Mission Statement
Privatisation in an Open,
Fair and Transparent Manner,
for the Benefit of the People of Pakistan,
in the Right Way,
to the Right People,
at the Right Price
Glossary
ABL
Allied Bank Limited
APSEWAC
All Pakistan Sate Enterprises Workers Action Committee
BOI
Board of Investment
CCI
Council of Common Interests
CCOP
Cabinet Committee on Privatisation
CDC
Central Depository Company
DCF
Discounted Cash Flow
DFIs
Development Finance Institutions
DR
Depository Receipt
ECO
Economic Cooperation Organisation
EMG
Employees Management Group
EOI
Expression of Interest
FA
Financial Advisor
FDI
Foreign Direct Investment
FESCO
Faisalabad Electricity Supply Company
GDR
Global Depository Receipt
GHS
Golden Hand Shake Scheme
GOP
Government of Pakistan
HBL
Habib Bank Limited
HEC
Heavy Electrical Complex
HLEG
High Level Experts Group
IPO
Initial Public Offering
ICP
Investment Corporation of Pakistan
KAPCO
Kot Addu Power Company
KASB
Khadim Ali Shah Bokhari
KESC
Karachi Electric Supply Corporation
LOA
Letter of Acceptance
LPG
Liquefied Petroleum Gas
MCB
Muslim Commercial Bank
MRTA
Management Right Transfer Agreement
NBP
National Bank of Pakistan
NEPRA
National Electric Power Regulatory Authority
NGO
Non-Governmental Organisation
NITL
National Investment Trust Limited
NIRC
National Industrial Relations Commission
NPCC
National Power Construction Company
NPT
National Press Trust
NRL
National Refinery Limited
NWFP
North Western Frontier Province
OGDCL
Oil and Gas Development Corporation Limited
OGRA
Oil and Gas Regulatory Authority
OIC
Organisation of Islamic Conference
PARC
Pakistan Agricultural Research Council
PC
Privatisation Commission
PEs
Public Enterprises
PICIC
Pakistan Industrial Credit and Investment Company
PIA
Pakistan International Airlines
PKR
Pakistani Rupee
PMDC
Pakistan Mineral Development Corporation
PMTF
Pakistan Machine Tool Factory
PO
Public Offering
PPL
Pakistan Petroleum Limited
PPP
Public Private Partnership
PSMC
Pakistan Steel Mills Corporation
PSO
Pakistan State Oil
PTCL
Pakistan Telecommunications Company Limited
PTDC
Pakistan Tourism Development Corporation
Pvt.
Private
RFP
Request for Proposals
RSOQ
Request for Statement of Qualifications
SBP
State Bank of Pakistan
SITE
Sindh Industrial Trading Estate
SME
Small and Medium Enterprises
SNGPL
Sui Northern Gas Pipelines Limited
SOEs
State Owned Enterprises
SOQ
Statement of Qualifications
SPA
Share Purchase Agreement
SPO
Secondary Public Offering
SSGC
Sui Southern Gas Company
SPV
Special Purpose Vehicle
UAE
United Arab Emirates
USA
United States of America
US$
US Dollar
UBL
United Bank Limited
VSS
Voluntary Separation Scheme
WAPDA
Water and Power Development Authority
Contents
Privatisation Commission Board Members
Management Information
Chairman’s Review
Gallery
Institutional Setup
Privatisation Commission
History
Institutional Arrangements
The Board of the Privatisation Commission
Privatisation Commission Secretariat
Consultants/ Transaction Mangers
Organization Chart
Cabinet Committee on Privatisation
Role of Council of Common Interests
Our Finances and Accounts
Privatisation – A Rationale
Legal Framework
Privatisation Process
Identification
Hiring of Financial Advisor
Hiring of Valuers
Due Diligence
Enacting Needed Regulatory and Sectoral Reforms
Valuation of Property
Pre-bid and Bid Process
Post bid Matters
General
Modes of Privatisation
Sale of Assets and Business
Sale of Shares through Public Auction or Tender
Public Offering of Shares through a Stock Exchange
Management or Employee Buyouts
Lease, Management or Concession Contracts
Any other Method As May Be Prescribed
Historical Milestones of Privatisation
Highlights for the Period (1st July 2007 – 31st December 2008)
Workers’ Welfare
Privatisation Policy Revamped
Upcoming Transactions
Frequently Asked Questions
Privatisation Transactions from 1991 to June 2008
Financial Statements and Auditor’s Report
