PSM Privatisation

[Lahori paa jee]

Let the challenge begin. This is the first part only.

I want some time to read Supreme courts judgement its mind boggling.

 

[Lahori paa jee]

Steel Mills’ privatisation marred by massive irregularities: SC

Detailed judgement of PSM case: Steel Mills’ privatisation marred by massive irregularities: SC

* 4,457 acres of land given away free of cost
* Govt extended extra benefits worth Rs 33.67b to purchasers

By Mohammad Kamran

ISLAMABAD: The privatisation of Pakistan Steel Mills (PSM) was marred by “massive irregularities and legal violations”, with the government extending extra benefits worth Rs 33.67 billion to the successful bidders, the detailed Supreme Court judgement in the PSM privatisation case said.

The government had also given away 4,457 acres of land free of cost along with the mills, the judgement said. “The transaction is the outcome of a process reflecting serious violations of law and gross irregularities with regard to the sale,” the judgement said.

The 80-page judgement was released by the Supreme Court on Tuesday to supplement the shorter version of its verdict on June 23.

The detailed judgement, authored by CJ Iftikhar Chaudhry, spots a number of legal violations, lapses, and “omissions and commissions” by the Privatisation Commission (PC) and the Cabinet Committee on Privatisation (CCOP) in the sale of a “mother industry at throwaway price”.

The detailed judgement said that in 2004-05, the PSM registered a record sale of Rs 30b and yielded a Rs 6b net profit. The PC did not mention that in the ToR of the Mills’ sale”, the judgement said. Meanwhile the assessment of the value of the PSM was made on a “discounted cash flow” formula on the basis of the historical value of the Mills instead of market value.

“We have noted with concern that the entire exercise reflected indecent haste by the PC as well as the CCOP,” the judgement said. It said that the final report of the financial adviser was submitted on March 30, 2006, and was approved by the PC on the same day.

A meeting of the Privatisation Commission Board took place on the same day and the summary was prepared immediately. Similarly, the CCOP met the very next day and approved the reference price on the same day, the judgement said. “This unexplained haste casts reasonable doubt on the transparency of the whole process,” it said.

It said that the Privatisation Commission Board recommended the sale at Rs 17.43 per share, but the CCOP approved a reference price of Rs 16.18 per share and the final bid was accepted at Rs 16.80 per share. The decision of the CCOP meeting, chaired by the prime minister, “reflects a disregard of rules”, the judgement said. It said that the name of the highest bidder was neither presented to the CCOP not approved by it. The bidding occurred after the CCOP decision and the purchasers shown in the agreement were never approved by the cabinet committee, it said.

“In fact, the bidders were different from the eventual purchasers because in the final agreement, an offshore company, PSMC SVP (Mauritius), was shown as a purchaser while it had not participated in the bidding. Further, no guarantee was obtained from the actual purchasers regarding the subsequent disposal or selling off of the PSM,” the judgement said.

The judgement said that the successful bidders would have gotten stock worth Rs 10 billion, the government of Pakistan had taken PSM’s loan liability amounting to Rs 7.67 billion, the bidders were to get Rs 1 billion refunded in advance as tax break, and the government was to pay Rs 15 billion to PSM employees agreeing to retire under the Voluntary Separation Scheme.

Source

Now this is the judgement of Supreme court of Pakistan and not my version. Just read the highlighted part

 

[Lahori paa jee]

Opposition strongly protested over the matter of privatization of Pakistan Steel Mills (PSM) after Supreme Court verdict on it and demanded of Prime Minister Shaukat Aziz and the members of Cabinet Committee on Privatization to give resignations.
During National Assembly session on Thursday, opposition lawmakers said that case must be registered against those responsible for PSM privatization in the light of apex court verdict.

Speaker National Assembly Chaudhry Amir Hussain adjourned the proceeding of the lower house for an half hour and called opposition and government representatives in his chamber after opposition MNAs raised uproar and chanted slogans.

Speaking on point of order, MMA MNA Liaquat Baloch said opposition raised the matter of the privatization of PSM and pointed mistakes in it. Government sold PSM on cheap rates but refused to review its privatization despite opposition?s demand, he said.

Ahtizaz Ihsan of opposition said that it was clearly written in the decision of Supreme Court that PSM was privatized on less rates than its original cost. If the same decision would have been taken in the Britain and India then the government would have immediately resigned, he said.

Ahtizaz said that people were expecting resignation from the government. He said that government should not run country?s affairs like that of City Bank.

Entire nation is looking towards Parliament adding, apex court had proved the allegations of corruption against heads of the government, he said. Ahtizaz said that Supreme Court had indicted the Prime Minister and Cabinet therefore this matter could not be ignored. It is our demand that government should resign, he said.

PML (N) MNA Khawja Saad Rafiq said that Naveed Qamar and he himself had remained Chairmen of Privatization Commission and were sent in jail on the charge of corruption and later they were released and all the accusations against them were retracted. If we were sent in prison then why not the heads of this government, he said.

He said that case must be registered against Cabinet Committee and the Prime Minister.

