO and Fesco are known to be efficient and financially sound entities. Will the Supreme Court allow their sale if challenged? This will be of interest to watch.
Besides, the court was informed that the government also intends to privatise two incomplete power projects — the Neelum Jhelum hydropower project and the Nandipur thermal power project, whose cost has multiplied for non-use of its machinery for a long period. The prime minister had visited the Neelum Jhelum project site in July, and directed the concerned authorities to expedite the construction work on the Rs274.88 billion project to make it functional by 2014-15.
The judiciary’s intervention in matters of economic importance has been more frequent in recent years, and not of much benefit to the society in certain cases. Its famous judgment in stalling the privatisation of the Pakistan Steel Mills (PSM) has been both praised and criticised. It is interesting to note that Pakistan Steel was earning huge profits before the judgment, but became practically bankrupt later, forcing the government to pump in huge amounts of money to help it survive.
The Supreme Court’s other actions, like taking suo motu notice of the GST tax, fixing the price of petrol, ordering immediate appointment of the PIA chief, and declaring postings and transfers of civil servants null and void, have not been viewed in good light by some segments of society.
Federal Minister for Water and Power Khawaja Mohammad Asif recently said the government has decided to privatise power generation and distribution companies under the new energy policy, mainly to meet the terms of the lending agencies. “We are entering into an agreement with the IMF for a bailout package. The World Bank is also going to provide financing for projects under the energy policy,” he said.
Finance Minister Ishaq Dar, who is vigorously pursuing the privatisation agenda, said at a presentation by the privatisation commission that more government shares in major banks like the United Bank, Allied Bank and Habib Bank will be divested.
Besides, a list of 64 state-run units that may be privatised has been identified. It includes four power distribution firms, a generation company, three insurance and four oil and gas companies.
The government may privatise key entities like PIA, PSM and PSO in the second stage of the privatisation programme after structural reforms.
According to the Chairman of the Board of Investment, Muhammad Zubair, “the size of the government is too strong and too heavy”. In the power sector alone, as many as 19 state-owned companies are functioning at both provincial and federal levels. And inefficiency is not the only reason for their poor performance: the previous government’s policies also scared investors away. This resulted in the investment-to-GDP ratio dropping from 23 per cent in 2007 to below 13 per cent in 2012.
The question arises: is privatisation the panacea of economic and financial ills?
If a state organisation is not performing well, selling it cannot be the only solution. In fact, it amounts to throwing the baby out with the bathwater. What is needed is good management, transparency in major decisions, and incentives for hard and honest workers. Patronage and corruption remain the major culprits for dismal performance of an enterprise. And the way to check it is not privatisation.
There can be no two opinions that it is not the task of a government to be in the business of running factories. The government has done well to return nationalised entities and factories — taken over in 1970s by the Bhutto regime — to their owners. But privatisation, distinct from de-nationalisation, is a different matter.
It was in 1991 that the privatisation process was launched by the Nawaz Sharif government. It ended in 2007. The current drive for privatisation is a long-halted and much-awaited process.
According to Dr Akhtar Hasan Khan, an ex-bureaucrat, a total of 166 state-owned enterprises have been sold since 1990 for a cumulative sum of Rs476.5 billion to finance budget deficits.
However, a 1998 report by the Asian Development Bank on the impact of privatisation in Pakistan in the 1990s stated that only 22 per cent of the privatised units performed better than before; 44 per cent remained as before, while about 34 per cent performed worse.
The sale of the Karachi Electric Supply Company (KESC) has not been of benefit to the general public, thus defying the purpose it was sold for. “Privatisation did not have a favourable impact on the growth of GDP, investment and employment,” argued Dr Khan in his book on privatisation.
The experience of privatising the KESC showed that something was wrong with the policy of the government at that time. What began as a 25 per cent share offering was raised to 51 per cent, and then to 73 per cent, without due process. When the KESC was finally privatised in 2005, its Saudi owner handed it over to the Abraaj Group after three years. And despite the privatisation, the government has continued to subsidise the KESC by a huge amount.