FOLDER - Privitization in Pakistan (09/2002)

Society Pakistan & World Affairs
1

SOURCE: JANG-GROUP: Pakistan Pursuing Policy of Arms For Peace: Musharraf

Inaugurates Ideas-2002; seeks private sector cooperation in defence sector

KARACHI: President General Pervez Musharraf on Monday said the development of defence industry was highly imperative to face any threat to the country.

Inaugurating International Defence Exhibition And Seminar (Ideas)-2002, at the at Expo Centre, the president pointed out that Pakistan’s defence industry had developed to an extent, where it could be introduced to other countries and keeping this in view, the government decided to organise the first defence exhibition of Ideas-2000.

“Pakistan is pursuing the policy of ‘arms for peace’, which is necessary for the regional peace also (and) with the same approach, Pakistan has accelerated its abilities in the research and development in the defence sector,” said the president. He added that Pakistan’s defence production capability was such that the country was exporting defence products, while meeting the requirement of its armed forces.

Musharraf made it clear that in the prevailing regional situation, “Pakistan cannot remain oblivious to its defence requirements”. For the production of weapons and keeping in view the latest requirements of this industry, the private sector should fully cooperate with the public sector and enter into joint ventures with other countries.

Gen. Musharraf said the defence industry forms the basis of all industries and the government will encourage private sector to play its role in defence production. “Pakistan has launched itself into the circuit of international defence exhibition with the introduction of Ideas-2002. It has also heralded the maturing of our defence industry and its products. We have established Defence Export Promotion Organisation (DEPO) to harmonise our efforts in defence export and boost collaboration in both public and private defence manufacturing sectors,” he added.

The president said the Ideas-2002 reflects the desire and will of the government and defence manufacturers in energising economic and commercial activity in the country by aligning “our defence links with industrial sector towards enhancing defence exports and furthering strategic collaboration”. He said in the technologically advanced nations the defence industry is one of the largest revenue and foreign exchange generating sector. “Venturing into this field, Pakistan has a fairly large defence manufacturing and supporting infrastructure, which is now gearing up to increase our defence exports to their full potential,” the president said.

He said: “We are considering joint ventures and co-development for customised products, with the sharing of technology with interested countries who, like Pakistan, appreciate the need for diversifying the sources of supply of conventional weapons. There is a need for producing equipments for developing countries with resource constraints, so as to help them meet their internal and external threats.” He added this can be overcome by adopting advanced technology on the one hand and marketing the products on competitive prices on the other.

The president said developing countries have to acquire arms through external sources and the prices of these arms increase with the passage of time. The president said the topic of the seminar and exhibition “Arms for Peace” manifests “our shared objective of peace and deterrence and our strategy is also based on this policy”.

Speaking earlier, the Director-General of Defence Export Promotion Organisation, Maj-Gen Ali Hamid, said that on the concluding day a befitting firepower display would be held. Secretary Defence Production, Air Marshal (retd) Zahid Anis said that in the Ideas-2002 Exhibition arms and ammunition of high quality and latest technology had been put on display. The inaugural ceremony was also attended by the services chiefs, senior military officials and delegates from foreign countries.

Later, President General Pervez Musharraf, accompanied by Chairman Joint Chiefs of Staff Committee, Chief of the Naval Staff, Chief of the Air Staff, Vice Chief of the Army Staff, defence production secretary and chairman Defence Export Production Organisation (DEPO), visited the stall of Pakistan Ordnance Factories Wah. The president evinced keen interest in the exhibits and appreciated the standard and quality of products of the country’s biggest defence production unit. The president also briefly visited the stalls of Heavy Industry, Taxila, Air Weapon Complex , Space and Upper Atmosphere Research Council and NDC.

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SOURE: NYTIMES REGISTRATION REQUIRED: Pakistan Pushes Privatization, With or Without Foreigners

LAHORE, Pakistan, June 8 Despite continuing sharp tensions with India and confrontations over terrorism, Pakistan is going ahead with an aggressive privatization schedule under which some of the biggest state-owned enterprises including banks and oil and gas companies are being put up for sale to domestic and multinational investors.The sales, by the army generals running Pakistan, promise to reshape an economy that has been burdened since the 1960’s with a huge, highly inefficient and sometimes corrupt collection of state-owned companies that soak up government subsidies.

But the government’s determination to push through some of the biggest deals now has made some populist critics worry that Pakistan’s richest families will be allowed to buy the businesses for far less than they are worth.

Many multinationals have pulled their non-Pakistani employees out of the country, and wealthy Pakistani families who want to buy state-owned enterprises face less chance now than before Sept. 11 of being drawn into costly bidding wars with foreign entities.

The Pakistan People’s Party, which swept to power in the 1970’s with a promise of “Islamic socialism” and dominated Pakistani politics until a corruption scandal toppled it in 1996, favors the sale of inefficient state-owned enterprises, but warns that not too many of them should be sold to this country’s wealthiest families.

“What worries me is the possibility of monopoly,” said Syed Naveed Qamar, the privatization minister in the last Pakistan People’s Party government and still a member of the party’s central executive committee. Just 20 families controlled four-fifths of the assets in the country’s financial system before Pakistan nationalized its banks in the 1960’s, and now an even smaller number of families might be allowed to buy them back, he said.

Government ministers say that foreign companies can be enticed to bid, especially for the state-owned energy companies that are a big part of the privatization program. The program’s main goal is to improve the productivity and competitiveness of state-owned enterprises quickly, rather than to see how much money can be raised for the government budget, said Altaf Saleem, the privatization minister. “It’s for economic efficiency the budget is the last consideration,” he said.

Razaq Dawood, the minister of commerce, industries and production, said current political difficulties would not deter the government from selling state-owned enterprises. “They will never run properly in the public sector,” he said.** “They have to be privatized we’re all on board on that.”**

The government has already sold a fertilizer company for $150 million and nine oil and gas fields for $188 million, but the big deals are still to come. Pakistan’s Privatization Commission has just finished accepting bids for United Bank, the nation’s No. 4 bank, and hopes to announce the winner within the next several weeks. Habib Bank, somewhat larger than United, is set to be sold late this summer.

