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What is the Difference Between Privatization and Nationalization

What is the Difference Between Privatization and Nationalization

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Published by Sheikh Nabeel

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Published by: Sheikh Nabeel on Jun 27, 2012
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Privatization is a business that is owned by the government is sold to privateowners.
A Brief History of Privatization
The demand for denationalization gained currency towards the end of Z ABhutto era when nationalization of nearly 3,000 rice-husking, cotton-ginningand vegetable ghee (cooking oil) manufacturing units created widespreadresentment among the middle level businessmen and industrialists.Mian Masud, a former president of Rawalpindi Chamber of Commerce andIndustry (RCCI) is still mourned by his family members as a victim of Bhutto's nationalization since he died of shock when his family lost FazalVegetable Factory in Islamabad and another in Multan. Youngest of seven brothers, Mian Masud had taken upon himself to compaign for thedenationalization of the vegetable ghee units and his family and friendsattribute his death to his tireless but apparently futile campaign. His childrenand brothers have risen again in Multan-based Fazal (Fatima) group to jointhe rank of 44 industrial families in Pakistan in 1997.The white paper on " Economy under Bhutto" released by General Zia un1979 charged that " in the name of social-justice, ill-conceived, ill-preparedand inadequately analysed changes were introduced in a hurry, with onlyshort-term policy objectives in view, with the result that instead of achievingsocial goals of better social justice these only succeeded in stifling growth".It argued that “nationalization intended to break the economic potential of any possible political opposition and at the same time it placed with thegovt. tremendous economic power of patronage, resources and employmentopportunities which could be used for the support of the party". It chargedthat nationalization was discriminatory and particularly mentioned the caseof Ittefaq Foundary, as an exemple of victimization since "some small units belonging to political opponents were taken over while much larger unitswere not touched........The nationalization of Ittefaq Foundary which wasonly one of the large number of several units was an obvious exemple of selection of units on political criterion".Zia set up a Commission headed by PICIC Chairman N M Uqaili to look into the state of the State enterprises which recommended that govt. shoulddenationalize sick units. Three units namely Ittefaq Foundary, NowsheraEngineering and Hilal Vegetables were returned to the previous owners
while cement and fertilizers which were the monopoly of the govt. wereopened to the private sector. Vegetable Ghee Denationalization Order was promulgated to denationalize cooking oil factories but the move wasopposed tooth and nail by the bureaucracy which was heading thenationalizedunits.
Privatization in Pakistan
Privatization is the act of reducing the role of government, or increasing therole of private sector, in an activity or in the ownership of assets.Privatization has been prescribed as a means of improving the efficiency and profitability of public enterprises, which are not performing well. The privatization of government owned enterprises is nowadays a large-scale process for the transfer of state owned enterprises to the private sector.Privatization, as an instrument for development is finding significantcurrency in industrial and developing countries throughout the world and isone of the important components of socio-economic reform programmes being implemented around the world. The major aim of this policy is toreduce the drain on the government resources, caused by the persistentlosses of public enterprises, and to create greater opportunities for privateinvestors to expand and modernize these enterprises with the aim of liberalizing the economic environment for rapid industrialization.The concept of privatization is not new to the policy makers of this country.It may be traced as back as in 50s, when Pakistan Industrial DevelopmentCorporation (PIDC) was established in 1952 to boost up the industrialdevelopment in the country. This premier Corporation established over 50industrial undertakings in the length and breadth of the country and after their successful operation and management; these units were transferredfrom the public to the private sector. The tide of nationalization, whichswept the whole economy in the first half of 70s, was reversed in 1977. The privatization of State Owned Enterprises (SOE) became an importantinstrument of economic policy of the government in late 80s. However, itwas in 1991 that privatization process in Pakistan became effective.The privatization process in Pakistan has passed through different phasesand it has been very instrumental to redefine the relationship of private and public business with the government institutions. A large-scale privatization
effort was launched in November 1990, the government declared privatization as its primary economic policy objective, when theDisinvestments and Deregulation Committee was established to identify theenterprises to be privatized and to make recommendation on how this process should take place. The agenda of privatization announced by theGovernment covered a wide spectrum of fields like industries, banks,development finance institutions, telecommunications, energy sector, andelectricity and infrastructure facilities for the stimulation of private sector.In the early phase of privatization, the programme was unsuccessful withfew bidders for the targeted firms. Since privatization was a cornerstone of the government's economic policy, the government revised its strategy andaccelerated the process. It improved the legal and administrative procedures,and while it had decided initially to adopt the policy of offering only fewunits for sale at a time. Attempts were also made to make the entire privatization procedure more transparent and effective, that is why thecreation of Privatization Commission on January 22, 1991. The Commissionwas required to pinpoint and identify the industrial units for sale purpose. Itidentifies 115 units in three phases:
All the nationalized Banks and Insurance Company were to be privatized.
In addition to banks, many other units, which were the monopoly of thePublic Corporations, were to be privatized.
It included power generation, Transport (aviation, railways, ports,shipping, road construction), Pakistan Steel Mills, Oil & Gas andTelecommunications etc.During January 1991 to June 2005 the Commission completed 151transactions for Rs 177.328 billion. In the financial year 2005-2006, theCommission has successfully completed privatisation of 8 transactionsincluding privatisation of PTCL, CTI, KESC, UBL (IPO), United IndustriesLimited (additional shares), Bolan Textile Mills Ltd., Mustehkam Cementand Pak American Fertilizers for Rs.196.231 billion, which is 356% higher than the previous year. The Commission, during the year, has remitted Rs.97.259 billion to the Government of Pakistan for debt retirement and poverty

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