Privatization: The Solution

Privatization

According to the research of the read clock on the issue of the economy of Pakistan. Those opposed to the privatization of PIA are casting aspersions that the privatization minister and the caretaker government have some hidden agenda for PIA’s privatization. What agenda can they have? Let’s review some numbers.

There are five airlines in Pakistan, four of them private. All charge about the same fare and provide the same level of service. Yet the four private airlines earn money and pay taxes. PIA, on the other hand, lost Rs88 billion last year on sales of Rs172bn. That’s a 51 percent loss in sales, a proportion of loss that’s difficult to accomplish even if one tries very hard.

The year before PIA lost Rs50bn. And the year before Rs35bn. The accumulated losses of PIA to date are Rs717bn, with a present value of over Rs900bn.

That amount, Rs900bn, is enough to build 15 Aga Khan University Hospitals, enough to build 60 Lums universities, or enough to build 18,000 schools across Pakistan.

The Pakistani taxpayer would be much better off with the privatization of the airline.

Instead, we have elected to continue with a loss-making enterprise that gives jobs to but 8,000 employees, never pays civil aviation dues, and reluctantly pays PSO for its fuel. PIA has lost money under all governments and boards and after every single revival scheme conjured up by the airline and financed by a governmental grant.

In the last 15 years, the government has put Rs109bn directly into PIA and guaranteed bank loans of Rs263bn. We can inject as much money into PIA as we want, but the simple truth is that PIA is beyond repair. The Pakistani taxpayer would be much better off with the privatization of the airline quickly while ensuring the job security of the employees.

Privatization brings me to consider also our railway monopoly, the Pakistan Railways. Last year, the government gave Rs45bn to cover its operational losses plus an additional Rs25bn for development expenditures for a total of Rs70bn. The year before PR got Rs59bn and the year before Rs56bn. In the last 15 years alone, taxpayers have subsidized PR by Rs783bn with a present value of around Rs1,000bn.

The cost of diesel to move a kilogram of cargo is three to four times more for trucks than it is for trains. And yet PR charges more for cargo than trucks do. Trains are a more comfortable and safer way for passenger travel, yet a vast majority of Pakistanis prefer long-distance bus travel over railways.

The Solution

However, rather than improving services or reducing losses, the railway bureaucracy wants the government to borrow another $7bn for new tracks and increase the quantum of losses and subsidies taxpayers will have to bear for decades.

Where is self-reflection in the railways ministry? Where is the will to reform? Why isn’t PR able to compete with road transport when its fuel cost is only a fraction of the latter?

Can you imagine the inefficiency and possibly graft that must be part of PIA and PR that, despite years of government subsidies, they keep losing billions and repeatedly ask us to bail them out?

Our railway ministry, by running PR, works for railway interests and not for consumers or taxpayers. However, instead of operating PR, its role should be redefined as a regulator for the industry.

We should privatize both tracks and trains to multiple operators, and the ministry, working as a regulator, should set and enforce safety standards for tracks and trains, and set maximum charges track owners can charge trains and trains can charge for freight and passengers. And if there are efficiency and safety improvements required by the regulating ministry in tracks and trains, the private sector should do so with its funds — to be compensated through fares — as a licensing requirement to own tracks and run trains.

Finally, the katchi abadis that have sprung up on PR lands should be regularised with ownership given to the poor occupants and the remaining land can be sold to ensure salaries and benefits for existing railway employees until retirement.

Let’s now consider Pakistan Steel Mills, which has been shut for eight years, with the employees still being paid. PSM owes over Rs100bn to National Bank and Sui Southern.

A reasonable way to compensate for the debt, while not critically jeopardising the financial health of Sui Southern and NBP, would be to hand over PSM’s remaining land to them. (PSM started with 20,000 acres, with 5,000 acres for the mill, and the remaining for downstream industries.

After encroachment on about 2,000 acres, an industrial park of 1,500 acres, and an employees’ housing society, there remains only about 8,000 acres). This land can then be sold by Sui Southern and NBP to partially recover their dues.

The steel mill itself, Russian-made of 1960s vintage, can still be revived either by selling or leasing it. However, the existing employees should continue to be paid till they retire.

There is no better place for the caretaker government and SIFC to reform the economy and improve our business climate than by privatizing these three entities. Whereas the privatization of PIA and PSM will just stop the losses, the privatization of PR will not just stem the losses but can also be a great impetus in the overall improvement of the economy.

New money poured into these SOEs will be a waste, as we have seen repeatedly. We need private-sector investors, and well-regulated markets, for SOEs to become profitable and finally be beneficial to consumers and taxpayers.

The privatization agenda is to stem the losses and improve the economy. The baseless aspersions on ministers are just a way to derail the process.

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