The highly profitable Oil and Gas Development Company, which explores for oil and pumps it, and Pakistan State Oil, which operates 60 percent of the country’s service stations, are on the list for this autumn, along with two natural gas pipeline businesses. The nationwide Water and Power Development Authority is being broken into 12 separate regional water and electricity companies that are to be sold individually in the coming years.

Pakistan was readying many of these companies for sale before Sept. 11, but delayed the plans during the height of the conflict in Afghanistan.

The program started on a modest scale in 1988 and has continued through 10 governments of various political stripes. The 108 companies sold in the last 14 years have all been small, raising a total of $1.5 billion.

By contrast, the planned sale of management control and a stake of 26 percent to 51 percent in the Oil and Gas Development Company could bring close to that much in a single transaction.

Would-be buyers must be screened before they can bid. Even before the recent border tensions, Indian companies were not entering the screening process, although their applications would be carefully considered if they did, Mr. Saleem, the privatization minister, said.

The Muslim Commercial Bank, which is the largest privately owned bank in Pakistan and is controlled by a small group of textile entrepreneurs, is believed in financial circles here to have submitted the highest bid ?by a wide margin ?for United Bank, which has 1,100 branches. That has stirred fears of monopoly power, because a merger of the two banks would create the largest bank in Pakistan.

Mr. Saleem declined to discuss the bidding for United Bank, saying that Pakistan’s central bank would review the bids and choose the winner.

Mr. Qamar said that despite the Pakistan People’s Party’s worry about too much concentration of financial power, the party did agree that state-owned banks no longer belonged in the public sector and that buyers would have to be found for them. “They keep on losing money, and every few years they have so many bad loans that they need a cash injection,” he said.

Labor unions have issued only muted protests of the privatizations. The sales have generally included the distribution to workers of free stock equaling as much as 10 percent of the value of the company, along with generous early-retirement incentives.

The main opponents of privatization have been civil servants in Islamabad who have objected to the erosion of their influence and have been very slow in administering the sales of enterprises. Mr. Qamar predicted that the government might have trouble completing all its planned sales this year because of what he described as bureaucratic obstruction.

**The Oil and Gas Development Company, which earned $250 million on sales of $600 million last year, is the gem of the privatization program. Profits are high in part because the company is guaranteed international prices for its oil and gas by the government but also because it spends little to explore. **

BP P.L.C. and several small foreign companies have found many small natural gas fields worth developing in Pakistan in the last five years, while the state-owned company has found few, said Ian Blakeley, the regional manager for the IHS Energy Group, a consulting firm based in Tetbury, England. Pakistan has not found enough natural gas recently to become an exporter, but could soon start burning more domestic gas to replace oil, most of which is imported.

Azhar Iqbal Hussain, the regional manager for Khadim Ali Shah Bukhari & Company, an investment bank that, along with Merrill Lynch, is advising the Pakistani government, said he had already received a good response from international oil companies. But Mr. Blakeley said that political tensions might discourage bids from companies that do not already have operations in Pakistan and plenty of Pakistani managers available to run a new acquisition.

BP is the only multinational oil company with substantial operations in Pakistan, and was the only one to bid on the nine oil and natural gas fields that the government sold in April, buying the largest of them. The company, which mainly employs Pakistanis to run its Pakistan operations, declined to comment on whether it would bid for the Oil and Gas Development Company.

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SOURCE: FINANCIAL TIMES. Pakistan To Privatise Oil And Gas Company

Pakistan’s privatisation commission is seeking offers in the first stage of privatising the country’s largest oil and gas exploration company, a senior official in Islamabad said on Thursday.

Prospective investors have been invited to send by September 26, their expressions of interest for the Oil and Gas Development Corporation (OGDC), which runs oil and gas production and exploration sites across the country.

Pakistani officials said there are large untapped gas reserves in Sindh, the southern province, but significant new investments are needed to develop them.

The success of Pakistan’s privatisation programme holds the key for the economic policies of General Pervez Musharraf, the military ruler, who has promised to set the pace for a sustained recovery.

International financial institutions, including the IMF and the World Bank, have urged successive Pakistani governments to step up their privatisation efforts, in the hope of eventually reducing the public sector’s annual deficit, equivalent to about 2 per cent of GDP.

The government last week privatised United Bank, one of the three largest public sector banks, whose 51 per cent shares were sold for Rps12.35bn ($208m) to investors from Abu Dhabi and a Pakistani immigrant family which is settled in the UK

4

Foreign Private Investment Up By $177m

ISLAMABAD, June 16 (PNS): Net foreign private investment in 10 months of this fiscal marked an increase of 177 million dollars over the last year.

In July to April 2001-02 Pakistan received 306 million dollars net foreign private investment, compared to 129 million dollars in the same period last fiscal.

Net foreign investment includes 307.6 million direct investment and 1.6 million dollars negative portfolio investment in this fiscal.

In 2000-01 direct investment amounted to 259 million dollars, but the portfolio investment registered 130 million dollars negative growth, eroding net foreign private investment to 129 million dollars.

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Lyallpur Chemical & Fertilizers Limited

PC Invites EoIs For Acquisition

ISLAMABAD: The Privatisation Commission has invited interested parties to submit their Expressions of Interest for the acquisition of a minimum 75 % share of Lyallpur Chemical & Fertilizers Limited (LCFL), a company established by Pakistan Industrial Development Corporation (PIDC) in 1954.

LCFL is an unlisted public limited company registered under the Companies Ordinance 1984. The company has two units, one in Faisalabad and one in Jaranwala. The company produces Sulphuric Acid, Super Phosphate and
Zinc Sulphate.

The Faisalabad plant is situated on the main Faisalabad-Jaranwala Road. The production capacity of the unit is: Sulphuric Acid 6,000 metric tonnes per annnum, Super Phosphate 18,000 metric tonnes per annnum and Zinc Sulphate 1,200 metric tonnes per annnum.

The Jaranwala plant was rehabilitated and was re-commissioned in May 1999. The plant is fully facilitated with metalled roads, telephone, Sui gas and electricity connections. Railway siding is also available in the factory premises, and is linked to Jaranwala to Shorkot Railway track. The production capacity of the unit is: Sulphuric Acid 30,000 metric tonnes per annnum and Super Phosphate 72,000 metric tonnes per annnum.

