PAKISTAN: Corruption Charges Stymie Privatisation Plans

By IPS Correspondents Reprint | | Print |

Irfan Ahmed Chaudhury

ISLAMABAD, Sep 6 2006 (IPS) - A failed attempt by the government to privatise the Pakistan Steel Mills Corporation (PSMC) may prove dear for Prime Minister Shaukat Aziz’s ambitious plans to disinvest a substantial part of the country’s public sector.

The PSMC deal figured high in debates over a no-confidence motion brought up against the government on Aug. 29 which, though defeated, resulted in Aziz, a former top Citibank executive, having to defend himself against charges of corruption levelled at him by the combined opposition in the national assembly.

Now, the opposition is gearing up to file an adjournment motion against the planned privatisation of another blue chip outfit, the Pakistan Telecom Corporation Limited (PTCL) and, once again, accusations of corruption are being hurled at the government.

Sources in the privatisation commission said a two-man review mission of the International Monetary Fund (IMF), which is closely monitoring the disinvestment plan, has already been informed that it would be impossible to carry out further sales of public-sector majors as Pakistan State Oil (PSO) this year.

The sale of PSMC, the country’s main steel producer, ran aground in June when the country’s Supreme Court, acting on a petition from workers’ unions, rejected the government’s plan to divest three-quarters of its stakes for about 180 million US dollars.

With the land on which the mill stands independently estimated to be worth at least four billion dollars, opposition politicians said the court’s ruling only lend credence to allegations by workers’ unions that there was massive corruption in the deal.

While the court’s decision has been a setback for the government’s credibility, it has brought cheer to the cause of worker unions and the employees of PSMC. Their success in challenging the sale of PSMC is proving to be an inspiration for workers in other public- sector enterprises that are being placed on the block.

Abdul Mujeeb Pirzada, counsel for Pakistan Steel People’s Workers Union, told IPS that the court ruling was a victory for all workers in the country and that PSMC had been saved from falling into the hands of dubious buyers. As pointed out to the court, these included a firm called Capital PSMC SPV Ltd., that is based in the offshore haven of Mauritius and materialised on the scene after the bidding was over.

Another objection raised by the court was that PSMC was a profit-making entity whereas the privatisation policy of the government was supposed to be aimed at disinvesting non-profitable organizations. According to PSMC chairman Abdul Qayoom, the mills generated more than 500 million dollars in revenues in 2004-05.

Labour Education Foundation Secretary Saleem Raza said while in earlier cases of privatisation, layoffs were seen once the institutions were handed over to buyers, in the case of PSMC retrenchments had begun well before the attempted sale. He told IPS that where the mill had a workforce of 20,533 in 2000, it had shrunk to around 13,080 by the start of 2006. Currently, the number stands at around 12,500 and is likely to be trimmed even further,

Raza said the future of workers, who had opted to continue working in their newly privatised organizations, was tough since most of the permanent jobs have been converted into contractual ones or casual jobs with very low pay. ”The ones who opted for voluntary retirement schemes are probably better off because trade union rights and activities have been severely curtailed,” he said.

According to Raza, working hours have also generally been increased from 8 to 12 hours a day.

Besides, Raza said, the Industrial Relations Ordinance (IRO) 2002, labour policy 2002, and Removal from Service Ordinance 2000-1, passed by the military dictatorship, are all anti-worker laws and suppress union activities. “It seems all these ordinances and policies were passed to attract bidders and get good prices for state-owned entities at the cost of the workforce. Granting bidders the right to reduce privileges enjoyed by workers and even terminate their service under these laws was criminal,” he said.

Pakistan’s privatisation began in November 1990 with the then government declaring the process as its primary economic policy objective. A committee on disinvestment and deregulation was formed and it lost no time in recommending the sale of 118 state-run industrial units.

However, government’s haste in selling off state-owned entities as seen in the privatisation of Karachi Electric Supply Corporation has aroused deep suspicions. It even promised the bidders help in recovering outstanding dues from defaulters after the sale.

The government also favoured buyers unduly during the offloading of 26 percent stake in PTCL. It changed the terms of the bid accepted by the UAE-based Etisalat and allowed it to pay the bid money (2.6 billion dollars) in five years instead of upfront.

This bias came at a time when Etisalat was on the verge of withdrawing its bid and dropping plans to acquire 26 percent stake and management control of PTCL. Several other terms were also relaxed by the government to stop Etisalat from backing out of the deal.

Muhammad Imtiaz, a corporate lawyer dealing in labour laws, says drastic retrenchments are now a possibility because where PTCL employs 13 workers per 1,000 telephone lines, Etisalat employs only two. ”How can a company bear the burden of extra workforce if it does not have such a tradition earlier,” said Imtiaz.

Privatisation of steel mills will not only mean an increase in unemployment but also changes in regional equity polices. Under the law, 55 percent of vacancies in the mills are reserved for people from Punjab, 31 percent for Sindh and 12 percent each for NWFP and Balochistan provinces. ”Once it goes to private buyers, these quotas will be a thing of the past,” he said.

In Pakistan, the downsizing exercise started with public banks and other financial institutions in 1997. The golden handshake scheme was offered to all the permanent employees at all hierarchical levels. The IMF, the World Bank and the State Bank offered to bear part of the downsizing expenses.

Manzoor Ahmed, president of the Pakistan Trade Union Defence Campaign (PTUDC), said that the sale of profit-making state entities was like selling the country off bit by bit. ”We expect huge layoffs as private enterprises can go to any extent to maximize profits,” he said. ”PTUDC will not let this happen. We will resist any move made at depriving masses of their hard-earned jobs.”

Minister for privatisation Zahid Hamid believes that the Supreme Court decision will not affect the process permanently. He says the court’s objections, once removed, will see the privatisation the process resumed.