Auditor’s Report
Balance Sheet
Income and Expenditure Account
Cash Flow Statement
Notes to the Accounts
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Privatisation Commission Board Members
Syed Naveed Qamar
Chairman
Ahmed Jawad
Secretary
Mr. Iftikhar-ul-Haq
Member
Mr. Mahmood Nawaz Shah
Member
Mr. Laeeq Ahmed
Member
Mr. Abdul Latif Yousafzai
Member
Mr. Farid Malik
Member
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Mr. Pervaiz A. Khan
Member
Mr. Hameedullah Khan
Paracha
Member
Mr. Tanvir Ahmad Sheikh
Member
Management Information
Management
Syed Naveed Qamar
Mr. Ahmed Jawad
Mr. Inamullah Khan Toru
Mr. Akhlaq Ahmad Malik
Mr. Shahzad Iqbal
Mr. Ashiq Hussain
Mr. Muhammad Ameen
Dr. Asmat Nawaz
Mr. Zahoor Ahmed
Mr. Arshad Ali Chaudhary
Mr. Muhammad Younas Khan
Mr. Khalil Ahmed Chaudhary
Minister & Chairman
Secretary
Director General (Industries &Transport)
Director General (Minerals & Natural Resources)
Director General (Administration & Accounts)
Director General (Finance & Utility)
Director (Industries & Transport)
Director (Policy & Coordination)
Director (Administration)
Director (Legal)
Deputy Director
Deputy Director
Accounts
Mr. Muhammad Asghar
Senior Financial Consultant
Mr. Manzoor Malik
Financial Consultant
Mr. Ghulam Asghar Jafferi
Senior Accounts Officer
Mr. Muhammad Sarwar Zahid
Accounts Officer/Drawing & Disbursement Officer
Transaction Managers
Mr. Malik Muhammad Afzal
Mr. Javaid Ali Khan
Mr. Shahid Raza
Syed Sikander Zulkarnain
Syed Saqib Mohyuddin
Agha Waqar Javed
Abdul Karim Nayani
Mir Zeeshan Riaz
Auditors
M. Yousaf Adil Saleem & Company
Chartered Accountants
Legal Advisors
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Barrister Assad Sikanderkhel
Consultant (Legal Corporate)
Barrister Abdul Haseeb Khan
Consultant (Legal)
Chairman’s Review
As Chairman, Privatisation Commission, it is great honour for me to present the Annual
Report of the Privatisation Commission as required under Section 37 of PC Ordinance
2000.
Privatisation Commission has been quite successful in taking forward the Government’s
economic reform agenda whereof privatisation, along with deregulation and
liberalization, forms an important pillar. Despite many bottlenecks and resistance
offered by vested interests, Pakistan’s privatisation programme has been one of the
most successful in the region.
The Privatisation Policy is currently being shaped on the directions of the President of
Pakistan who, during a presentation on 31st December, 2008, had been pleased to ask
to remodel the existing Privatisation Policy on the concept of Public Private Partnership
(PPP) through divestment of 26% shares along with management transfer to the private
sector. This was subsequently approved by CCOP on 17th February, 2009.
The basic purpose of such a policy is to gradually withdraw the Government from
commercial venture on the premise that it is not Government’s business to do business.
The general public’s perception that privatisation is meant for meeting the fiscal deficit is
not based on facts.
The new policy will be implemented ensuring complete transparency and
comprehensive documentation to safeguard public interest. The shift from strategic
sales to Public Private Partnership (PPP) Mode, will not affect the basis of overarching
Privatisation Policy as has traditionally been executed by PC during the last two
decades.
The main objective of Privatisation of 26 % equity stake with management rights
through a PPP mode will put the national resources and assets to optimal use and
would unleash the productive potential inherent in Pakistan’s SOEs. Government would
continue to ensure that divestment does not result in alienation of national assets and
reduction in quality of production and service to the detriment of people. It would also
ensure that divestment does not result in private monopolies and cartels.
