Major banks refuse to contribute their share: government may re-examine employees' stock option scheme

The federal government is likely to revisit Benazir Employees Stock Option Scheme (Besos) as three key banks - National Bank of Pakistan(NBP), United Bank Limited(UBL) and Habib Bank Limited (HBL) - have refused to contribute their share amounting to Rs 18 billion, sources in the Finance Ministry told Business Recorder.

The sources said, Parco and PTCL are also expected to be delisted from the Besos scheme as according to the Privatisation Commission the GoP has not been able to get their consent. Giving the details, the sources said, Besos was announced by the present government on August 14, 2008 as a flagship programme for empowerment of workers.

The scheme envisaged transfer of 12% GoP shares to eligible workers in 80 State-Owned Entities (SOEs) free of cost and allocation of a seat on the Board of Directors. About 500,000 workers in 80 SOEs were expected to benefit. The Cabinet approved the scheme submitted by Privatisation Commission on August 5, 2009. Employees Empowerment Trusts (EETs) have been registered in 64 SOEs while registration of trusts is pending in 16 SOEs for various reasons. Unit certificates have been distributed among 235,855 workers in 60 SOEs.

Dividend amounting to Rs 6 billion (approx) has been received by Trusts of 11 SOEs, 50% of which has been credited to Central Revolving Fund(CRF) while the remaining 50% has been distributed among 29,787 employees. So far, buyback claims amounting to Rs 4.452 billion have been received from 8 SOEs out of which Rs 1.160 billion had been paid to 223 employees by the end of 2011.

During the course of implementation of the scheme, the Privatisation Commission (PC) encountered several operational issues. The Cabinet Committee on Privatisation (CCoP) while reviewing progress of the scheme in its meeting on August 05, 2011 noted that the distribution of benefits under the scheme were highly disproportionate as only a limited number of workers in a few SOEs were deriving benefits.

Employees of certain entities are enjoying regular dividends as well as large amount of payouts at the time of buyback of shares. In companies like PPL, OGDCL, KAPCO and NICL etc, the average payout per employee ranges between Rs 5.1 million to Rs 7.6 million. On the other hand, over 104,000 employees in 17 SOEs will have nil payout due to negative net worth of the entity.

In addition, financial viability of the scheme was another concern noted by the CCoP. Therefore, a sub-commit for the finalisation of the proposals regarding revisiting of the scheme has been constituted by the CCOP. The sub-committee reviewed the recommendations floated by the Privatisation Commission in consultation with Securities & Exchange Commission of Pakistan (SECP) and M/s Myasco.

A number of issues including admissibility of bonus shares, corporatisation of SOEs incorporated under Act or Ordinance, transfer of shares from State Bank of Pakistan (SBP) for implementations of scheme in HBL, UBL and NBP and appointment of employee's representative on the board of SOEs were also reviewed.

However, the major concern for all the stakeholders of Besos is its financial sustainability. The financial impact calculation at inception of the Scheme highlighted annual injection of Rs 1.67 billion by the government to bridge the gap between Besos buy-back claims and dividend contribution received in the Central Revolving Fund. In future, this shortfall is expected to increase upto Rs 5 billion per annum due to increase in share prices of listed companies. The Ministry of Finance which had agreed to provide Rs 1.778 billion to overcome the shortfall has so far paid only Rs 116 million excluding Rs 10 million for establishment of Besos cell.

In a meeting held under the chairmanship of the Finance Secretary on October 20th, 2011 it was advised that the Besos scheme may be revisited and the possibility of cross subsidisation be explored so that all expenses could be made from the Central Revolving Fund of the Scheme as resource constraints do not allow the GoP to provide regular funds for the Scheme.

In light of the directions of Finance Division, the scheme was revisited and presented to the President on September 2 this year in a meeting which was attended by Ministers for Finance, Water & Power, Petroleum etc. The Privatisation Commission Board has also considered and examined the proposals in its meeting held on October 5 this year and agreed to it.

In view of the foregoing and to make the scheme more rational, sustainable and fully aligned with the laid down objectives of Besos, PC has submitted following proposals to the federal government: (i) Besos would be extended to employees joining after 14th August, 2009; (ii) 75% of the annual dividend would be transferred to Central Revolving Fund to buyback the claims; (iii) 25% of the annual dividend would be distributed amongst employees of respective entity; (iv) maximum payout per employee would be capped at Rs 2 million;(v) bonus shares and surrendered shares would be retained by the EET to avoid dilution of 12% shareholding; (vi) since Finance Division has not provided the cost of Rs 10 million for establishment of Besos cell, Privatisation Commission may be allowed to utilise 1% of the Central Revolving Fund of the amount available in the account as on June 30 of each financial year to meet the operational expenses of Besos cell; (v) a number of SOEs may be de-listed from Besos, namely Saindak Metals Limited (SML), Hydrocarbon Development Institute of Pakistan, Pepco, Pakistan Engineering Company Limited, National Logistic Cell; (vii) It is proposed that the banking sector may be excluded from purview of the Besos as Rs 18 billion is demanded by SBP to transfer the shares to the Employees Empowerment Trusts of NBP, UBL and HBL.

Alternatively, CCOP may direct Ministry of Finance to arrange purchase of shares from SBP and transfer the same to Besos Employees Empowerment Trusts; (viii) Cabinet had approved the corporatisation of SOEs which has not been implemented by certain SOEs.

The line Ministries may be directed to ensure implementation in the SOEs falling under their purview; and (ix) the units which have already been privatised may be given the option either to opt or otherwise to implement Besos. Since Consent of Joint Venture Partner / Strategic Investor for Transfer of GOP Shares to the Employees Empowerment Trusts (EETS) of Parco AND PTCL has yet not been furnished, both entities may be de-listed from Besos.

Copyright Business Recorder, 2012