LCFL is 75% owned by National Fertilizers Corporation Limited, while Central Chemicals (Pvt) Limited holds the remaining 25% shares. The authorised, issued and paid-up capital is Rs.10 million divided into 1 million shares of Rs 10 each. A summary profile is available free of cost from the Privatisation Commission.

A detailed information memorandum, bid documents, and time frame for the pre-bid conference and bidding date will be provided to the interested parties who furnish their EOIs latest by Monday 15 July 2002.
Prospective bidders can visit the respective plants from Wednesday June 20 on any working day on prior appointment with the Privatisation Commission or Managing Director LCFL.

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Musharraf Seek Private Investment In Defense Field

ISLAMABAD, July 10 (PNS): President Musharraf has directed Ministry of Defense to establish an organization whose primary mission would be to chance defense exports, thus offsetting the countries outlay on defense.

He issued these directives during his visit to the Defense Export Promotion Organization and its display Center established next to the General Headquarters. The President was received by air Marshal (Retd) Zahid anis, Secretary Defense Production Division, Ministry of Defense and Major General Syed Ali Hamid, Director General DEPO.

After the success of Pakistan’s first defense exhibition IDEAS-2000, the President had directed MOD to establish an organization whose primary mission would be to chance defense exports, thus offsetting the countries outlay on defense. In keeping with the governments emphasis on austerity DEPO has been established from within the defense budget and manned by professionals drawn from the armed forces.

The President toured the display center where he was briefed by the marketing directors of the public and private defense manufacturing organizations on their products and existing potential defense exports.

The display center covers 900 square meters and contains a wide range of products developed and manufactured by Pakistan’s defense industries. The President particularly appreciated the export activities of the private sector and stated that it is in the interest of the country and the armed forces that the private sector should be more involved in defense manufacturing and export.

During the tour, Chairman EP8, Chairman, accompanied the President JCSC, the three service chiefs, Secretary defense and Secretary Commerce.

After the tour of the display center, the President was given a briefing on Pakistan’s Second Defense Exhibition and Seminar IDEAS-2002, scheduled to be held in Karachi from 15-20 September 2002.

The Defense exhibition is a venture of the Government of Pakistan, coordinated by DEPO and organized by Pegasus Consultancy Limited. Over 40 foreign delegations are expected to visit IDEAS-2-2 and 43 foreign defense sector companies have already booked space along with a large number of Pakistani defense manufacturing companies.

**The President approved the plan for conduct of IDEAS 2002 and emphasized its importance in providing a window not only for our defense products but also a platform for professional interaction between foreign delegations, our own senior government military officials, foreign manufacturers and domestic manufactures both from public and private sector. **

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MCB Offers Rs8.5bn For UBL

ISLAMABAD: The Muslim Commercial Bank & Associates on Monday offered the highest bid of Rs8.5 billion to acquire the government’s 51 per cent shareholding in the United Bank.

**The Privatisation Commission will now send the highest bid for evaluation to the State Bank on whose recommendations the Cabinet Committee on Privatization will approve or disapprove the biggest banking transaction in the country’s history. The CCOP is expected to meet sometime this week. The sealed bids were opened in the presence of a large number of people, including the representatives of print and electronic media. **

The Consortium of MCB and Associates were the highest bidders, followed by the Consortium of Abu Dhabi Group & Bestway Group who put up an offer of Rs4.8 billion and the Union Bank and Associates who tabled a bid of Rs4.5 billion.

This is the first major transaction in the financial sector being handled by the financial advisors Societe General & AMZ Securities. The PC did not fix its reference price, maintaining that the central bank, the regulator and owner of the UBL, will decide about the issue of price.

Each share of the bank has been calculated at Rs32.18 by the Extraordinary General Meeting (EGM) which was also cleared by the State Bank and the Finance Division, Secretary Privatization Commission Ahmad Waqar told Dawn.

He conceded that the government had injected Rs7.9 billion into the bank a few months ago for improving its financial health. “The government had to inject money into the UBL to complete its capital adequacy,” he added. However, he said that everything will have to be evaluated and calculated before finalizing a deal.

The UBL is one of Pakistan’s three leading commercial banks, having a countrywide and international branch network. It has a full service licence to do commercial, retail, consumer and investment banking, not only in Pakistan but also in most of the other countries where it has a presence.

8

SBP Approves MCB’s Bid For UBL

ISLAMABAD - The chances of the Muslim Commercial Bank-led Consortium acquiring the United Bank Limited brightens as the State Bank of Pakistan has approved Mansha Group’s funding plan corresponding to their revised bid of Rs 12 billion for UBL, The Nation learnt on Monday.

The Privatization Commission would shortly, negotiate with the Mansha Group (MCB Consortium) in the light of central bank’s conditions attached to the MCB’s funding plan, the paramount of which is bar on the use of depositors money, sources said. The SBP has also assigned certain conditions of swap ratio in the case of post-privatization prospective merger of the MCB into UBL.

According to Chairman of the Commission, Altaf M Saleem, they would waste no time in initiating negotiations with the MCB Consortium on the conditions attached to the central bank’s approval to the revised funding plan. In case the MCB accepts the conditions of the SBP, the Commission would forward its bid to the Cabinet Committee on Privatization for final acceptance and transfer of one of the largest nationalized commercial banks in Pakistan to private sector.

Contrary to the general impression that the major projects are to be postponed for next political government, the Commission is determined to go by its plan where Habib Bank Limited is to be followed by the UBL’s divestiture. Ahead of HBL, a mammoth privatization of Pakistan State Oil is scheduled to be done this month, followed by the Oil and Gas Development Company planned to be off-loaded in September this year.

**Other than the mega privatization projects like the KESC, PSO, OGDC, and Pakistan Telecommunication Company Limited, the imminent chart of the Commission include divestiture of state-owned mutual funds namely the National Investment Trust and the Investment Corporation of Pakistan. The Privatization of the NIT and the ICP is part of the pre-conditions to the Asian Development Bank’s $ 260 loan for financial markets and governance programme (FMGP). **

According to the Chairman of the Commission, during the last about three years, the government has fetched Rs 36 billion as privatization proceeds and going by its plan it anticipates another Rs 25 billion to Rs 30 billion before October 2002.

Meanwhile sources have told The Nation that privatization of the PTCL and OGDC are to be left to an elected government expected to come in after the October polls. While the Privatization Commission is focussing now to finalize sales of HBL and the PSO in September 2002.