To ensure that the policy is implemented and operated in accordance with the agreed
conditions, representation of Government by nominated Directors on the Boards of the
entities will be ensured along with capacity enhancement of the Privatisation
Commission to provide the Directors with compliance reports vis-à-vis the agreed
benchmarks.
The Privatisation Commission will divest residual shareholding of the GoP in the
privatised entity at an appropriate time ensuring that such divestment will not
unreasonably affect the strategic partner. The timing of such future divestments will vary
depending on the post privatisation performance of the entity, agreements with the
private partners, the market appetite reflected by the capital market conditions and
approval of the relevant regulating agencies.
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Privatisation cannot be accomplished in a vacuum without the support of all the
stakeholders including various Government agencies, departments and organisations
and most importantly the people of Pakistan without whose continued support and
understanding, this process cannot be undertaken successfully.
I would like to acknowledge the cooperation extended by all arms of the Government
and its various agencies and departments and the efforts of the team in the PC in
making the privatisation process a success and call upon them to continue in this
national endeavour.
Syed Naveed Qamar
Chairman
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Gallery
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PC BOARD MEETINGS
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8
OTHER MEETINGS
Hazara Phosphate Fertilizers Limited SPA Signing Ceremony on November 28, 2008
Delegation from ABN Amro Bank meeting Mr. Ahmed Jawad, Secretary, PC on April 28, 2008
Mr. Naveed Zaidi, Chief Executive, Investment Capital Bank, Islamabad meets with Mr. Ahmed Jawad,
Secretary Privatisation Commission on April 28, 2008
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Mr. Ahmed Jawad Secretary, PC chairing a meeting regarding FESCO on 20th March, 2008
Delegation from China meeting the Minister, Syed Naveed Qamar on 5th May, 2008
Syed Naveed Qamar, Minister for Privatisation during a meeting on 23rd July 2008
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Institutional Setup
Privatisation Commission
The Privatisation Commission (PC), the main executing arm for implementing the
Government’s privatisation policy, is entrusted with privatising federal government
assets including its shares in banks, industrial units, public utilities, oil, gas and
transport companies, and infrastructure service providers. In addition to the sale of
shares or assets, it may offer concessions or the right to operate publicly owned assets.
While carrying out these tasks, the PC has to ensure openness and transparency in the
process.
Privatisation Defined
Privatisation is transfer of a property or control of assets used to
deliver goods or services from the public to the private sector.
Privatisation as defined in PC Ordinance 2000 is a transaction
by virtue of which any property, right, interest, concession or
management thereof is transferred to any person (entity) from
the Federal Government or any enterprise owned or controlled,
wholly or partially, directly or indirectly, by the Federal
Government.
History
Although, the process of privatisation had started as early as 1988 (when minority
shares of PIA were floated), the process took a pace when it was institutionalized in
1991 through establishment of Privatisation Commission. It was further strengthened
when it was corporatized through promulgation of the Privatisation Commission
Ordinance 2000. This strengthened the PC’s legal authority and increased PC’s
independence and accountability. It also provided greater comfort to investors. Prior to
that PC had been working as a part of Ministry of Finance.
In November 2000, the Ministry of Privatisation was created, to enhance the stature of
privatisation and facilitating transactions. The Chairman of the PC was designated as
Minister for Privatisation, while the Secretary of the PC became the Secretary of the
Ministry of Privatisation.
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Institutional Arrangements
Macro Privatisation
policy decisions
Council of Common
Interests (CCI)
Key transaction related
Decision Making
Cabinet / Cabinet Committee on
Privatisation (CCOP)
PC Board
Chairman / Minister
PC Secretariat
Civil Servants
Consultants /
Transaction Managers
The Board of Privatisation Commission
Section 6 & 7 of PC Ordinance 2000 provides for Constitution of PC Board. The Board
of the PC is headed by the Chairman and comprises of six (6) or higher regular
members. Secretary of the Privatisation Division is ex-officio Secretary of the Board.
