SOE reform: lessons from successful privatizations

This is the fourth article in a six-part series on Pakistan’s SOE reform. The first three examined the framework, the consequences gap, and the case for privatisation as the end goal. This article examines Pakistan’s most consequential privatisation successes. The fifth will examine two of its most damaging failures — transactions whose accumulated cost to taxpayers runs into hundreds of billions of rupees. The sixth will set out the way forward.

For three decades, Pakistan has run a long experiment in privatisation. Some transactions transformed entire sectors. Others quietly destroyed hundreds of billions of rupees. The country has rarely paused to ask which was which, and why.

It should. The lessons are richer than any international benchmark, and the cost of ignoring them is now visible across the SOE portfolio.

This article takes the cases that worked: the major commercial banks, the rescue of BCCI’s Pakistan operations through Bank Alfalah, and the privatisation of PTCL. Each came from getting the same handful of conditions right. And each contains lessons Pakistan must internalise before attempting the more difficult privatisations now ahead.

The banking sector — a quiet transformation

Pakistan’s banking sector privatisation is the most instructive success in its privatisation history — and remains insufficiently studied.

MCB was privatised in 1991 — the first bank to be denationalised — when a consortium led by the Nishat Group acquired control. ABL followed in 1991, initially through an Employees Stock Ownership Plan and later restructured in 2004 when the Ibrahim Group acquired a 75 percent stake. UBL was privatised in October 2002, and HBL in February 2004 to the Aga Khan Fund for Economic Development.

All four entered privatisation loss-making or barely profitable, over-staffed, politically interfered with, and chronically under-capitalised. All four are today among Pakistan’s strongest commercial institutions — profitable, well-capitalised, professionally managed, and serving customers far better than they ever did under state ownership.

The fiscal contribution has been transformative. These banks have not only stopped consuming public subsidies — they have collectively generated hundreds of billions of rupees in income taxes, dividends, and other contributions to the national exchequer over two decades. A sector that was once a chronic drain on the budget is now a substantial source of revenue. Credit to the private economy has expanded significantly (despite state taking away bulk of the money), banking services have reached millions more customers, and the sector has built genuine international competitiveness — capabilities that public ownership had failed to produce in decades of effort.

Bank Alfalah — privatisation as rescue

The Bank Alfalah story carries the same lesson in even sharper form.

Its predecessor, BCCI, collapsed globally in 1991 in one of the largest banking failures in history. BCCI’s three Pakistan branches were taken over by the State Bank in 1992 and operated as a subsidiary of HBL under the name Habib Credit and Exchange Bank. The entity was small, marginal, and going nowhere under continued state-linked ownership.

In 1997, the Abu Dhabi Group acquired a 70 percent stake through competitive bidding and renamed the bank as Bank Alfalah. The remaining 30 percent was subsequently acquired through a further open auction.

What emerged from that wreckage is today one of Pakistan’s largest private banks — over 750 branches, total assets of approximately Rs. 3.7 trillion, and a foreign investor that has remained committed for nearly three decades. A failed, state-rescued operation became a thriving private institution.

The case demonstrates something important: with the right buyer, in the right conditions, privatisation can rescue failing entities and convert them into successful commercial institutions.

Why these banking transactions worked

Four features distinguished all these transactions.

The regulatory framework existed before the sales. The State Bank of Pakistan was a credible regulator with clear prudential standards and the institutional capacity to enforce them. Privatisation transferred ownership into a regulated environment — not an unregulated one.

The transactions were genuinely competitive. Multiple qualified buyers participated in each. Pricing reflected real market competition rather than negotiated discounts to preferred buyers.

The entities were prepared before sale. Balance sheets were reviewed, non-performing loans addressed, and operational structures clarified.

And the state stepped back cleanly. Government did not attempt to continue managing these banks. It surrendered operational control while the State Bank maintained prudential oversight. This clean separation of roles is the model that works.

Where any of these four conditions were missing in later transactions, problems followed.

PTCL — A success with a caveat

The PTCL privatisation in 2006 is the second clear success — though with one significant qualification.

The government received excellent value: Etisalat paid USD 2.6 billion for a 26 percent strategic stake plus management control, one of the largest single privatisation transactions in Pakistan’s history. The second-highest bid was only USD 1.4 billion — a margin that demonstrated genuine competitive tension.

More importantly, Etisalat brought genuine telecommunications expertise at a critical moment. PTCL was, at the time of sale, principally a fixed-line operator — a business that was about to collapse globally as mobile telephony made landlines obsolete. Under continued state ownership, PTCL would almost certainly have followed the trajectory of Pakistan Railways, PIA or Pakistan Steel — a chronically loss-making, technologically obsolete dinosaur consuming public subsidies indefinitely. Etisalat’s intervention diversified PTCL into mobile telephony through Ufone, expanded into broadband and data services, and modernised the underlying infrastructure. Privatisation did not just generate cash for the exchequer. It saved the entity from a slow institutional death.

The qualification, however, is instructive. Of the USD 2.6 billion bid, USD 800 million remains unpaid to this day — withheld by Etisalat on the basis that Pakistan failed to transfer title of 33 properties as required by the Sale Purchase Agreement. Two decades later, the dispute remains unresolved. By some recent estimates, the cumulative liability — including penalties and lost time value — has grown to multiples of the original outstanding amount.

This is not Etisalat’s failure alone. It reflects the Privatisation Commission’s and the government’s chronic inability to enforce contractual obligations they themselves signed. A successful sale was followed by an unsuccessful post-transaction execution — and the institutional weakness was on Pakistan’s side, not the buyer’s.

What these successes teach

Four lessons emerge.

Capable buyers create value. Banks were sold to bidders with successful track records. PTCL was sold to a serious global telecommunications operator with directly relevant expertise. The buyers had something to bring beyond capital.

Strong regulators enable success. The State Bank made the banking privatisations possible. Without a credible prudential regulator, most of these transactions may not have delivered the lasting value they did.

Genuine competition produces good value. The three-bidder PTCL auction, the multi-bidder banking processes, and the open bidding for Bank Alfalah all generated prices that reflected market values at that time. Competition is the public’s protection in any privatisation.

And post-transaction enforcement is the test Pakistan keeps failing. The PTCL USD800 million-dispute is the warning sign in this otherwise positive story. A successful sale is not the end of privatisation. It is the beginning of a sustained period in which commitments must be honoured — and the institutional capacity to enforce them must be in place.

That weakness — institutional, sustained, and avoidable — is where Pakistan’s most expensive privatisation failures happen. In the next article, I examine two transactions whose cost to taxpayers, on a fair accounting, now runs into hundreds of billions of rupees. One was a privatisation that never happened. The other was a privatisation that did, but never delivered. Both stories are routinely cited in Pakistani policy debate. Both are routinely misunderstood. And both contain lessons Pakistan cannot afford to ignore as it approaches the next wave of energy distribution privatisations.

Copyright Business Recorder, 2026