Like Charles Dickens "Tales of two cities", Bhutto's nationalization and Nawaz Sharif/ Benazir's

privatization promised light but brought darkness, spring of hope that turned out to be winter of
despair.

Ladies and gentlemen today I will tell you two stories , one about the public sector of Pakistan, has
it been a failure or a success? And the other ia about the privatization process and its repercussions.

The public sector!, The role of the public sector is dictated by the system of economy in a country ,
as far as the history of Pakistan is concerned the public sectors role is to intervene in every matter
possible and make the lives of investors and businesses a living hell, this type of intervention by the
public sector falls under the category of a socialist system. Under a capitalist society however the
roles and responsibilities of the public sector are quite the opposite and are that the public sector
should only intervene in the economy when markets are not efficient and when its certain for a fact
that the intervention would improve the efficiency of those markets

The role of the public sector in the 1950 and 60 was mailnly to supplement and assistr the private
sector, which was considered to be the leading vehicle of industrial development. In 1952 the Pakistan
industrial development corporation was established with the basic purpose to accelerate the rate of
industrial development in the country. PIDC played a very imp and effective role in fulfilling its mandate
by acting as a catalyst in the subsequent development of industries. This premier Corporation
established over 50 industrial undertakings all over Pakistan.

In the 1970’s the process of nationalization of private entities under bhuttoz regime took place, this is,
was and perhaps will be one of the biggest steps taken by a leader in the history of Pakistan., one that
was partially required to say the least but terribly mismanaged. Why was this step taken, perhaps the
following findings can clarify

But the question of monopolies exploded wth full force when in his famous speech, Dr Mahboob ul
Haq, Chief Economists, Planning Commission, told a meeting in Karachi that economy of Pakistan
had come to be dominated by 22 families who owned 66% of the total industrial assets, 70% of
insurance and 80% of banking. His list of the top seven included Saigols, Habib, Dawood, Colony,
Adamjee, Crescent and Valika. Prof Lawrence White who, at that time was working at the USAID
office in Pakistan, measured the concentration of wealth on the basis of firms listed on Karachi
Stock Exchange and found that 43 families or groups controlled 98% of 197 non-financial
companies, accounting for 53% of the total assets. According to White, the top four (Saigols,
Dawood, Adamjee and Amin) controlled 20% of total assets, the top ten families controlled one
third of the total while the top 30 owned over half of the listed assets. The concentration of wealth
and iniquitous regional development was to become the breeding ground for separatists of East
Pakistan and Bhutto's nationalization.
Nationalization and its after effects:
The Nationalization Order, 1972 provided for the nationalization of industary in Iron and steel
sector, basic metals, heavy engineering, heavy electrical, assembly and manufacture of motor
vehicles and tractors, heavy and basic chemicals, petrochemicals, cements, public utilities, power
generation, transmission and distribution, gas and oil refineries.

Bhutto's nationalization broke some of the 22 families financially but several of them were also
broken in body and spirit, with the result that they disposed off industaries that escaped
nationalization. Farooq A Shaikh of Colony group, one of the major affectees of nationalization
remarked in an interview that top Pakistani industrialists not just lost industrial units to Bhutto's
nationalization policy, they lost the urge to invest in Pakistan.

nationalization retarted Pakistan's economic growth can also be illusterated by the simple fact that
in 1974 Pakistan had inherited three aging vessels but their number increased to 75 ,but when
Bhutto nationalized the nine shipping companies and merged them into Pakistan National Shipping
Corporation (PNSC), that number over the years decreased to only 25 because when the Sharif
government finally licensed private shipping companies, the number of vessels with PNSC was 25
only.

Ishrat Hussain a renowned civil servant , dean of IBA and EX-governor of SBP states that the govt should
play the role of a neutral umpire, who lays down the ground rules for businesses to operate and
compete, to monitor and enforce these rules, to penalize those found guilty of contraventions and to
adjudicate disputes between the competing business firms. If the government owned the firms itself as
one of the players in the market , there is a strong conflict of interest and the other players lose
confidence in the neutrality of the umpire. Under these conditions the market becomes chaotic ,
disorderly and unruly as there is no neutral person to monitor and enforce these rules

It is interesting to know that public sector enterprises not merely have to respond to pure market
criteria but also have social and political responsibilities and motives, hence this can significanltly affect
the productivity and profitability of a public enterprise. So one also has to keep in mind the dual
responsibilities of a public sector industry before making any hast accusations

According to Nawab haider naqvi and A.R kamal

1) The incidence of the worst kinds of allocative efficiency is in the private sector rather then in the
public sector
 2) Of the sixty inefficient industries identified only 9 were in the public sector.
3) Capacity utilization of 39 public enterpises of the total enterprises exceeded 75%

The public sector’s profitability is not due to the high level of protection it enjoys nor due to any
restrictions placed on new entering firms, but to its better performance and superior productive
efficiency hence changing the locus of ownership is neither a necessary nor a specific condition for an
efficient enterprise.

So now iv provided you with the facts and information along with the historical background so I leave it
you to decide if the public sector industry has failed or not..............

The concept of privatization was not new as its roots traced back to the 50’s when PIDC was established
to boost up industrial development in Pakistan
One of the main reasons for the privatization of public entities was rid of corrupt practices , beuracratic
procedures and to raise the level of revenue
British Prime Minister from 1979-90 Margaret Thatcher carried out one of the most successful
privatization programme under which nearly four dozen govt. entities including British Steel, British
Airways, the telephone system, water, electric and gas companies, the coal mines and the railroads
were sold for nearly 100 billion dollars. Her promise to " roll back the frontier of the State" got the
fancy of many world leaders. Both Benazir who ruled Islamabad as prime minister in 1988 and
Nawaz Sharif who was the uncrowned King of Punjab during Bhutto's rule started peddling
privatization as the linchpin of their economic agenda.