The final decision on restructuring and pri-vatization of the gas companies namely the SSGC and SNGPL is expected this month after the presentation of the government consultants Merrill Lynch. The consultants were supposed to make a presentation in July but they did not travel to Pakistan for their respective governments’ negative advice. The government has to choose between privatizing the two companies as they are, and restructuring and unbundling the entire gas distribution infrastructure before privatization. The privatization of SSGC and SNGPL on the basis of 'as is where is, would be possible in a few months time, tentatively early next year, while the unbundling and then privatizing would take another couple of years, source said.

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Privatisation of PSO, PTCL, UBL At Advance Stage

ISLAMABAD, May 18 (PNS): Privatisation Minister said that the privatization process of major projects like PSO, PTCL, UBL was at advance stage and progressing according to the target.

Altaf Saleem told PNSthat the target of privatization of major and smaller units would be achieved this year.

“We are in advance stages of marketing Pakistan State Oil transaction. Similarly, the PTCL transaction is progressing on target. We are planning to go for bidding of UBL which is likely by the end of this month”, said the Minister.

He said that three prominent parties are doing the due diligence right now and we hope that there will be good competition in this.

“We are also bringing a number of transactions aaa which are smaller like Faletti’s Hotel, National Power Construction Company and various other transactions”, he said.

Altaf Saleem further said that we have concluded some small transactions and sold sold two ghee factories, which were closed down for several years. “We hope that these factories will be revived and start playing their role in the national economy once again”, he said.

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**SOURCE: N/A

NIT To Fetch Good Price In Privatisation**

ISLAMABAD— National Investment Trust NIT is now well positioned for privatisation and can fetch much better price than before owing to its restructuring and surging performance.

Turnaround of NIT has not only jacked up confidence of investors but also protected the interests of the Unit Holders, said Chairman NIT Tariq Iqbal in an interview with APP here Wednesday.

**With 26pc hike in various heads of income including dividends, capital gains and others, the income totalled at Rs 2.31 billion in fiscal 2001-2002 against Rs 1.83 billion in last fiscal year, **he added.

The restructuring strategy, devised by the present Management, bolstered the efficiency and performance of the Trust during fiscal 2001-2002 as opposed to withering results on varying fronts of NIT, stated Tariq.

Ensuring perennial yields on investments and restoring confidence of investors, NIT succeeded in reaping sustainable results with new institutional mechanism in place, observed an investor.

According to an in-house research by NIT, the new strategy evolved by the Management, paved the way for NIT to dispatch attractive results alongwith high liquidity and sound financial health.

To a question, Tariq Iqbal said, various measures, initiated by the Management underpinned NIT, injected fresh resilience and strengthened its sinews, retrieving the institution back on sound and viable footing.

Tariq Iqbal said while taking over the charge, NIT unit price was below Rs 8, liquidity plight was not healthy and it was not in a position to meet redemption and make investment in the market to mop up benefits of bullish propensities in market.

During first two weeks of Oct 2001, new policy was carved out with salient features of portfolio restructuring, improvement in liquid resources of NIT, roll over and settlement of short term borrowing and marketing for enhanced sale of NIT units, he added.

Prime objective of this strategy, the NIT Chairman remarked was to restore investors’ confidence, which was at lowest ebb for some time and to protect the interests of the unit holders.

He said, this policy was formulated both in term of NAV and income and yield from units for the unit holders and certain measures were implemented in systematic manner to realize the cherished goal.

The management, he said felt on this juncture that it would be unwise and would not protect the interests of the stock market and investors, if “we off loaded bulk of portfolio investment in the market to create liquidity”.

So as a policy rather than disinvesting in Market, Tariq explained, NIT followed route where the investments were mostly sold to sponsors to create liquidity.

And such liquidity was used in the stock market which in turn reduced the supply side of stock and injected cash into stock market to give the cash- starved market a boost, he added.

NIT also started investing besides the liquidity share into side items where according to an in house research, NIT projected a strong and perennial yields through dividends.

These side items having a lot of value expanded the narrow bond of trading in the stock market and actively traded scripts increased from 50 to 150 which posted further strength to the market, the research indicated. Tariq Iqbal further said that NIT was also directly benefitted in consolidating its own portfolio restructuring.

With these value-purchases, NIT was also in position to encash dividends within a fiscal year which consequently helped NIT increase its dividend yields during current fiscal year to Rs 1.78 billion from Rs 1.69 billion in last fiscal, he added

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PC Gets Rs175m Bid For ICP Lot ‘A’

ISLAMABAD: The Privatisation Commission Board on Saturday recommended a Rs175 million bid from ABAMCO Limited for the Investment Corporation of Pakistan (ICP) Mutual Fund-lot-A to the Cabinet Committee on Privatisation (CCoP) for approval, making the ICP the first state-run entity to be privatised in the mutual fund sector.

The PC Board in a meeting here, under the chairmanship of Federal Minister for Privatisation Altaf M Saleem, recommended for approval the highest bids it received for the sell-off of government’s share in Bank Al-Falah and Lyallpur Chemical and Fertilisers Limited (LC&FL).

For 28 per cent state-shares in Bank Al-Falah, the PC Board recommended for approval of the CCoP the highest offer of Rs621.1 million it received from Abu Dhabi Group, UAE. The Board cancelled the bidding for 25 per cent shares of a private company, which authorised PC to sell them, as none of the bidders increased their bid from floor price of Rs120 a share.

The bidders wanted to fix the floor price at Rs10 per share instead of Rs120 per share, which the Privatisation Commission did not agree with the bidders saying, “we are here to privatise the public entity not to throw it away, so the bidding process is cancelled.”

In the bidding for three transactions conducted earlier, the Board received the highest bid of Rs27.56 per share against the floor price of Rs26.56 per share for the entire remaining 30 per cent shares (22.5 million) of Bank Al-Falah (former Habib Credit & Exchange Bank) making a total of Rs620.1 million offer by Abu Dhabi Group, who acquired Bank Al-Falah in 1997 through an open bidding.

The other party Javed Omer Vohra & Co attended the bidding but gave no offer. PC had received four EoIs from interested parties for the divestment of a minimum of 28 per cent equity stake in Bank Al-Falah Limited through a block sale to the general public.

