The ‘white’ elephants and the rope

There is simply no analogy between the actual elephant and the rope mindset, and the state owned enterprises (SOEs) in Pakistan; they have never been roped in their early days, and still they haven’t been able to overcome their shortcomings and failures.

One well known strategy to fix the shortcomings of these state owned enterprises (SOEs) is privatisation, which has become a controversial topic among the policy makers and the authorities in the country. In the latest course of events, Pakistan Tahreek e Insaf government has been seen to what the opponents call the party is famous for – taking U-turns.

From being gung-ho about privatizing these white elephants when the government took charge last year (though there still wasn’t any clarity on the model and order for privatizing the SOEs), to resisting and pushing back of the privatisation plans, the PTI government has landed itself in the midst of another debate. Moreover, the recent turn of events highlights the lack of consensus; where the Finance Advisor Dr. Hafeez Sheikh is directing for a fast track privatisation process - especially that of Pakistan Steel Mills - other cabinet members and the Energy Task Force are vying for restructuring these loss-making entities before selling them off.

There were hopes that the budget will be significant for the privatisation plan, especially after Dr. Hafeez Sheikh - a proponent of privatisation – replaced the former Finance Minister Asad Umer, who was against the privatisation of these SOEs. However, it seems that the government has lost interest in pursuing the privatisation agenda.

The latest on the issue is that this fiscal year is going to be dull in terms of privatisation receipts where only two state-owned newly established LNG plants - Haveli Bahadur and Balokhi plant with 1230MW and 1223MW capacity, respectively will be privatized with the likelihood of a few other insignificant entities.

Earlier the Task Force on Energy had recommended putting the privatisation of DISCOs and GENCOs on hold until they are restructured. In Budget FY 2019-20, privatisation proceeds during the next fiscal year are projected to be Rs150 billion. However, privatisation of PIA and Pakistan Railways are put on a back burner, while that of Pakistan Steel Mills is also very much unlikely, at least in this fiscal year.

The rationale for delays is not entirely unreasonable. While these public sector enterprises have been sucking resources from the state for a long time, the argument for restructuring before selling off makes sense in the context of the history of privatisation in the country.

According to a recent World Bank study, “Learning from Power Sector Reform - The case of Pakistan”, unbundling alone has not improved performance of KE. The study says that privatisation of Karachi Electric proved to be highly controversial and is still being contested in the courts more than a decade later, while it further highlights that despite the improvement in its operations post privatisation, power theft, T&D losses and load shedding have persisted. Throwing good money after bad is one caveat in hastening privatisation of the SOEs.