Members from the private sector represent all the provinces and different sectors of
economy. In addition, the Secretaries of the Divisions whose matters come under
discussion are also invited to attend the Board Meetings. The PC Board held 15
meetings during July 2007 to December 2008. The current composition of PC Board is
as under:
i.
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
Syed Naveed Qamar
Mr. Ahmed Jawad
Mr. Iftikhar-ul-Haq
Mr. Laeeq Ahmed
Mr. Mahmood Nawaz Shah
Mr. Abdul Latif Yousafzai
Mr. Pervaiz A. Khan
Mr. Hameedullah Khan Paracha
Mr. Farid Malik – CFA
Mr. Tanvir Ahmed Sheikh
Chairman
Member / Secretary
Member
Member
Member
Member
Member
Member
Member
Member
Privatisation Commission Secretariat
PC is headed by the Chairman who is also the Chairman of the Board of the
Privatisation Commission. Currently this post is held by Minister for Privatisation. The
remaining staff consists of regular civil servants, consultants/ transaction managers and
support staff. Currently 53 Government officers/staff, 11 Consultants and 15 Technical
Assistants are in place. Government officers and Consultants make recommendations
for decisions through collective wisdom and submit cases for approval of the Secretary
and the Chairman. Policy and important decisions related to privatisation transactions
require approval of the Board of the PC while final policy decisions are made by the
Cabinet Committee on Privatisation (CCOP).
Consultants / Transaction Mangers
Privatisation, especially of major entities, is a technical and complex activity requiring
inputs from highly qualified and experienced professionals. PC has, therefore, hired
professionals from the private sector designated as Consultants who are responsible for
processing of the privatisaton transactions. The basic criteria for appointment of
Consultants is strong academic background, specialised skills and experience in the
relevant field like business administration, economics, commerce, finance, accounting
and law etc. depending upon the nature of the transactions. Consultants engaged have
quality experience in the private sector institutions. The privatisation transactions are
being processed by the Transaction Managers whereas technical and legal support is
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provided by other external Consultants. These Consultants have further improved their
knowledge and experience by working in the Privatisation Commission. Their services
are being utilized efficiently and effectively by the Commission.
Typical tasks for in house consultants / transactions managers include preparing the
terms of reference and hiring external consultants/advisors, overseeing and assisting
the external consultants to ensure timely submission of deliverables, liaising with the
relevant ministry staff, regulators, and management of the entity being privatized, and
advising on sectoral policies and regulatory frameworks related to privatisation. Inhouse consultants/transaction managers are also involved in providing legal, financial
and technical support.
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Annual Report 2008
Privatisation Commission
Organisation Chart
Board of Privatisation
Commission
Chairman
Secretary
Director General
Director General
Director General
Director General
Financial Sector & Utilities
Administration & Finance
Mineral & Natural Resources
Industries & Transport
Legal Consultant
Corporate
Consultants /
Transaction Mangers
Consultants
Legal & Finance
Consultants /
Transaction Mangers
Consultants /
Transaction Mangers
Director
Director
Director
Director
Policy & Coordination
Administration
Legal
Industries & Transport
Deputy Director
Policy & Coordination
Deputy Director
Administration
Drawing & Disbursing
Officer
Senior Accounts
Officer
Cabinet Committee on Privatisation (CCOP)
The CCOP is normally headed by the Prime Minister and Ministers of various economic
ministries are its members. It is a forum for taking macro level decisions on privatization
either on its own or on recommendations of PC Board. Since 15th November, 2008, it is
headed by Advisor to PM on Finance, Revenue, Economic Affairs and Statistics. The
current composition of CCOP is as under:
Chairman
Advisor to PM on Finance, Revenue, Economic Affairs and
Statistics
Members
1.
Minister for Commerce
2.
Minister for Industries and Production
3.
Minister for Information Technology and
Telecommunications
4.
Minister for Investment
5.
Minister for Labour & Manpower
6.
Minister for Law & Justice
7.
Minister for Petroleum and Natural Resources
8.
Minister for Ports & Shipping
9.
Minister for Privatisation
10.
Minister for Textile Industry
11.
Minister for Water & Power
By Special Invitation
1.
Deputy Chairman, Planning Commission
2.
Chairman, Board of Investment
3.
Governor State Bank of Pakistan
4.
