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Privatisation fails to meet objectives

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ISLAMABAD:

The success of Pakistan’s privatisation programme has remained restricted to solely producing $11 billion in sale proceeds, because the nation couldn’t obtain the post-privatisation objectives of enhancing effectivity and competitors, says a brand new impartial research.

The findings come amid the International Monetary Fund’s (IMF) push for approval of the State-Owned Enterprises (SOEs) Bill to enhance effectivity and administration of public sector companies. The finance ministry has requested the holding of a joint session of parliament to approve the legislation, after the invoice was rejected by the Senate.

In a research titled “Public Sector Enterprises (PSEs) in Post-Privatisation: Evidence from Pakistan”, authors Naseem Faraz and Dr Ghulam Samad concluded that the important thing objectives of the privatisation programme had remained unfulfilled. The research has been revealed within the Journal of Applied Economics.

“Our main finding is that the performance of firms has improved in the post-privatisation period but (it is) statistically insignificant,” mentioned the authors. Privatisation has been carried out with the motive of lowering the fiscal burden and rising the effectivity of the inefficient PSEs. Since 1991, the sale of PSEs has raised revenues of Rs649 billion, or $11 billion.

The $11 billion has been labored out by making use of the trade fee of the yr when a privatisation transaction occurred.

Pakistan is without doubt one of the growing international locations the place privatisation of a lot of PSEs has taken place, however the post-privatisation impact is but to be analysed. Second, relatively than specializing in one or a number of sectors, the research considers all of the privatised PSEs.

The research confirmed that the efficiency of some companies improved within the post-privatisation interval nevertheless it largely remained unfavorable.

“In particular, the privatised PSEs in energy, cement and chemical sectors do not show positive gains in the post-privatisation period. However, the telecom and textile sectors have experienced a positive change in the performance of the privatised PSEs.” “Similarly, the results also showed that the efficiency of firms did not increase significantly.”

The authors mentioned that in accordance to their evaluation via the Key Informant Interviews, the malfunctioning of regulatory setting led to the market failure that finally resulted in market exploitation.

Regulations and regulators are captured by the market, bureaucrats, judiciary and politicians. An efficient regulatory setting doesn’t exist to drive the privatised entities to have increased effectivity and develop a aggressive setting.

Government intervention within the regulatory sphere is dominant. Every regulatory authority has a board member from the federal government. This follow is clearly not aligned with the privatisation laws.

The authorities intervention (secretary sitting as a board member) creates battle of curiosity by having possession and administration collectively.

The privatised banking and vitality corporations have failed to herald the advantages of sell-off, in accordance to the research. The strategy of privatisation and rewards distribution favoured primarily the consumers, whereas the federal government confronted danger and price.

According to the authors, the privatised corporations earned the next common fee of return on property in contrast to their totally government-owned counterparts, as measured by the overall internet profits-to-sales ratio.

The increased returns on property counsel a beneficial impact of privatisation. On the opposite, the profitability or productiveness measure (internet profits-to-sales ratio) was comparatively increased for the privatised companies nevertheless it was statistically insignificant in contrast to the interval when the companies have been totally authorities owned.

“The privatised firms experience a mild increase in productivity compared to their pre-privatisation period. This difference in performance is not statistically significant.”

Privatisation additionally didn’t improve the effectivity of the privatised companies when it comes to enhance in gross sales. It advised that the effectivity enchancment was merely coming via the discount in price of manufacturing.

The research recognized weak regulators as a purpose for the failure to obtain the privatisation objectives.

“Unfortunately, the regulator Pakistan Telecommunication Authority (PTA) did not influence PTCL and other related entities to work in a regulated market environment.”

The position of the PTA is proscribed to overseeing the dedication of market costs. PTCL’s privatisation was not a good deal. It misplaced $800 million and in addition didn’t enhance the market when it comes to competitors.

“The government sold 26% shares to Etisalat and also transferred the management, which is against the rule, which requires 51% shares,” emphasised the authors.

The authorities had agreed that Etisalat would pay $2.6 billion by making upfront fee of $1.4 billion and the remaining $1.2 billion in 9 installments of $33 million every. For the deal, the federal government acquired solely $1.8 billion and the remaining $800 million was by no means paid.

“The monopoly of the telecom sector persisted despite the privatisation and drove away billions of dollars.”

The privatisation of KESC, now KE, additionally didn’t obtain the objectives. Though the primary purpose of the privatisation was to eliminate the loss-making enterprise, sadly the federal government is paying extra after privatisation, in accordance to the research.

Published in The Express Tribune, November 24th, 2022.

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Source: tribune.com.pk

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