Privatization: proceed with caution

Restructuring public sector entities is a welcome notion. But reports that the so-called sick units will be revamped and corporatized before April come a little too surprising. In fact, it makes one a bit uneasy.
Economists involved in previous privatizations find the timeline too short to accomplish any worthwhile change, given years of nepotism at the board and executive level. A hurried approach, many cite, may be dangerous to the interests of the current owners, the public of Pakistan.
The trick might have worked fairly easily in the case of those state-owned banks earlier - bring in a few professionals into the board rooms, who then hire better managers, and together they turn around to live happily ever after. But finding
eal sector people who have adequate expertise in businesses like railways, airlines, utility stores and so forth might prove to be difficult.
In any case, whosoever makes it to the new boards, before or after March 31, will have plenty on his or her plate to deal with.
Many of the public sector entities have large endowment lands and other fixed assets on their books. To prevent potential investors from asset stripping, land endowments must be transferred to the government pool. Each entity must then be sold with a focus on its core business.
Rent seeking behaviour from various stakeholders is another thorny issue. One economist contends that tariff subsidies to employees of the defence and public sectors choke the profitability of these organizations. In addition, large numbers of shadow employees installed by political governments are cited as a major bottleneck.
Private investors shy away from the heavy debt burden on the balance sheets of these entities. In previous privatization cases, the government took over this debt and converted it into equity. Hence, a fine balance of debt to equity must be struck by the government if it expects investors to work diligently to make the companies profitable.
Quarrel should also be expected when it will come to valuations of the firms assets - especially their depreciated machineries and other equipments. Investors bidding for the privatization of these units will have to be convinced why they shouldn set up a business from the scratch, instead of paying for the white elephants, only to replace their archaic assets.
Besides, while recurring heavy losses booked by these companies are the cause for the call to privatize; transferring strategic public sector assets into the hands of private investors has always been controversial in Pakistan. And, thats partly because such organizations are a natural monopoly. How will that issue be addressed is another round of debate. The year ahead surely looks exciting.