Chairman, Securities and Exchange Commission of
Pakistan
5.
Secretary, Communication Division
6.
Secretary, Finance Division
7.
Secretary, Industries and Production Division
8.
Secretary, Information Technology & Telecom Division
9.
Secretary, Investment Division
10.
Secretary, Labour and Manpower Division
11.
Secretary, Law and Justice Division
12.
Secretary, Petroleum & Natural Resources Division
13.
Secretary, Planning & Development Division
14.
Secretary, Ports and Shipping Division
15.
Secretary, Privatisation Division
16.
Secretary, Textile Industry Division
17.
Secretary, Water and Power Division
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Terms of Reference of CCOP are:
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To formulate the Privatisation Policy for approval of the Government/Cabinet
To approve the State Owned Enterprises to be privatised on the recommendation
of the PC or otherwise
To take policy decisions on inter-ministerial issues relating to the privatisation
process
To review and monitor the progress of privatisation
To instruct the PC to submit reports/information/data relating to the privatisation
process or any matter relating thereto
To take policy decisions on matters pertaining to privatisation, restructuring,
deregulation, regulatory bodies and Privatisation Fund Account
To approve the Reference Price in respect of the State Owned Enterprises being
privatised
To approve the successful bidders
To consider and approve the recommendations of the PC on any matter
To assign any other task relating to privatisation to the PC.
Role of Council of Common Interests (CCI)
Council of Common Interests (CCI) is a constitutional body headed by the Prime
Minister and comprising of the Chief Ministers of the provinces as well as an equal
number of members from the Federal Government. It formulates and regulates policies
in relation to matters in Part-II of the Federal Legislative List as well as the subject of
electricity in the Concurrent Legislative List, in so far as it is in relation to the affairs of
the Federation as provided in Article 154 of the Constitution of Pakistan. Decisions of
the Council are expressed in terms of opinion of the majority.
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Finances and Accounts
The Privatisation Commission Finances and Accounts are managed in accordance with
the provisions of the Privatisation Commission Ordinance 2000. All privatisation
proceeds are deposited in a distinct and separate account called Privatisation Fund
Account. The privatisation transaction related expenditure is drawn from this account as
supplementary contribution and expensed through Commission Account. The
Commission Account has been established to receive supplementary contribution from
Privatisation Fund for payment of transaction related expenditure and to receive
budgetary grant for payment of office running expenses of the Commission. Net sale
proceeds after meeting privatisation transaction related expenditure are transferred to
Federal Government and the legal entities entitled to such proceeds. According to the
Privatisation Commission Ordinance the net privatisation proceeds received by the
Federal Government are utilized in the following manner:a)
b)
90% for retirement of Federal Government Debt.
10% for poverty alleviation program
The disbursements/payments are made in accordance with the provisions of the
Ordinance and Privtisation Commission (Delegation of Powers) Regulation 2002 which
delegates administrative and financial powers, within the ambit of the Ordinance, to the
Chairman and the Secretary PC for running the day to day business of the Commission.
The accounts of the Commission are audited annually by the Auditor General of
Pakistan and as required by the Privatisation Commission Ordinance, the financial
statements prepared in accordance with the provisions of the Ordinance and approved
accounting standards as applicable in Pakistan are also audited by the firm of Chartered
Accountants for each financial year. The audited financial statements, including the
balance sheet, income and expenditure statement and cash flow for the financial year
ending June 30, 2008 and the auditors’ report thereon follow the main body of the
annual report.
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Privatisation – A Rationale
The Government envisages the private sector as the engine for economic growth and
employment. Privatisation, deregulation, and liberalization are all aimed at promoting
market-based growth that leads to sustainable employment and to benefit both
consumers and taxpayers. Long-term economic growth and improved services are at
the heart of poverty reduction. Distorted prices, lack of competition, and poor public
sector management of business have hindered economic development, introduced
inefficiencies, generated unproductive and unsustainable employment, slowed down
investment, reduced access to services by the poor, resulted in sub-standard goods
and services, and contributed to fiscal bleeding. Privatisation is aimed at strengthening
public finance and attracting investment while simultaneously enhancing the quantity
and quality of goods and services.