The buyer will also pay for 2 per cent shares allocated for the employees and in case, employees do not buy these shares, the Privatisation Commission would reimburse the amount received on that account to the highest bidder.

The sealed bids for the Investment Corporation of Pakistan Mutual Fund-lot-A were received, which were opened by the representatives of print and electronic media.

The bids received were, ABAMCO Limited, Rs175 million, consortium of Arif Habib Securities Limited and Arif Habib Investment Management Limited Rs125.1 million, Charless Schmitt & Associates Limited (CSA), Hong Kong Rs63 million, consortium of Pakistan Kuwait Investment Company (Pvt) Ltd and Al Meezan Investment Management, Rs102.01 million and Pakistan Industrial Credit & Investment Corporation Ltd (PICIC), Rs162.5 million. Sulaiman Ahmad Al Hoqani from UAE, had though deposited the earnest money, didn’t turn up for the bidding.

The three highest bidders ABAMCO Limited, Arif Habib Investment Management and PICIC were asked to raise their bids in the second phase of open bidding but all the three declared that they had given their final offer, therefore, ABAMCO Limited was declared the highest bidder for the ICP Mutual Fund-lot-A.

For the sale and transfer of the management rights of lot ‘A’ of ICP Mutual Funds of Investment Corporation of Pakistan (ICP), Privatisation Commission had recommended nine parties for pre-qualification for the sale and transfer of the management rights of lot ‘A’ of ICP Mutual Funds.

The Privatisation Commission had received sixteen Expressions of Interest from local and foreign fund managers.

The successful bidder will manage the Fund under the rules prescribed by the Securities and Exchange Commission of Pakistan.

The bidding was also held for the acquisition of 75 per cent government owned shares of Lyallpur Chemical & Fertilisers Limited (LC&FL) and 25 per cent shares of a private company, which authorised PC to sell them.

The bidding opened with Rs120 per share floor price for 100 per cent shares with a minimum increase of rupee one per share but could not proceed further as the participating two bidders did not make any bid.

Chanar Sugar Mills Ltd Lahore and Sitara Chemical Group of Industries, Faisalabad insisted to substantially reduce the floor price. This was not acceptable to PC, so it cancelled the bidding process.

The PC Board reviewed the implementation status of various transactions, which included Pakistan State Oil, OGDCL, HBL, POL, NITL and offering of additional shares of National Bank of Pakistan.

A road show for National Bank of Pakistan’s shares offer for sale has been planned at Karachi Stock Exchange on September 24.

The PC Board members and senior officials of the respective Ministries attended the meeting.

12

Seven More Enterprises Ready To Go Private: Altaf

LAHORE: Federal Privatisation Minister, Altaf M Saleem on Wednesday said about 90 per cent of the preparatory work for the privatisation of seven more enterprises has been completed.

The enterprises likely to be matured for privatisation during the October-January period are Oil & Gas Development Corporation Limited (OGDCL), Pakistan State Oil, Pakistan Telecommunication Company Limited (PTCL), Habib Bank Limited, Karachi Electric Supply Corporation (KESC), National Investment Trust Limited (NITL) and Pak Arab Fertilisers.

“The government’s reform process has succeeded in opening up all sectors of the economy,” Saleem said while speaking at a seminar on “Privatisation Policy and Programme” at the National Institute of Public Administration (NIPA) here.

Talking about the recent transactions, he said the acquisition of United Bank Limited (UBL) by a consortium of overseas Pakistani group in partnership with Middle Eastern investors would send a strong signal to other overseas Pakistanis to look at investment opportunities in Pakistan.

He said that 85 per cent of UBL’s privatisation proceeds were received in the form of foreign exchange and that this transaction had transferred 9 per cent of the market share of the state-owned banks to the private sector.

On Oil and Gas concessions, he said that these transactions had yielded $187 million. “This is actually the forerunner of major land market transactions such as OGDCL, PSO and Pakistan Petroleum Limited (PPL),” he said.

Altaf said the disinvestment of Lot-A of Investment Corporation of Pakistan (ICP) Mutual Funds and transfer of management rights to a quality investor was a cornerstone transaction, hoping that it will open opportunities for transfer of NITL and other ICP funds.

He said the total proceeds of the privatisation carried out from November 1991 to October 1999 stood at Rs59.5 billion while the volume of yields from privatisation from October 1999 onward is Rs35 billion.

He said that absence of any law to regulate the privatisation process during the times of the previous governments led to some 800 litigation cases against the government in different transactions. “About 600 cases have been cleared in the wake of the Privatisation Ordinance-2000, leaving 190 cases still pending,” he added.

13

PC Invites EoIs For PESCO

**ISLAMABAD: Privatisation Commission has invited Expressions of Interest (EOIs) from world class consortia, led by an investment bank, well versed with restructuring and privatisation of power sector and having the support of leading legal, accounting and technical firms to act as the Financial Advisor (FA) for the privatisation of Peshawar Electric Supply Corporation (PESCO), ** says a press release issued here on Friday.

Prospective consortia have been asked to send their EOIs latest by October 26 and supported by a bank draft/pay order of Rs 30,000 (or its equivalent $500) as non-refundable processing fee.

The government is considering the privatisation of PESCO, which is fully owned by GOP. The company was formed as a result of the unbundling of the vertically integrated power wing of Water and Development Authority (WAPDA) into fourteen independent companies ie four Thermal Generation Companies (GENCOs), one National Transmission and Dispatch Company (NTDC) and nine Distribution Companies (DISCOs) for corporatisation, commercialisation and subsequent privatisation.

PESCO was incorporated as a public limited company under Companies Ordinance, 1984 in September 1998 and started commercial operation independent of WAPDA on March 01, 1999. It is one of the nine DISCOs responsible for supply and distribution of electricity in the North Western Frontier Province (NWFP) excluding the tribal areas.

14

Govt Had Proved Commitment To Privatization

ISLAMABAD, September 26 (PNS): The government has shown its commitment in the past through the implementation of Privatization Programme by taking such steps.

This was stated by Ahmad Waqar, Secretary Privatization Commission while addressing a crowded gathering of the members of Karachi Stock Exchange, professionals, bankers and prospective investors at KSE, Karachi in a presentation regarding the second offering of 5 % (18. 652) Government of Pakistan shares in National Bank of Pakistan (NBP) to the general public with a green shoe option of additional 5 % shares in case of over subscription.

