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Tuesday, May 21, 2024

Selling SOE’s shares on G2G basis to bridge financing gap

Miftah Ismail shared that the government is in process of amending laws to facilitate the sale of shares of listed state-owned entities (SOEs) with a buyback option to friendly countries on a government-to-government (G2G) basis.

Current government has taken strict measures to comply with the conditions of IMF to release funds, still $4billion financing gap has been estimated by the lending authority for the current fiscal year. In an attempt to bridge the gap, Miftah Ismail shared that the government is in process of amending laws to facilitate the sale of shares of listed state-owned entities (SOEs) with a buyback option to friendly countries on a government-to-government (G2G) basis.

While addressing a conference on SOE corporate governance, the finance minister also mentioned about uplifting ban from imports in some weeks. Also, all pre-conditions agreed upon under the staff level agreement with the IMF had been fulfilled and that there was no longer any obstacle to receiving the first tranche in late August.

Read more: Pakistan to get a $1.2 billion IMF bailout: Moody’s and Fitch

The finance minister said the Inter-Government Commercial Transaction Act 2022, which the federal cabinet passed later that day, was required since the current privatization law did not permit such G2G commercial transactions.

Following the cabinet meeting, an official statement was issued according to which the cabinet approved ‘Inter-Government Commercial Trans­­action Act 2022’ presented by the ministry of law and justice and referred it to the relevant standing committee of the parliament. The cabinet was told that the measure will boost foreign investor trust and promote G2G foreign investment in development agreements.

Miftah Ismail stated that Pakistan had a recurring problem with SOEs since some of them were poorly managed, and while some were essential for service delivery, even those were not providing services and were instead causing budget problems.

He claimed that majority of the SOEs were run by professionals, citing his personal experience working on the boards of PIA, Sui Southern Gas Company, and others such as OGDCL and power distribution companies. However, they were unable to perform, implying that perhaps laws and governance systems limit their ability to perform. Thus, the country may have needed better legal and governance structures to make such corporations function well, or better mechanisms to expedite their privatization.

Finance minister clearly expressed that no progress on privatization over the decades had been made. A small bank has been losing money since 2007 and has been on the privatization list since 2008, but there may be something wrong with the laws that prevent it from being privatized. Similarly, the Roosevelt Hotel in New York has been on the active privatization list since 1996.

Furthermore, he claimed that the country was facing an LNG shortfall because the former government’s ministries and officers were too afraid of the National Accountability Bureau and its law to make decisions and book future orders. On the other side, such a law gave people an excuse not to work or make decisions which resulted in huge cost for the country.

He stated that the NAB had been in place for 20 years, yet the level of corruption or public perception of it had not changed. Similarly, there had been a Public Procurement Regulatory Authority (PPRA) and its laws for more than 20 years, but he had no idea if procurement costs had been reduced or things had improved since PPRA.

The reason was that these laws were a constraint and provided some people an excuse not to work. Hence, the change in SOEs-related laws would be made “appropriately to sell SOEs shares to a friendly country through a stock exchange” and two LNG-based power projects owned by the federal government — Balloki and Haveli Bahadur Shah — to another friendly country.

Mr. Ismail resented over the fact that negotiations for these transactions had not yet commenced, some people had begun to criticize the sale of “family silver.”

He stated, “we are only selling shares traded at the stock exchange and only a little bit of each of them. We are not selling majority shares or ownership shares and we are selling a small number of shares on buyback option.”

He also clarified that when economic conditions will improve, the government might buy back those shares later.