PTCL and the
Privatization Roller-coaster
On June 18, Pakistan
finally conducted the bidding for a controlling
stake in PTCL, the Pakistan Tele-Communications
Limited company. The winner was Etisalat, an Emirates-based
telecom firm, who offered 2.5 billion dollars for
26% of PTCL and management control. The Pakistani
government retains ownership of 66% of the shares
of PTCL and the rest are publicly traded.
PTCL is the major phone company in Pakistan. It
operates about 4.4 million fixed lines and has a
cellular arm that has a significant share of the
cell phone market. Up till about 4 years ago, it
had a monopoly on all phone services, but the telephone
industry has been gradually deregulated. Privatizing
PTCL has been a goal of Shaukat Aziz since he first
became Finance Minister in 1999, and with the recent
bidding he has finally reached this historic point.
The purpose of privatizing
PTCL, and the purpose of privatization in general,
is to increase the efficiency of the economy and
the expansion of industry by removing the dead hand
of government from the major sectors of business
where it has no role to play. Pakistan since the
nationalization of Zulfikar Ali Bhutto in the early
1970’s, has had a state-dominated economy.
The government controlled all the main banks, telecommunications,
oil and gas, power, airlines, steel, railroads,
fertilizer and cement factories, life insurance,
and a host of smaller firms such as individual hotels.
This has resulted in a patronage state where political
power meant control of these industries and lack
of professional profit-driven management meant slow
growth.
Aziz has pushed privatization,
and over half of the state-owned companies have
been sold. PTCL was supposed to have been auctioned
off 4 years ago but the sale kept being delayed.
The downturn in the global tech sector in 2000 reduced
interest in a Pakistani firm and then 9/11 made
the sale impossible. In 2003, the government was
deregulating the telecom sector and had not decided
whether to sell PTCL as a single company or to break
it up into several smaller firms. By last year the
decision was taken to sell it as a single company.
There was substantial global interest in the firm
as 16 companies, all foreign, pre-qualified to bid.
But before the bidding
could be held on June 10, the workers of PTCL went
on strike, threatening to destroy company assets
if there demand that there be no privatization was
not met. The government backed down and canceled
the bidding. But when negotiations with the unions
faltered, it reacted very strongly by moving in
army troops to guard installations and announcing
the bidding for June 18. The unions initially wanted
to strike again, but then backed down in exchange
for a very generous incentive package from the government.
The reason for the
union opposition was mainly self-serving. PTCL,
compared to other companies around the world, has
twice as many employees for the number of phone
lines it has. A private owner may be tempted to
cut staff to bring things into line. But in reality,
an aggressive private owner would rather double
business and not fire anyone. If the workers of
PTCL are willing to be as productive as private
sector workers need to be, then there will not be
job losses. For a nation of 155 million to have
only 4.4 million fixed phone lines is a pathetic
performance, and shows clearly why government control
of PTCL has been a failure. It has nothing to do
with whether PTCL is profitable, and everything
to do with how many phones are working in the homes
of Pakistanis.
Besides PTCL the government
had two other recent sales successes. National Refinery
Limited, the major oil refiner in Pakistan, was
sold to a local firm. Pak-Arab Fertilizer, the largest
industrial employer in Pakistan, was also sold in
May. The government in addition held an initial
public offering for 10% of United Bank Limited.
The bank was already privatized a few years ago
but the government was now selling shares to individual
shareholders. Because of the tight restrictions
on the quantity of shares any single person could
purchase, the sale was a partial success, but some
of the stake remained unsold.
The major setback
in this policy was the failure of Kanooz Al-Watan,
the Saudi consortium that won the bid for the loss-making
Karachi Electric Supply Corporation last February,
to make payment on its bid. The government has finally
accepted that they no longer are interested. The
second bidder has been offered the chance to match
the Saudi bid, but they are declining. It looks
like KESC will have to be re-bid. It is going to
be very difficult to sell the power companies because
they are so troubled by inefficiency and electricity
theft that any owner would have a tough time getting
a return.
The next six months
could see a number of major transactions if all
goes well. Hopefully we will have sales in the power
sector. In addition there are plans to sell Pakistan
State Oil, Oil and Gas Development Corporation,
Pakistan Steel Mills, and others.