Minister for Parliamentary Affairs Shir Afgan Niazi said that opposition has expressed confidence on the verdict of Supreme Court. Present Chief Justice and judges appointed by the President and it is taking right decisions. He said that opposition should first read apex court verdict and they hold debate on it.

Afgan said that if opposition wanted debate on the matter of PSM privatization then it should bring special motion. But government need some time for debate therefore immediate debate should not be held on it, he said.

He went on to say that if opposition continue protesting, it means that it do not want proceeding in the house.

Treasury benches member Riaz Hussain Pirzada said that accusations of corruption and terrorism were the great hurdle in the proceeding. Voice of the rigging in elections, corruption and terrorism would not be heard in the house, he added.

Minister for Parliamentary Affairs Shir Afgan Niazi said that debate could not be held on the adjournment motion on PSM privatization. Two-day debate should be held and Parliament should suggest action against those who responsible, he said.

ARD chairman Makhdoom Amin Fahim said that PSM privatization was sensitive matter therefore debate should be held on it immediately. Speaker National Assembly Chaudhry Amir Hussain said government required two days to read the decision and if there is dispute then both opposition and government legislators can come in his chambers.

Minister for Parliamentary Affairs said that if opposition did not hear government then government would not allow opposition members for speech. However, opposition MNAs came in front of Speaker?s dice and started to raise the slogans of ?Lota?, ?Lota?.

Source

 

[A.Rahman]

Paajee what are the pros and cons of Privatisation ?

 

[Lahori paa jee]

Paajee what are the pros and cons of Privatisation ?

Those firms or organisations who are not doing good and are a burden on Government should be privatized. Its not governments job to run TV, Steel Mills, Telephone Companies and Banks etc.

But one has to follow some rules when privatising.

Unfortunately Mush's government has made some blunders. I will highlight them from time to time and try to change the opinion of this boards members who are blindly supporting Mush.

The government had also given away 4,457 acres of land free of cost along with the mills, the judgement said. “The transaction is the outcome of a process reflecting serious violations of law and gross irregularities with regard to the sale

From above post

the government almost sold PSM on an amount far lower than its actual price. Secondly many acres of land which is on a prime location was being given for free.

 

[sigatoka]

Paajee what are the pros and cons of Privatisation ?

Benefits of Privatisation is that

1. It allows the govt. to focus on its core responsibilites.

2. Private managment is usually more successful at ruthlessly firing inefficient workers (or reducing the size of the workforce) and is less prone to be politically influneced to make bad decisions.

3. Since people are only partly Ricardian, selling private enterprises to reduce govt. debt allows overall savings rate of the nation to rise which can be used for investment and growth.

4. Privatisation of enterprise usually leads to public listing of majority of shares which allows the public to further diversify their portfolio which gives a higher return for given level of risk (or vice versa). There is in fact a small gain for "free" for the public.

Cons?

There are none except in the short run if you are among the people fired to increase efficiency. (costs r born very severly by people who lose their jobs)

 

[sigatoka]

1. the government almost sold PSM on an amount far lower than its actual price.

2. Secondly many acres of land which is on a prime location was being given for free.

1. If it had sold the PSM at a lower amount, then there was no damage to the economy, the loss of the government would be matched exactly by the gains of new shareholders. It like a tax cut.

2. Even if prime land is given for free, it will still end up in its highest value use as long as transaction costs are low and rights well defined.

The logic is as follows, If i got land for free, if there was someone willing to give me a higher price than it was worth to me, i would sell it. This would continue untill it reached the user willing to pay its full value and utilise it in its most productive use. Again, the loss of the govt. is matched by the gains of the public. No different to a tax cut.

 

[Srirangan]

Paajee what are the pros and cons of Privatisation ?

It's based on a simple theory, which says:
Govt should not run business's, People should.

 

[Jay_]

1. If it had sold the PSM at a lower amount, then there was no damage to the economy, the loss of the government would be matched exactly by the gains of new shareholders. It like a tax cut.

I dont agree. The Govt excheqr has been robbed of the money. If you steal something from the govt it is infact "gain" for the stealer (share holder), but really, does it make sense to say that the govt i snot loosing anything??
If you even consider them as tax cuts, the govt is loosing some money which can be used for public betterment projects. why is the govt trying to increase the tax base and go after tax evasions?
By selling these assets under par, the govt has also lost the money it spent on acquiring the asset. So its a loss on both ends. If the govt infact sold them under par to enable them to rejuvanete the mill, then it has to come clean and say so. It should be clearly listed under the benifits of the sale.
Like in India, if you set a Software company in STP's, the earned income for the company is tax free for x number of years. The govt borne this loss and this is offsetted by the number of employees the company employ. But the numbers are public, so no one can cry foul on it. I assume its not the case in PSM privatization.

2. Even if prime land is given for free, it will still end up in its highest value use as long as transaction costs are low and rights well defined.

Again, you are not understanding the fact that the public exchequer is being robbed off the rightful amount its supposed to get. Simply, its a bad sale.

Again, the loss of the govt. is matched by the gains of the public. No different to a tax cut.

