Pakistan | Government privatisation plans lead to further protests

Pakistan | Government privatisation plans lead to further protests

"With opposition from political parties and unions, as well as poor implementation of these plans, privatisation of state-owned companies will probably remain a cause of hardship and political unrest."

A strike by employees of Pakistan International Airlines (PIA) in early February was symptomatic of the government’s wider problem of how to tackle the privatisation of loss-making state-owned companies. The state-owned flag carrier announced on 9 February that it was ending a week-long strike against privatisation plans, and the carrier resumed flight operations the following day. PIA said it decided to end the strike after the government had given ‘assurances’ over the issue of privatisation of the company. It did not clarify what these assurances are.

The chairman of PIA hinted at a government climbdown, saying that ‘after the kind of sureties we have received, there is no reason for continuing with the strike’. He added that the company could ‘show positive results within a year’, suggesting that PIA may have agreed with the government on a timeline to reduce its financial losses. Whatever the specifics of the deal, this particular proposal now looks likely to be delayed.

For several years the PIA has been making losses and operating inefficiently, according to the authorities. The PML-N government has pledged to privatise such inefficient state-owned firms, including those in the oil and gas and energy sectors. These steps also form part of the conditions of an IMF loan to Pakistan, which has specified that Islamabad should increase government revenue through reducing subsidies and enlarging the tax base.

According to the Pakistani press, the IMF has agreed to postpone the privatisation of PIA by six months as part of its decision to grant Pakistan the latest tranche of a loan that totals $6.7 billion. The terms of the loan initially agreed in 2013 required that the Pakistani government sell-off PIA by this June. However, following talks with IMF representatives in Dubai on 4 February, it seems that the government now has a more flexible deadline. This will probably give the PML-N administration more time to negotiate with the PIA, although it will still have to sell the company.

The IMF was reportedly critical at the meeting in Dubai of the PML-N’s failure to privatise several state-owned companies quickly. Pakistani officials quoted in the Express Tribune said that the government has until 15 May to find investors for PIA, Pakistan Steel Mills and Faisalabad Electricity Supply Company. However, amid the slow implementation of privatisation plans and opposition from unions, the government has struggled to find investors for up to 68 state-owned companies that it is supposed to sell.

Pakistan’s fiscal position remains reliant on the IMF loan, and although it agreed to a $46 billion deal with China in 2015 to build the China Pakistan Economic Corridor, this will be paid over the next 15 years. So in the coming year at least, it will have to continue to enact the economic and tax reforms required for the country to qualify for the rest of the IMF loan. This means that it will probably continue to push ahead with privatisation plans. In the case of PIA, the government still appears intent on its plan to split the carrier into two and sell off most of the business to an international airline.

There have been protests in other sectors against plans to sell off state-owned companies. In November, workers from the Peshawar Electric Supply Company and Water and Power Development Authority in Khyber Pakhtunkhwa went on strike for several days. Opposition political parties have already criticised these plans and accused the PML-N government of trying to benefit personally from such sales. With opposition from political parties and unions, as well as poor implementation of these plans, privatisation of state-owned companies will probably remain a cause of hardship and political unrest.

Image: Stephan Röhl for Heinrich Böll Stiftung - originally posted to Flickr as Konferenz: Pakistan und der Westen - Imran Khan, CC BY-SA 2.0, 

Author: Risk Advisory's Security Intelligence & Analysis Service
Published: 12th February 2016
Categories: Company News