Privatisation would send a strong signal to investor that the Government has faith in the
private sector to generate economic growth and productive employment. International
investors, in particular view privatisation as a principal proxy to measure the
seriousness of a government’s reforms programme. Privatisation also provides an
impetus for needed liberalization and taxation reforms, which are important in improving
the business environment. An improved business climate would bring in new
investment, including foreign direct investment, reversing the capital flight that has
occurred in recent years. Privatisation would also bring in better management with the
right incentives to cut down waste, reduce corruption, and improve the coverage and
households. At the same time, the Government would be free from micro-managing
business. Senior policy makers presently spend much time and effort in making
business decisions to attempt to stop fiscal haemorrhaging from state-owned
enterprises and improve their efficiency.
The Government is firmly committed to carrying out privatisation in a fair and
transparent manner. This includes ensuring a level playing field for existing and future
entrants, protecting consumer and taxpayer interests, and dealing with public
employees in a fair manner. The PC Ordinance 2000 strives, among other things, to
ensure that such policy objectives are met. In addition to specifying advertising
requirements to ensure the widest possible participation in privatisation, the Ordinance
also directs the Privatisation Commission to ensure that monopolies are not created in
the privatisation process, to propose or strengthen a regulatory framework for
independent and fair regulation, and to deregulate the economy to the maximum extent
possible.
Another policy decision of the Government that has also been enshrined in the
Ordinance relates to utilizing the proceeds of privatisation primarily to reduce debt.
Fiscal finances would improve in three additional ways. First, many public companies
are making losses. They obtain fiscal support via such means as equity injections,
loans, bonds, and guarantees or direct budgetary support. If the Government were to
divest all its holdings in the company, it would no longer be responsible for financing
any losses. Second, privatisation is likely to enhance profits, which would generate
higher income tax revenues as well as increased profits per share on any remaining
Government shareholdings. Finally, as the number of public companies falls, the
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number of employees in their respective ministries can also be reduced. Not only would
this result in fiscal savings, it would also spare human capital that could be more
productively employed in the private sector, which would become more vibrant after
receiving improved infrastructure services.
In addition to privatizing companies by handing over management control to new
investors, the Government would like to use privatisation as a means of broadening the
ownership of assets, mobilizing savings, and help strengthening capital markets. For
this reason, the Government is selling minority shares via the stock market in selected
companies either before or after the transfer of management control. Listing and selling
companies in the local stock exchanges is likely to give a much needed boost to the
stock markets and help tap into savings. Simply listing a company in the stock
exchange may also improve corporate governance as companies will be forced to
comply with the stringent reporting requirements of the stock exchange and Securities
and Exchange Commission.
Last, but not least, privatisation is seen as a way to reduce corruption. The experience
in many countries, including Pakistan, is that public ownership of business provides
many opportunities for corruption. Kickbacks on the purchase of goods and services
are one form of corruption. Theft and abuse of public property are others. Some
employees of public companies providing services such as electricity, telephony, or
banking may collude with certain consumers to provide free or cheap services in
exchange for side payments. Decision makers, senior ministry officials, and other
influential people may exacerbate the situation by staffing state-owned enterprises with
their cronies and supporters and by pressuring state-owned banks to lend funds to
bankrupt state-owned companies or to influential businessmen for risky or dubious
projects. Honest consumers and taxpayers become the big losers. Privatisation will
quickly curtail such forms of corruption.
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Legal Framework
The Privatisation Commission Ordinance enshrines many of the processes that were
already being followed such as valuating the property being privatized and advertising
widely before all privatizations. To ensure that the management of the entity being
privatized does not jeopardize the privatisation, the law requires the entity being
privatized not to perform any action that would result in assets being lost or wasted and
not to incur any liability other than in the normal course of business without the written
approval of the PC. Not only does the law serve as a checklist, it clarifies the
Commission’s mandate and ensures adherence to the process. Rules and Regulations
framed pursuant to Privatisation Commission Ordinance 2000 are given below.
Rules and Regulations
1.
The Privatisation (Modes and Procedure) Rules, 2001 as well as
addition of Rule 7 regarding Special Purpose Vehicle (SPV).
2.