What public? The gain goes to the person who bought the land at under par rate. How does a common man benifit from the sale?
If the govt got their righful share, then it can be spent on welfare or infrastructure projects, which is infact a gain to the public.

 

[sigatoka]

1. The Govt excheqr has been robbed of the money. If you steal something from the govt it is infact "gain" for the stealer (share holder), but really, does it make sense to say that the govt i snot loosing anything??


2. If you even consider them as tax cuts, the govt is loosing some money which can be used for public betterment projects. why is the govt trying to increase the tax base and go after tax evasions?


3. What public? The gain goes to the person who bought the land at under par rate. How does a common man benifit from the sale?

4. If the govt got their righful share, then it can be spent on welfare or infrastructure projects, which is infact a gain to the public.

1. The govt. loses exactly what the person who bought it gains, from an economists point of view as long as the economic pie hasnt become smaller it makes no difference.

2. Pak. tax base is too narrow, a narrow tax base distorts economic incentives and therefore makes the economic pie smaller, trying to broaden it will increase the size of the pie. Public betterment projects can be funded from debt as well if indeed it is useful.

3. How does the common man benefit if the rich man overpaid??

4. Giving away govt. property for free ONLY has distributional effects on wealth within society, it does not affect the overall level of wealth within it. I dont agree with giving away govt. property for free, but neither do i believe that mum and dad investors should be squeezed dry by the govt. which misleads them to overpay for shoddy assets. If the govt. underprices its assets and gets rid of them quickly to the public, it is better for the economy than squeezing every last dollar out which would mean that privatisation would take much longer.

The common man in the street benefits from more efficient utilisation of exisiting firms, this frees up the economies resources for additional production and investment and research. This increases long term employment, salaries and potentially with increase in salaries more of the population become shareholders and thus reap the benefits of more profitable firms.

I support privatisation at low prices to less privatisation at full price. I support privatisation at low prices to privatisation where it is given for free.

 

[Srirangan]

Few pointers on why I support privitization and reforms in India; some of these arguements will perhaps hold good in the Pakistani situation too:

1. It is not the governments job to run business's; especially if it has nothing to do with security. Govt. presence in Energy and Defence sectors is understandable, sometimes it is even favourable.

2. Govt. run business's generally are filled with corrupt, inefficient fat old babus.
Long story short, they run in losses and end up as a burden to society.

3. Being run by private organizations coupled with globalization brings competitiveness. Not only will these run in profit and pay taxes, but they'll also provide very good service, perhaps win over some part of the international market too, and pay more taxes.

4. People who don't/can't/won't do their job get the boot. Stops the society from slacking off and stagnating.

 

[Jay_]

1. The govt. loses exactly what the person who bought it gains, from an economists point of view as long as the economic pie hasnt become smaller it makes no difference.

Doesnt really make sense. The govt spent public money (tax money) to acquire/build these assets and if they sell it under par, the govt financial pie is being robbed off that money. Its simple profit and loss calc.

2. Pak. tax base is too narrow, a narrow tax base distorts economic incentives and therefore makes the economic pie smaller, trying to broaden it will increase the size of the pie. Public betterment projects can be funded from debt as well if indeed it is useful.

But how are you going to service those debts?? You will need to pay it from the govt's finance and by selling it under par and giving away lot of land without any justification or discussion you reduced that ability. CAG will have a field day with GoP's sale.

I support privatisation at low prices to less privatisation at full price. I support privatisation at low prices to privatisation where it is given for free.

I do not agree that its a worthwhile sale if its a clear loss for the govt. Is that the only bid for PSM?? How did the bid process worked? Were these incentives promised initially?

If what govt did was a write off then say it so. Its not called privatization, its disposal.

A lot of open ended questions are there and so far the looser is the govt and there by the public. Lets ses if Lahori can post more on the bidding process, how the bidder was selected and stuff like that.

The common man in the street benefits from more efficient utilisation of exisiting firms, this frees up the economies resources for additional production and investment and research. This increases long term employment, salaries and potentially with increase in salaries more of the population become shareholders and thus reap the benefits of more profitable firms.

I agree, thats why I said the govt shud come clean on this. I dont think they woke up one day and decided to give 4000 acres as an incentive, there shud be a reason behind it and you, the general public are entitled to know.

 

[sigatoka]

1. Doesnt really make sense. The govt spent public money (tax money) to acquire/build these assets and if they sell it under par, the govt financial pie is being robbed off that money. Its simple profit and loss calc.


2. But how are you going to service those debts?? You will need to pay it from the govt's finance and by selling it under par and giving away lot of land without any justification or discussion you reduced that ability. CAG will have a field day with GoP's sale.

1. The govt. taxed the public to start the enterprise and then when it gives it away for free its only returning what it took initially. I do understand however that the people who were taxed initially are not the ones getting it, however this has only distributional effects, it does not change the overall wealth created in the economy.

2. If there is a program that a govt. deems worth (whether social, roads or heath clinics) then the debt should be undertaken and it serviced from future taxation. This is because good programs will increase the rate of economic growth and the larger economy in the future will easily be able to service the debt. If the programs dont (or wont) raise economic growth then it was never a worthwhile project to begin with.