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Economic Environment

Presented to:
Ma’am Syeda Farzana Manzoor
Presented BY:
Soulat Khan # 06
Amir Raza Gujjar #10
Ijaz Ahmed #23

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 PRIVATIZATION

Privatization is the incidence or process

of transeferring ownership of business
from the public sector (govt) to the
private sector (business).
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 Ways of privatization of public
sector business

There are three main methods of

privatization:

 Share Issue Privatization (SIP)

 Asset Sale Privatization
 Voucher Privatization
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 Share Issue Privatization
(SIP)

“selling shares on the stock

market.”

it is the most common type.

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 Asset Sale Privatization

“selling the entire firms or part of it to

a strategic investor, usually by
auction.”

Asset sales are more common in

developing countries
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 Voucher Privatization
“shares of ownership are distributed to
all citizens, usually for free or at a
very low price.”
It mainly used in the transition economies
of Central and Eastern Europe, such as
Russia, Poland, the and Slovakia. Its not
much applicable in Pakistan.

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 Privatization Process:
Include steps:
 Identification
 Hiring of a Financial Advisor
 Due Diligence
 Enacting any Needed Regulatory and
Sectoral Reforms
 Valuation of Property
 Pre-bid and Bid Process
 Post-bid Matters
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 Identification:

Firstly list the entities to be privatized.

Privatization Commission submits a
Summary of the proposed transaction to its
Board.
Once endorsed by the Board, it is submitted
to the Cabinet or its subcommittee for
approval.

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 Hiring of a Financial Advisor:
 Transaction manager with the approval
of the Board hire a financial advisor.
 Evaluation team is constituted
 Short listed firms are invited to submit
technical and financial proposals.
The evaluation team scores the technical
proposals and the highest ranked firm is
invited for contract.
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 Due Diligence:

 To carry out the legal, technical and financial

attentiveness.
 FA carries out this function for major
transactions.
 Following due diligence, the FA finalizes the
privatization plan
 The plan is then submitted to the Board for
approval.
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 Enacting any Needed Regulatory
and Sectoral Reforms:

 There may be rules determining

standards, penalties for non-compliance,
the extent and timing of any proposed
deregulation.
 Clarification of these rules, laws and
regulations will often be necessary
before taking the transaction to market.

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 Valuation of Property:
 The Financial Advisor carries out the
valuation for the property.
 The methods used for the valuation vary
with the type of business and often more
than one method is used in determining
the value.
These include:
 the discounted cash flow method
 asset valuation at book or market value

 and stock market valuation s

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 Pre-bid and Bid Process:

 Expressions of Interest (EOI) are

invited by advertising in the relevant
media.
 Interested parties then submit a
Statement of Qualifications (SOQ) .
 Then meeting is conducted. It is useful
in determining the bidding procedure to
be followed and to determine the
proportion of shares.
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 Post-bid Matters:

 Identification of biggest bidder

 Once the bid price and bidder are
approved, the PC issues a letter of
acceptance or a letter of intent .
 PC then finalizes the sale purchase
agreement, collects the sale proceeds,
and transfers the property.
 Within 30 days, the PC is required to
publish the summary details of the
transaction in the official gazette.
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 PRIVATIZATION IN PAKISTAN

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 PRIVATIZATION IN PAKISTAN
 Uses:

1) Development would be faster(due to

competition with the other private parties
2) Innovative solutions (due to again
competition with the other private parties
3) Effective & time bound results
4) Cost cuttings
5) Improves quality in work

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6) In turn more services to public are
possible
7) Increase the productivity
8) Significant Growth in the business
9) Controlled monitoring of public
property gives public in turn good
services

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 Possible Losses
1) Always a threat to working staff.
2) As private parties try to extract work
from minimum resources, downsizing
is the common problem
3) Un-employment increases
4) if the private party is inefficient, there
is every possibility of the business
winding up.
5) More restrictions on many things
6) purely commercial in nature and
lacks ethical / human morals at times.
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 Nawaz Sharif's privatization:
 As Prime Minister Punjab, Nawaz Sharif
presided over the 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".

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  Samundri Sugar Mills was sold to
Monoos and Rahwali Sugar to a
Muslim League politician Sheikh
Mansoor.

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 In its first term, Benazir govt. tried to privatize
Sui Southern Gas Company and engaged a
British Consultant Morgan Grenfell and a
Pakistani Consultant Sidat Hyder Aslam Rs
However after considerable spade work,
proposal to privatize Sui Southern was
dropped and it was decided that 10% shares
of PIA, 30-40% shares of Pak-Saudi Fertilizer
and 60% shares of MCB will be privatized.
The govt. however could not carry out the
proposed plan and only 10% shares of PIA
were divested before Benazir was dismissed
on August 5,1990 giving way to the first
Nawaz Sharif government

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  Within Six weeks of coming into
power he privatized Muslim
Commercial Bank (MCB) to a
national group of 12 leading
industrialists led by Mian Mansha. A
Privatization Commission was set
up under the chairmanship of
General Saeed Qadir.

