Focused on privatisation as a viable policy tool - part 1 looked at global literature on the subject while part 2 focuses on some examples of poor post-privatisation performance in the UK as well as in Pakistan. Where has privatisation gone wrong in practical terms? And is the Pakistan experience positive?
Mrs Thatcher long regarded as a major proponent of privatisation wanted to create a nation of shareholders through this policy but at present most of the privatised companies are partly or wholly owned by foreign companies though that does not imply that they are not generating considerable profits. One major failure in the policy was the privatisation of Railways, though the entity was not privatised during Thatcher's term of office. The subsidy for British Railways rose after it was privatised - from nearly one billion pounds in the late 1980s to 6 billion pounds in 2006-07 as per a Public Spending report from the House of Commons. And by 2011 the Transport Secretary reportedly noted the sharp rise in train prices leading him to refer to rail travel as a "rich man's toy," with Union Bank of Switzerland (UBS) economists stating that train travel in the US was the most expensive in the world. In this context it is relevant to note that the subsidies to K-electric have been very substantial in our budgets with 64 billion rupees released in 2013-14 and 36 billion rupees in 2014-15.
The major concern of the employees of the entities targeted for privatisation in Pakistan has been the possibility of job losses. Data from Britain reveals that more than 200,000 jobs were lost after coal privatisation and more than 10,000 at BT; restructuring of Imperial Chemical Industries led to loss of 15,000 jobs and 20,000 job losses by the time British Steel was privatised in 1988.
An example from the privatisation of electricity in the 1990s in Victoria and South Australia: a union sponsored report notes that prices rose dramatically after privatisation and John Quiggin, the economist commissioned to prepare the report, said complaints against power companies had increased after privatisation and concluded "my research comprehensively finds that the free-market based reform process in energy has been a failure." Queensland energy minister, Mark McArdle, hit back at the ETU, describing it as "a senior member of the Labour party family". He said the government would not sell CS Energy or Stanwell Corporation without an election mandate. "The Newman government will have a mature, disciplined discussion with Queenslanders in 2014 about ... the sale of some government owned businesses to fund improved services and infrastructure," he said. Or in other words criticism of the process was dismissed as based entirely on politics - a stance that is taken by the PML-N in general and Mohammad Zubair, the relevant Minister in particular.
In Pakistan's context specifically it is relevant to note that the banks' privatisation is widely believed to have been a success. The reason is three-fold: (i) banks have the option to reject governments pressure for greater exposure to a particular sector, an example being their refusal to lend further to the power sector last year; (ii) option to refuse hair-brained schemes that envisage setting aside large sums of money for credit to the vulnerable without collateral or guarantors - schemes that are politically motivated; a recent example is the youth lending scheme launched amidst much fanfare early 2014 by Prime Minister Nawaz Sharif, considered the brain child of the Finance Minister Ishaq Dar and it was to be administered by the Prime Minister's daughter Maryam Nawaz. It envisaged a 100 billion rupee dedicated fund by a few banks - private and government owned - however because the scheme envisaged collaterals and guarantors it failed to reach the target group and little is now heard about the programme especially after the court verdict on Maryam Nawaz's appointment; and (iii) extending and then writing off loans to influentials becomes a decision for the bank's management rather than that of the minister in charge.
The PML-N government has also announced that it would privatise four discos by the end of the current year. K-Electric as a case in point has as aforementioned not led to the end of government subsidies or reliance on the national grid. At present there is ongoing debate between the Sindh and the federal government with respect to the five-year agreement inked during the previous government to extend 650 MW to K electric from the national grid.
Three additional facts need to be highlighted with respect to K-electric: (i) its status changed from a private entity in case of setting power rates to a distribution company; (ii) losses of the entity today are estimated at well over 22 percent (which it claims have been halved but are still too high by any standards) and its own website claims that T and D losses were brought down to an 18 year record low from a whopping 27.8 percent - but again very high, and (iii) questions about how much it has actually invested in Pakistan as per agreement have been raised in the aftermath of massive power failures/load shedding during Ramazan.
To conclude, all privatisation has not been a success and at the same time charges of nepotism in sale/offloading shares of entities that are doing well post-privatisation abound. The government continues to ignore the stream of income from profitable ventures it is privatising as lost revenue and its support is more rooted in the 1980s euphoria over privatisation rather than in a more informed less euphoric 2015 view on privatisation.
Comments
Comments are closed.