When prime minister Benazir Bhutto says that the government is on track, she may be stretching the facts. President Farooq Leghari has stunned everyone by alleging that a crucial oil and gas deal proposed by the government is “neither transparent nor prudent”. A recent report by a Senate Committee has also raised objections to some proposals on the agenda of the Privatisation Commission.
President Leghari has written a letter to the government expressing serious reservations about an oil and gas package approved December 18th 1995 by the cabinet’s Economic Coordination Committee (ECC) which could adversely affect “Pakistan’s economic, political and strategic interests”. The former petroleum minister and opposition leader, Chaudhry Nisar Ali Khan, has gone a step further. “This is a mega-scandal in the making”, he warns, alluding to some VVIP’s hand in the affair.
Amongst other assets, Pakistan’s most important gas fields at Sui, Khandkot and Qadirpur are owned by Pakistan Petroleum Ltd (PPL) in which Burmah Castrol (BC) has a 63.9% stake, IFC has 6.1%, the Government of Pakistan (GOP) has 29.4% and 0.6% is with private shareholders. Under the GOP proposal, BC would be allowed to sell its full stake in PPL (including a subsidiary stake of 8.5% in the Qadirpur gas field) to Broken Hill Properties (BHP) of Australia. PPL would also sell 7% of its shares in Qadirpur to BHP. In a back-to-back deal, however, BHP would sell its PPL stake to the Hashoo group while retaining its 15.5 % stake in the Qadirpur gas fields.
The President’s letter raises important objections. (1) The December 18th meeting of the ECC did not have this item on its agenda. It was inexplicably brought up “at the last minute” and hurriedly approved. It was therefore “not exposed to the usual scrutiny pertaining to such matters”. (2) In an earlier decision, the cabinet had decided that shares in Pakistan’s discovered gas fields would not be put up for sale. What has prompted this particular policy reversal in the case of Qadirpur? (3) The Qadirpur gas fields contribute about Rs 350 million annually in Gas Development Surcharges to the GOP. By removing Qadirpur from PPL’s portfolio and allowing BC to sell its stake of nearly half of Pakistan’s gas reserves to “an inexperienced private group” (the reference is to the Hashoo group), the GOP would lose an important cushion in gas pricing and revenues. “This could have highly adverse political and revenue implications for the four provinces” says the President. (4) The valuation of Qadirpur gas fields based on recoverable reservoirs of 3.4 trillion cubic feet should be over US$ 5 billion, given its current value of US$ 1.5 billion. Any attempt to sell PPL’s 7% stake at less than US$ 100 million would be unwarranted.
The President has offered the GOP “several options which could meet the requirements of equity and transparency and serve the interests of the country”: (a) If BC wants to make a distress sale (which it does), the government could buy its shares and divest them over a period of time through the stock exchange in a measured and transparent manner. (b) The GOP and IFC could jointly buy out BC, with the IFC mediating as an “honest broker” between the BC and GOP. Within two years or so, the two parties could bring about a major restructuring of PPL which would allow their assets to fetch a fair market price.
These are substantial points which cannot be brushed aside. While the GOP ponders a suitable response, however, we might table some points of our own.
The Hashoo group runs a professional chain of hotels. Of late, it has branched out into the oil business. We are given to understand that Zaver Petroleum, which is part of the Hashoo group, has recently bought out Occidental Pakistan from the American parent company, including its interests in three Pakistani oil fields. In addition, we’re informed, Zaver has a stake in OGDC. If BC wants to sell its shares in PPL and the GOP is not interested in buying them, why are some people so worried about allowing them to fall into the hands of the Hashoo group, especially when there are no other bidders in sight?
The real objection, apparently, is that the Hashoo group may be “fronting” for some unacceptable VVIP, as Chaudhry Nisar Ali Khan has alleged. Although Chaudhry Nisar has offered no proof to back up his allegation, and a spokesman of the Hashoo group has vigourously denied it, one fundamental question remains unanswered: Why does BHP want to buy out BC when it has already agreed to sell out the same stake to the Hashoo group?
The President’s concerns require a satisfactory answer from the GOP. In particular, his suggestion that the GOP and IFC should jointly devise a strategy to buy out BC, invigorate PPL and then divest its shares properly over a period of time through the stock market merits consideration. At any rate, the GOP should not take any quick decision which flies against the grain of President Leghari’s commentary.
Since this matter has dragged on for many years, its resolution can certainly wait some months. There is much to be gained from a detailed review of the ECC’s decision. In the event, if the GOP/IFC are still unable to buy out BC or come up with a workable alternative to it, perhaps the sale of Qadirpur shares to BHP can be taken out of the equation and a more transparent and equitable deal concluded with BHP/Hashoo. That way, the people of Pakistan will at least know that the deal was not “pushed through” at the behest of some VVIP or the other.
While the GOP considers how to respond to the President’s reproach, the Senate’s Standing Committee on Finance, Revenue and Economic Affairs has fired a broadside against the Privatisation Commission. Its main target is Pakistan Telecommunications Corp Ltd (PTCL) which is expected to be privatised within the next two months. According to the Senate’s Report, released early January, the present value of PTC shares is Rs 27, half that of Rs 55 in October 1994 when 10% PTC shares were offloaded to the general public through the stock exchange. “At present prices, the proposed privatisation of 26% shares to a strategic investor will bring in hardly US $ 1.2 billion, which is equal to 14 months earning by PTC”. The Report’s conclusion: PTC’s privatisation should be deferred until the market has picked up or until a strategic investor can be found who is prepared to pay at least 20-25% more per share than what was available in October 1994. The Senate also wants the PC to defer PTCL’s privatisation until a law has been passed by Parliament covering a suitable regulatory mechanism.
The Senate has also taken objection to the proposed privatisation of United Bank Ltd. Why, it asks, has the committee set up in 1991 under the Governor of the State Bank of Pakistan (to ascertain the conditions under which financial institutions should be privatised) been replaced by one headed by the PC chairman? Why, in UBL’s case, is the PC pushing ahead with “so much speed without undertaking a thorough and impartial valuation of the bank’s assets and liabilities by agencies whose expertise and credibility are unexceptionable?” Why has the PC prequalified only two out of eight companies — and only foreign ones at that — interested in buying the bank?
As Mr Naveed Qamar wonders about the answers to these questions, his credibility has taken a nosedive after the surprising announcement mid-January that one of the two pre-qualified foreign banks — Faysal Islamic Bank — had decided to pull out from the final bidding for UBL scheduled end-January. “Faysal Islamic Bank is demanding that the GOP deposit Rs 20 billion in UBL for a period of five years after its privatisation or make specific commitments of financial support, before it makes a bid”, explained Mr Qamar. However, he said he was optimistic that the two bidders would turn up on bidding day and “everything would be fine”.
This, despite the fact that the bidding for UBL has been now postponed for the fourth time. After a meeting with President Leghari on January 24th, Mr Qamar could only report to the press that “the President had listened to him patiently but said very little”. That, as we all know, means much more than it says.
Clearly, the President of Pakistan is perturbed. The government would do well to allay his fears.