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ISLAMABAD: The Government has decided to replace the word "privatization" with "divestment" through an amendment in Cabinet's decision, aimed at resolving dispute on four companies, which have controlling shares of the private sector, sources close to Secretary Industries told Business Recorder.

The decision has been taken by the Cabinet Committee on Institutional Reforms (CCIR) headed by Minister for Federal Education and Professional Training, Shafqat Mehmood.

Sharing details, sources said the Federal Cabinet approved merger of the following organizations with Pakistan Industrial Development Corporation (PIDC): (i) Karachi Tools, Dyes & Mould Centre;(ii) Furniture Pakistan;(iii) Technology Up-gradation & Skills Development Company (TUSDEC);(iv) National Industrial Parks Development & Management Company (NIPS);(v) Gujranwala Business Centre and ;( vi) Industry Facilitation Centre.

Ministry of Industries and Production further noted that the Cabinet, further approved the privatization of the following organizations and placed them on the list of Privatization/Sarmaya-e-Pakistan on March 13, 2020: (i) National Fertilizer Corporation of Pakistan Private Limited (NFC); (ii) State Engineering Corporation (SEC); (iii) Morafco Industries Private Limited;(iv) Pakistan Automobile Corporation; (v) Pakistan Steel Fabricating Company;(vi) Pakistan Chemical & Energy Sector Skill Development;(vii) Pakistan Steel Mills Corporation (PSM); (viii) Southern Punjab Embroidery Industries;( ix) Khadi Crafts Development Company;( x). Leather Crafts Development Company and; (xi) Spun Yarn Research and Development Company.

The sources said the Cabinet Division directed all Ministries/Divisions to examine the cases, approved under the scheme of "re-organizing the Federal Government" regarding Executive Departments/Autonomous Bodies and merger, transfer, winding up and liquidation of organizations, which involve litigation and, accordingly, place them before the Cabinet Committee on Institutional Reforms (CCIR).

According to sources, Pakistan Industrial Development Corporation (PIDC), Karachi Tools, Dyes & Mould Centre, Furniture Pakistan, Technology Up-gradation & Skills Development Company (TUSDEC), National Industrial Parks Development & Management Company (NIPS) and Gujranwala Business Centre were registered under Section 42 of the Companies Act, 2017 (not for profit companies); whereas Pakistan Industrial Development Corporation (PIDC) was registered, under Section 32 of the Act ibid (for profit company).

The sources maintained that to ascertain the legal viability of the merger of a company registered under section 42 of the Act with a company registered, under Section 32 of the Act Industries and Production Division consulted Securities and Exchange Commission of Pakistan (SECP) and Ministry of Law and Justice. Both SECP and Ministry of Law & Justice were of the opinion that merger of a Section 42 Company, with a Section 32 Company has legal complications under the Act.

The MoI&P argued that this has created a condition of logjam for the Division, as far as implementation of the decision of the Cabinet is concerned. In addition, the decision of the Cabinet, regarding privatization/transfer to Sarmaya-e-Pakistan, of the organizations like National Fertilizer Corporation of Pakistan Private Limited, State Engineering Corporation; Morafco Industries Private Limited, Pakistan Automobile Corporation, Pakistan Steel Fabricating Company, Pakistan Chemical & Energy Sector Skill Development, Pakistan Steel Mills Corporation, Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and Spun Yarn Research and Development Company was ambiguous.

"It was not clear whether these organizations were to be privatized or to be transferred to Sarmayae-Pakistan; and, accordingly, which Division, either Finance Division or Privatization Commission, would deal with their fate," the sources added.

Furthermore, for four organizations i.e. Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and Spun Yarn Research and Development Company private sector had the controlling shares (more than 51%). Therefore, these organizations cannot be treated as Public Sector Companies, as defined in section 2(54) of the Companies Act, 2017.

Hence, the Government was not in a position to decide, unilaterally, for privatization of these companies, without the approval of their Boards of Directors (BoDs), having majority of directors, representing private investors; and, as of now the BoDs were non-responsive. Therefore, transfer of these organizations to Sarmaya-e-Pakistan appears to be the most plausible option.

Ministry of Industries and Production made the following submissions: (i) CCIR may deliberate and recommend a way forward to resolve the impasse, regarding merger of a company, registered, under Section 42, with a company, registered, under Section 32 of the Companies Act, 2017;(ii) CCIR may clarify the decision regarding the fate of organizations like NFC, SEC, Morafco Industries Private Limited, Pakistan Automobile Corporation, Pakistan Steel Fabricating Company, Pakistan Chemical & Energy Sector Skill Development and Pakistan Steel Mills Corporation;(iii) CCIR may place the organizations i.e. Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and, Spun Yarn Research and Development Company.

During the ensuing discussion, Secretary, Ministry of Industries and Production stated that merger of 'not for profit' companies with PIDC, a 'for profit' company, had legal implications due to divergent governing laws. The Special Assistant to the Prime Minister on Petroleum suggested an alternative option that PIDC could acquire assets of 'not for profit' companies, resulting in their closure. Deputy Chairman, Planning Commission opined that assets of 'not for profit' entities already approved for privatization by the Cabinet could be transferred to other 'not for profit' entities. Law and Justice Division also endorsed the views of Deputy Chairman, Planning Commission.

The meeting was informed that the Federal Cabinet placed on the privatization list/transfer to Sarmaya-e-Pakistan the following entities namely Southern Punjab Embroidery Industries, Khadi Crafts Development Company, Leather Crafts Development Company and the Spun Yarn Research and Development Company, which had controlling shares by private sector. Guidance of the CCIR was requested as to fate of such organizations.

The CCIR observed that the option for transfer to Sarmaya-e-Pakistan was not tenable. However, a threadbare discussion was held as to the interpretation of word 'privatization' within context of the Cabinet decision. It was opined that the privatisation of entities which had majority share holdings of private sector, was not possible. Divestment of government shares from these entities was the most feasible option. Thereafter, earlier Cabinet decision may be amended to the extent of replacement of the word 'privatization' with divestment.

After a detailed discussion, the CCIR directed the Ministry of Industries and Production to amend the relevant Cabinet decision for replacement of the word 'Privatization' by 'Divestment'. Advice of Finance Division, Law & Justice Division and Security Exchange Commission of Pakistan (SECP) may also be sought to resolve the issue. A progress report may be submitted to the CCIR in four weeks.

Copyright Business Recorder, 2020

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