He said that the enabling macro economic environment had significantly improved and in terms of growth rate, rate of inflation, foreign exchange reserves and investments the results were promising and augur well for the future economic outlook.

The government had created and strengthened the regulatory bodies and State Bank of Pakistan had been made more autonomous as regulator of the Banking Sector, he added.

Keeping in view the previous IPO of NBP shares, the additional offer for sale of GoP’s shares in NBP was expected to get an over whelming response, he hoped.

Ahmad Waqar further stated that the Government was committed to pass on the benefits of Privatization to the common man through broadening the base of stock market and by attracting small investors.

Detailing the road map of the offer, the Secretary informed that the Offer for sale document would be published between September 28-29, 2002 and the subscription would remain open from October 7-9, 2002.

Replying to a query regarding the non-availability of voting rights to smaller shareholders of NBP, the Secretary PC stated that under the Bank Nationalization Act, the voting rights would automatically be available with all shareholders as soon as 26 % shares in the Bank were divested.

He further clarified that in this connection either the Act would need to be amended or additional shares would have to be offered, which the government would consider in due course. The government intended to privatise NBP eventually, he mentioned.

The representatives of Elixir Securities and THK (Taseer Hadi Khalid KPMG) the Lead Manager for this transaction while making a detailed presentation said that the Rs 21 was an attractive offer price and it would enhance the value for all share holders. NBP has the cheapest multiple in the market as compare to other listed banks, he added.

While making a presentation regarding the performance of the bank Ali Reza, President NBP stated that during the restructuring process NBP while being transformed in a commercial bank 20 % employees (3010) had availed Voluntary Hand Shake and 200 branches had been closed down, thus saving one billion rupees a month, which was a part of our cost restructuring exercise.

The branch network had been rationalized and currently the bank was operating with 1200 branches.

In the middle of the next year the bank would have corporate branches. The deposit growth was impressive during the first six months of the current financial year and the bank now holds 22 % of market share with 9 million customers, 32 % in terms of transaction and 38 % as regard to bill payment, he said.

Ali Reza informed that the credit rating of the bank had been upgraded from AA- to A1+ due to its improving profitability and continued improvement in the performance. For the second consecutive year NBP had been recognized as the Best Bank by ‘The Banker’ (UK) 2002, he stated.

15

PC Launches Offer For Sale of 5 % GoP Shares in NPB

Islamabad: **With the publication of Offer For Sale Document (OFSD), Privatisation Commission has launched the second offering of 5 % (18. 652,000) Government of Pakistan shares in National Bank of Pakistan (NBP) to the general public with a green shoe option of additional 5 % shares in case of over subscription. **

The subscription list will open at the commencement of banking hours on October 7, 2002 and will close on October 9, 2002 at the close of banking hours. This offer is being made to the general public on best effort basis at a fixed price of Rs 21 per share.

The market price of NBP’s shares as at September 23, 2002 was Rs 22.90 the break up value of the Bank’s share as at June 30, 2002 is Rs 33.62 excluding surplus on revaluation of fixed assets.

The OFSD published in the national dailies include information regarding approval and clearance, share capital and related matters, commission, brokerage and other expenses, history and prospects, financial highlights, management and related matters and the instructions regarding application and transfer.

Rs 2 is an attractive offer price and it will enhance the value for all shareholders. NBP has the cheapest multiple in the market as compare to other listed banks. Elixir Securities and THK (Taseer Hadi Khalid KPMG) is the Lead Manager for this transaction.

Keeping in view the previous IPO of NBP shares, the additional offer for sale of GoP’s shares in NBP is expected to get an overwhelming response.

The Initial Public Offering (IPO) under taken by Privatisation Commission in November 2001 of 5-10 % shares of NBP was six times oversubscribed.

The performance of the bank reflects that during the restructuring process NBP while being transformed in a commercial bank 20 % employees (3010) have availed Voluntary Hand Shake and 200 branches have been closed down, thus saving one billion rupees a month, which was a part of cost restructuring exercise.

The branch network has been rationalised and currently the bank is operating with 1200 branches. In the middle of the next year the bank would have corporate branches. The deposit growth was impressive during the first six months of the current financial year and the bank now holds 22 % of market share with 9 million customers, 32 % in terms of transaction and 38 % as regard to bill payment.

The credit rating of the bank has been upgraded from AA- to A1+ due to its improving profitability and continued improvement in the performance. For the second consecutive year NBP had been recognised as the Best Bank by ‘The Banker’ (UK) 2002.-

16

Defence Industry And The Private Sector

The military government held in Karachi two high profile defence equipment exhibition known as the International Defence Exhibition and Seminars, IDEAS 2001 and 2002 in a bid to display expertise in the manufacture of hardware and enhance export in this field.

**Weapons and military equipment is one of the most lucrative industries for many leading industrialized countries, particularly the big powers. The United States leads in selling of armaments, (about $26.billion), followed by Britain ($10 billion), France ($6.6 billion) and Russia, in that order. (Dawn, 4 June, 2000). The actual figures are even more indicative of how the capitalist world thrives on arms sales and how war, threat of war and tensions between countries in the Third World translate into dollars for them. Hence, for those countries in the Third orld, which have to maintain fairly large military machines relative to their GNP - and Pakistan is one such country-having an arms manufacturing capability is certainly a plus point. **

It is a kind of ‘import substitution’ which will have secondary benefits of feeding upstream and downstream industries and vendors with work. Currently, the contribution and involvement of the private sector in defence-related production is yet very scanty, unlike in the advanced capitalist nations, specially in the USA, where the bulk of the defence manufacturing is done by private companies while the research and development is supported by both private sector and the government.

Nevertheless, its intangible benefits include a reduction in dependence on other countries for arms and equipment, employment and training of national personnel in sophisticated technical skills in defence related industries and so on. However, when it comes to export, one has also to consider their production cost and profitability. Whether such exercises in costing and evaluating profitability have been conducted is rather doubtful because most of the facilities are located in the sensitive defence sector where the normal cost and account controls often do not apply, or are not applied rigorously. So far, operations of the armed forces and departments, laboratories and research organizations under their control have enjoyed a kind of immunity from routine controls. They work in a closed system outside the pale of the rest of the audit and accounts regulatory mechanisms.