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  In addition to Privatization Commission
of Saeed Qadir, govt. set up a
Commission for Privatization of WAPDA
headed by former Secretary Abdul Rahim
Mahsud, a committee for privatization of
Pakistan Telecommunication under
Deputy Chairman Planning Commission
A G N Kazi and another for privatization
of banks headed by Governor State Bank.
Completely diverse and independent
procedures were worked out for
privatization of units of these four
entities.
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  Nawaz Sharif had earmarked 115
units for privatization and when his
government was dismissed on April
18,1993, he had privatized two
banks, 68 industrial units and 10%
Shares of Sui Northern Gas Pipeline
for a consideration of Rs 12,018
million.

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  Benazir Bhutto's (Late) privatization
(1993-96):

 MAY HER SOUL REST IN PEACE

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  Benazir Bhutto summed up the
corruption in Nawaz Sharif's
privatization when she told the
workers of Larkana Sugar Mills in
August 1996 that " Ab karkhana sahi
keemat per bikey ga aur sahi aadmi
ko meelay ga, (Now the factories will
be sold to right people, at right
price)".
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  One of her first move, on coming to
power, for the second term was to
reconstitute Privatization
Commission, merging into it the
other three committees dealing with
privatization of WAPDA, Pakistan
Telecommunication and banks,
appointing Naveed Qamar, a close
friend of her husband Asif Ali
Zardari, as its chairman.
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  In her second term, Benazir
privatized 20 industrial units, one
financial institution, Kot Addu
Power Plant and 12% shares of
Pakistan Telecommunications Ltd.

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  WHY PRIVATIZATION IS
NECESSARY
 FOR ECONOMIC GROWTH IN
 PAKISTAN?

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  A massive redistribution of national
assets from the private owners to
the state. Transfer of money from
the richer to the poor

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  Inefficient provision of services and
production of sub standard goods. It was a
common knowledge that getting a telephone
connection in Pakistan required years not
months and that too with the help of favour
and exchange of bribes. No wonder the
country was able to install less than 3 million
telephones in the entire 50 years of its history
while under a private sector an additional 6 to
7 million mobile phone connections were
given to Pakistanis from all walks of life
without any favor or discrimination in one year
alone i.e. 2004.

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  Markets are the best known vehicle for
efficient allocation and utilization of
resources and thus the decisions as what
goods and services to produce, how
much to produce, distribute and trade can
be done well only by the private sector
and not by the bureaucrats. This division
and redefinition is also essential to
reduce corruption and generate sustained
and equitable growth in the country

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  The main logic behind this divestiture is
that it will promote efficient allocation of
scarce resources, optimal utilization of
resources, making sound, timely and
market responsive investment choices,
winning and retaining customer’s loyalty
through better service standards and
lower product prices or user charges
and contributing to the expansion of the
economy through taxes, dividends etc.

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  In 1997 when the restructuring, down-
sizing and privatization of the
nationalized commercial banks picked
up speed there were 105,000 employees
working in the financial sector. After
privatization was completed, the
banking industry has expanded and the
work force has expanded to 114,000. It
is true that the pattern of employment
has changed and more productive and
skilled workers have been taken in at
the expense of low skilled or unskilled.

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  Industry estimates that 100,000 new
jobs will be added during next 3 – 5
years. The substitution of unskilled jobs
in the PTCL by the skilled jobs in the
telecom industry as a whole will raise
the productivity of the sector as well as
that of the user companies and
institutions.


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 DRAWBACK
OF PRIVATIZATION
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 The most tragic consequence of privatization
was the closure of many units which are listed
below:

 Zeal Pak Cement

 Naya Daur Motors
 National Cement
 Quality Steel
 Indus Steel Pipe
 Pak China Fertilizer
 Karachi Pipe Mils etc
The closure of these units has played havoc to the
national economy
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 The GDP growth which was above 6% in the
1980s declined to around 4%in the post
privatization period.

 Units were sold out without checking the credit

worthiness of the party.

 Pak Saudi Fertilizer was a very profitable public

sector unit producing urea. It has been sold to a
group led by Fauji Foundation.

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 A leading financial institution was closed as a
result of privatization and it had the strong
negative impact on financial markets.

 Among the other major units which closed after

privatization was Zeal Pak Cement. The buyer
was not interested to run the factory but
stripping the assets. This is a frequent curse of
privatization.

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conclusion

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 Privatization contributes to
economic growth through
productivity gains, efficient utilization
of resources, better governance and
expansion in output and
employment. The ordinary
consumer gets a be private sector
firms in the form of befit only through
competition among ………continue
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 lower prices and better services
as has been demonstrated in the
cases of banking,
telecommunications and more
recently in air travel. As every
thing has its bright and dark
effects the privatization in
Pakistan has not met its objectives
for the reasons noted above.

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suggestions

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 At present it is in national interest to
remove PSO, OGDC, HBL and
NBP from the list of privatization, as
their privatization would be
strategically dangerous and
economically unjustifiable.
Moreover, IBF's next demand will
be to privatize Mangla and Tarbela
dams, which would bring an
complete mess up the economy.
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