The nationalisation process also failed to deliver what was

expected from it. In July 1977, the new government introduced the policies of
denationalisation, disinvestment and decentralisation to restore the confidence of private
investors. As a part of these policies, the government announced denationalisation of
around 2000 Agro-based industries
In September 1978, Transfer of Managed Establishment Order, was promulgated,
which empowered the Federal Government to offer to the former owners of nationalised
industries, the shares or proprietary interest in acquiring their establishments

In early 1985, a Cabinet Committee was set up under the directive of the then
Prime Minister to consider and identify units (which produced simple technology products
and were running into loss) for disinvestment to private sector.

PRIVATISATION IN 1988 - 90
In December 1988, the new government appointed a British firm M/s N.M.
Rothschild, as consultants, to undertake a study on privatisation strategy and
 selection of prospective candidates. The consultants submitted their report to the
government in May 1989, namely “ Privatisation and Public Participation in Pakistan.”
After analysis of more
than 50 companies, the consultants short-listed seven companies as potential first
candidates for widespread offers. These included Habib Bank, Muslim Commercial Bank
Pakistan National Shipping Corporation (PNSC), Pakistan International Airlines Corporation
(PIAO). Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern
Gas Pipelines Ltd (SNGPL)

The Government, following the advice of the consultants, first made efforts to
privatise SSGC that was recommended as a leading candidate. However, after having
done all the spade work, the proposal to privatise Sui Southern was abandoned. Instead, it
was decided by the Government in January, 1990 to disinvest 10% shares of PIAC,
amounting to Rs 274 million, 30-40% shares of Pak Saudi Fertilizer and 60% shares of
Muslim Commercial Bank (MCB) (Later reduced to 49%) shares). The decision, however,
could not be implemented in full. Only ten percent shares of PIAC were disinvested in May
1990 at par value. Again due to lack of institutional framework, legal and other
complications the privatisation programme could not make any headway.

!990-1993:
As a first step towards privatization by the new Gov, a Committee on Dis-investment and
Deregulation was formed. The Committee in its preliminary report recommended the
disinvestment of 118 industrial units, which included 45 nationalized units taken over during
the period 1972-74. The government approved this disinvestment plan and announced the
creation of a Privatization Commission .
.

As Chief Minister Punjab, Nawaz Sharif presided over the liquidation/ privatization of several units
of Punjab Industrial and Development Board (PIDC) like Pasrur Sugar Mills, Samundri Sugar, Rahwali
Sugar, Paras Textile, Harapa Textile and Ghazi Textile. How and on what prices these units were sold
is still a secret but according to Company Review in the daily DAWN in May 1991, Pasrur Sugar Mills
was sold to United Sugar Mills of United group for a " token price of Rs one only".

National Fibre was one of the most profitable public sector units whose profitability induced others
like ICI to set up polyester fibre projects. In 1991-92 when the project was privatized it had an
impressive balance sheet of paid up capital of Rs 423 million, annual sales of Rs 990 million and a
profit of Rs177 million. It was sold on Feb 2, 1992 for Rs 756 million to Schon Group and delivered
after a down-payment of Rs 302 million, which is still defaulting in payment of Rs 356 million for
National Fibre.
In May 92, Pak-China Fertilizer was also sold to Schon group for Rs 456 million and handed
over on a payment of Rs 182 million. A balance of Rs 240 million was outstanding against
the group but no effort was made to recover it. Instead, Bhutto govt. approved the sale of
Pak-Saudi Fertilizer to front-man for the Schon group but thanks largely to the alarm raised
by the workers union and intervention by President Farooq Leghari the deal did not go
through.

Metropolitan Steel had an annual turnover of Rs 1,200 million and had undergone an
expansion with an investment of Rs 200 million on the eve of its privatization in 1992. It was
sold for Rs 66.67 million to Messers Sikandar Jatoi and handed over after a down payment
of Rs 30.7 million. The Privatizaton Commission wrote out a checque of Rs 25 million to the
new managenment as government contribution for Golden Handshake which means that
Sikandar Jatoi walked away with Metropolitan Steel for a laughable Rs 5 million. Not a
single 4 8
payment has been made to the privatization comission since its privatization. Instead he moved
Sindh High Court to claim a refund of Rs 100 million sales tax which the court upheld. The unit has
remained closed since its privatization.

In September 91, Chairman, Privatization Commission, Saeed Qadir has speculated in an interview
with Sabih uddin Ghausi of Daily DAWN that UBL could fetch a price of Rs150 per share, against Rs
70 of ABL and Rs 54 of MCB but in 1996 it was sold to a dubious group for Rs 15 per share. Such a
big fall in such a short time could happen only through a determined effort by the controllers of the
bank to bankrupt it before its privatization. That a sustained effort was made by the govt. to
bankrupt the bank before its privatization is also evident from the annual balance sheets of the
bank. UBL earned Rs 236 million profit in 1991, Rs 258 million in 1992 and Rs 275 in 1993 which
went down to Rs 59 million in 1994 and gave a loss of Rs 720 million in 1995. During three years of
Benazir govt. overdue advances jumped from Rs 12 billion to Rs 18 billion and 30 loans worth Rs 2
billion were rescheduled, scores of loans were written off.