You can quote impressive figures of sales and even juggle with figures in percentages, saying exports have doubled,- in the early stages, when sales are low, doubling and trebling is easier to attain. What is not known, however, is how much net income was actually earned through such export. Simply winning export contracts, if the enterprise is making a loss instead of profit, would amount to multiplying the losses. At present, the volume of exports, according to Maj-Gen Syed Ali Hamid, DG, Defence Export Promotion Organization, is $80 million. Costing exercises should be carried out before the export grow further.

It is also doubtful if the cost-benefit ratio analysis (in terms of real economic productivity) of holding high profile, extremely expensive exhibitions at public place, like IDEAS 2002, that have great direct and indirect costs, not to speak of the inconvenience to the general public and losses due to cessation of commercial activity in the affected areas, was done. High profile exhibitions also tend to put the country’s ‘defence industry’ into limelight, drawing unnecessary attention to, and xposure of, both its capabilities and deficiencies. The organisers and policy makers need to consider whether it is desirable from the political or military standpoint to do so, particularly in view of the precarious and tense situation in South Asia, and this country’s vulnerability, that was seriously exposed during the recent crisis, post September 11, that forced the architects of the ‘strategic depth theory’ to effect a U-turn in their Afghan policy.

This is not to argue against defence manufacture. Essentially, the idea of earning hard currency through exports of arms and other defence-related equipment and hardware can work. Many countries are already doing it to their advantage. Furthermore, under the prevailing conditions, it is necessary to enhance the country’s capability in manufacturing military quipment and hardware in the interest of self- eliance and thus maintain a high state of alert, but it is a moot point whether intense publicity under high profile events of this kind would go to enhance our security,or even facilitate business substantially. After all, the clients, or potential purchasers of arms are governments and not the ordinary public. Hence no doubt the criticism from cynics that carrying out media events like IDEAS:2002 do not appear to serve any purpose other than trying to project defence production as an achievement of the sitting government.

Such development is the result of cumulative effort going on for the last several decades, and is expected in normal course in a highly militarized nation 55 years after its independence. Were the defence industry a private sector enterprise, would they have spent such massive amounts in organizing and display of such equipment at a public venue for publicity? And would the government have ordered a shutdown of all commercial activity in the surrounding areas for about a week so such an exhibition could be held? The holding of IDEAS 2000, and later the establishment of DEPO, are admissions of the fact that it is no longer an activity that could be supported conomically by the armed forces acting as the lone patroniser of the industry and that buyers must be found for the industry to improve its competitiveness. But the success of this again depends on how economical the defence industry’s operations can be made to be.

So the main question is how exports could become profitable for the industry and thereby help support the armed forces’ need?

The answer to this may of course lie partly in economy of scale generated by higher volumes of exports. The market for such products could be the countries of the developing world, particularly in the Middle East and Central and South Asia. But the key to this lies in subletting comparatively simpler tasks and operations to private sector industries and cooperation with more advanced foreign manufacturers where sophisticated technologies or skills are involved. Perhaps the plight of most industry in the country is not hidden from the ruling circles. The involvement of the private sector thus can benefit the industry.

Such collaboration can come in the form of manufacturing auxiliary equipment and components that are more economical to produce in the private sector that in the high overheads public sector, and even more costly defence organizations, besides provision of services ranging from transport to engineering consultency, business, insurance and financial services.

Collaboration with foreign manufacturers could result in import of technology that could reduce production costs, improve quality of products and help transfer technology through training of personnel.

However, this approach would require the defence establishment to adopt more open and transparent ways than hitherto. Besides, once they determine to enter the forbidden field, they must also have the courage to face the music from those ruling the roost in this area if and when they become a viable threat to their market share.

The field of arms manufacture is one dominated by the big sharks, with all the risks and responsibilities that it entails. Establishing organizations like the Defence Export Promotion Organization (established in June 2001) is the easy part. Manufacturing at low production cost, procuring contracts and ensuring profitability is the difficult part. Without transparency and subjecting the defence industry to the usual controls, that would not be possible.

17

Bidding on Three Privatization Projects

ISLAMABAD, Oct 1, 2002 (PNS): Privatisation Commission has finalised all arrangements for holding the bidding of three transactions at PC offices. The transactions include divestment of 28 % equity stake in Bank Alfalah (former Habib Credit & Exchange Bank), Investment Corporation of Pakistan Mutual Fund-lot-A and Lyallpur Chemical & Fertilizers Limited. The bidding is scheduled at 1000 hrs, 1030 hrs and 1130 hrs respectively .

The Privatisation Commission had invited Expression of Interest from interested parties to divest through a Block Sale a minimum of 28% Equity Stake in Bank Alfalah Limited to the general public through an open bidding process. PC had asked the Parties submitting EOIs that they must also get requisite clearance from the State Bank of Pakistan prior to bidding for the acquisition of Equity Stake .

For the sale and transfer of the Management Rights of lot 'A' of ICP Mutual Funds from Investment Corporation of Pakistan (ICP) Privatisation Commission had recommended nine parties for pre-qualification for the sale and transfer of the Management Rights of lot 'A' of ICP Mutual Funds from Investment Corporation of Pakistan (ICP). The indicated funds as one lot comprises of twelve funds i.e. 1st, 3rd, 4th, 8th, 11th, 12th, 15th, 19th, 20th, 21st, 23rd and 25th.Privatisation Commission had received sixteen Expressions of Interest from various local and foreign parties in this regard .

The parties recommended for pre-qualification on the basis of the information provided by them in response to the RSOQ and completing the required process, include 1. ABAMCO Limited, 2. Consortium of Arif Habib Securities Limited and Arif Habib Investment Management Limited, 3. Charless Schmitt & Associates Limited (CSA), Hong Kong, 4. Consortium of Pakistan Kuwait Investment Company (Pvt.) Ltd. and Al Meezan Investment Management, 5. Javed Omer Vohra & Company Limited, 6. Khadim Ali Shah Bukhari & Co. Ltd., 7. National Development Leasing Corporation Limited, 8. Pakistan Industrial Credit & Investment Corporation Ltd. (PICIC) and 9. Sulaiman Ahmad Al Hoqani, UAE .

The bidders will bid for the whole lot, which comprises of 12 funds. The successful parties will manage the fund under relevant rules prescribed by the Securities Exchange Commission of Pakistan .

PC will also hold bidding for the acquisition of a minimum 75 % share of Lyallpur Chemical & Fertilizers Limited (LC&FL), a company established by Pakistan Industrial Development Corporation (PIDC) in 1954 .

LCFL is an unlisted public limited company registered under the Companies Ordinance 1984. The company has two units, one in Faisalabad and one in Jaranwala. The principle object of the company is to produce Sulphuric Acid, Super Phosphate and Zinc Sulphate .

The Faisalabad plant is situated on the main Faisalabad-Jaranwala Road. The unit’s production capacity is: Sulphuric Acid 6,000 metric tonnes per annum, Super Phosphate 18,000 metric tonnes per annum .

The Jaranwala plant was rehabilitated and was re-commissioned in May 1999. The plant is fully facilitated with metalled roads, telephone, Sui gas and electricity connections. Railway siding is also available in the factory premises, and is linked to Jaranwala to Shorkot Railway track. The unit has production capacity of Sulphuric Acid 30,000 metric tonnes per annum and Super Phosphate 72,000 metric tonnes per annum and Zinc Sulphate 1,200 metric tonnes per annum .

LCFL is 75% owned by National Fertilizers Corporation Limited, while Central Chemicals (Pvt) Limited holds the remaining 25% shares. The authorised issue and paid-up capital is Rs.10 million divided into 1 million shares of Rs.10/- each .

18

MNCs Will Deal Freely After PSO Privatisation: Shell

KARACHI: After the privatisation of Pakistan State Oil (PSO), multinational companies and Independent Power Projects (IPPs) will be free to acquire oil from any oil company in the country, said Farooq Rehmatullah, chairman and managing director, Shell Pakistan Limited at a press briefing on Thursday.

He said despite the deregulation of furnace oil, IPPs are purchasing furnace oil and other oil products from PSO. These companies could buy these products from open oil markets in the country, he said.

The chairman said Shell is in talks with the finance minister and multinational companies and IPPs should be allowed to buy their oil requirements from any source in Pakistan.

He said Shell is also negotiating with the present government to improve its margin, which is below 4 percent, while dealers are obtaining a 5 percent margin from consumers. All oil companies are demanding an increase in margins or that they be kept at 4 percent, he said.

Shell Pakistan shall also discuss this issue with the new government and keep pressure on the petroleum ministry to increase the company’s margin from 3.5 percent on petrol and other oil products. The government’s levies are around 48 percent on the import of oil products including all transportation charges, which were brought down from 55 percent during the last three weeks, he said.

Mr Rehmatullah said the consumption of furnace oil and petrol is also decreasing because of the conversion to coal by cement factories and power stations. After the establishment of CNG stations, the consumption of gasoline oil also went down, therefore the company is not making major investments in furnace oil in the country, he said.

Shell Pakistan has the second largest investment in different pipeline projects including PAPCO, he said. The company is also improving its storage capacity throughout the country according to government policy, he said.

Mr Rehmatullah said the government is monitoring the Oil Companies Advisory Committee (OCAC) and is not allowing the increase of oil prices as per oil prices enhanced in the international oil market.

He said after the deregulation of diesel, WAPDA has saved around $280 million during the last few months.

He said Shell Pakistan is also supplying DSC to Afghanistan and security allied forces, while also providing jet oil and other oil products to PSO.

19

Private Sector To Promote E-Commerce

KARACHI: Mohammad Sohail, Managing Director of Transaction Processing System (TPS), stressed that the private sector has made a lot of important and strategic contributions to e-commerce in Pakistan and will continue to do so in the future.

Addressing a press conference on the sidelines of the product show “Switch Connectivity and Beyond” here the other day, Sohail said that these efforts have mostly been within individual capacities. The show was the first of its kind in Pakistan. It demonstrated state-of-the-art solutions from different national companies; all interconnected and working live.

“Our intention is not only to educate the financial industry but also send a message to the government and policy makers that the industry is ready to work with the government and the financial industry,” Sohail added.

While replying to a question, Sohail said; that though the support from the private sector was overwhelming but the enthusiasm and the commitment of the private sector would have been doubled if the government also showed their presence in the show.

20

Private Banks To Extend Rs2.65bn To Farm Sector

KARACHI: At least 14 private commercial banks will lend a record Rs2,650 million to agriculture sector, a move which offers no parallel in the country’s history, said sources in the State Bank of Pakistan.

The private commercial banks have been allowed since the start of the current year to enter into one of the biggest credit market of the country on commercial and competitive basis as the public sector banks were catering only to a limited segment of the rural population, sources added.

Sources said with the enlargement of the scope of Agri-financing by the central bank “Every financial institution of the country, having sound financial position wants to enter into Agri-financing activities in rural areas of the country”.

According to sources, following commercial banks will disburse a set amount as agriculture loans during current financial year: 1. Askari Commercial Bank Limited Rs425 million; 2. Bank Al Habib Limited Rs250 million; 3. Bank Al-Falah Limited Rs250 million; 4. Bolan Bank Limited Rs100 million; 5. Faisal Bank Limited Rs250 million; 6. Metropolitan Bank Limited Rs100 million; 7. PICIC Commercial Bank Limited Rs100 million; 8. Platinum Commercial Bank Limited Rs50 million; 9. Prime Commercial Bank Limited Rs100 million; 10. Saudi Pak Commercial Bank Limited Rs45 million; 11. Soneri Bank Limited Rs100 million; 12. The Bank of Khyber Rs150 million; 13. The Bank of Punjab Rs500 million; 14. Union Bank Limited Rs230 million.

Sources said “The experience of current financial year will definitely help private banks to enter into Agri-financing business in a big way during next financial year. It is expected that with the introduction of new avenues of Agri-financing, the private banks will start aggressive financing in next financial year”.

The cumulative amount of agri-loans, the four major commercial banks are going to extend during current year is Rs18700 million, with ABL contributing Rs2500 million, HBL Rs4800 million, NBP Rs6200 million and UBL Rs2200 million.

The Agriculture Development Bank of Pakistan will lend a record amount of Rs35000 million while the Punjab Provincial Cooperative Bank will extend Rs6300 million to the farming community.