The Privatisation Commission (Valuation of Property) Rules, 2007.
3.
Privatisation Commission (Hiring of Valuers) Regulations, 2001.
4.
The Privatisation Commission (Hiring of Financial Advisors)
Regulations, 2007.
5.
Privatisation Commission (Authentication of Documents under
Common Seal) Regulations, 2001.
6.
Privatisation Commission
Procedure, 2001.
7.
Privatisation Commission (Delegation of Power) Regulations,
2002.
8.
Privatisation Commission (Members Travelling Allowance/Daily
Allowance) Regulations, 2001.
9.
Privatisation Commission Employees (Appointment and Terms
and Conditions of Service) Regulations, 2002.
10.
Privatisation
Commission
Advisors/Senior
Consultants,
Consultants/ Transaction Managers and Technical Assistants
(Terms and Conditions of Appointment) Regulations, 2002.
11.
The Privatisation Commission (Confidentially and Secrecy of
Documents) Regulations, 2003.
12.
The Privatisation Commission (Declaration of Fidelity and
Secrecy) Rules, 2003.
(Conduct
of
Board’s)
Meetings
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Privatisation Process
The privatisation process varies depending on the nature of the asset being privatized,
or the proportion of shares being offered for privatisation, and on whether a transfer of
management is involved. The Board of the PC decides what kind of process will be
followed. Approval of Council of Common Interests is also obtained. Following are
typical steps in the privatisation process of a major unit:
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Identification of an entity for privatisation
CCOP / Cabinet approval
Approval of CCI
Appointment of Financial Advisor (FA) for major transaction(s) with approval of
PC Board
Appointment of Valuator where FA is not hired
Due diligence by FA / Valuator
Privatisation strategy
Restructuring, sectoral / regulatory reforms if required
Expressions of Interest (EOI)
Screening - Statement of Qualification (SOQ)
Pre-qualification
Due diligence by potential bidder(s)
Valuation approved by PC Board and CCOP
Pre-bid conference(s)
Bidding process approval by Board and CCOP
Open bidding: media invited to observe
Board and CCOP approve price and bidder
Letter of Acceptance to successful bidder
Management transfer (through execution of Share Purchase Agreement / Asset
Sale Agreement) after 100% receipt of payment
A brief description of some of the steps common to major transactions is given below:
Identification
The first step is the identification of the entity or list of entities to be privatized. In a
typical transaction the PC, in consultation with the relevant ministry, submits a Summary
of the proposed transaction to its Board. The Summary justifies the need for privatizing
the property, outlines the likely mode of privatisation, and sometimes seeks guidance on
issues relating to such matters as pricing, restructuring, legal considerations, and the
regulatory framework. Once endorsed by the Board, it is submitted to the Council of
Common Interests (CCI) and/or Cabinet Committee on Privatisation or Cabinet for
approval, if necessary.
Hiring of a Financial Advisor
In major transactions, the process to hire a financial advisor is carried out by the
transaction manager with the approval of the Board. Terms of reference for the FA are
finalized, expressions of interest from prospective FAs are solicited and short listed
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firms are invited to submit technical and financial proposals in a common format. A
Transaction Committee, generally headed by a member of the PC Board is constituted
which scores the technical proposals and the highest ranked firm, based on both
technical and financial scores, is invited for contract negotiations and signing. In
November 2001, the Board approved regulations for hiring a financial advisor in order to
make the procedures more transparent. An amendment was made in the PC
regulations for hiring FAs in 2007.
Hiring of Valuers
In other transactions a Valuator is hired according to the Hiring of Valuers, Regulations,
2001. This regulation was amended by PC in 2007.
Due Diligence
This is aimed at identifying any legal encumbrances, evaluating the condition of the
assets, and examining the accounts of the company in order to place a value on the
company. For most industrial units and some small transactions, this is done using inhouse transaction managers and staff, or by sub-contracting some part of the work to a
domestic legal, technical, or chartered accounting firm.
However, for major
privatizations in banking, infrastructure, or utilities, the FA carries out this function.
Following due diligence, the FA finalizes the privatisation plan which include
recommendations on any needed restructuring, in addition to specifying the amount of
shares or assets to be privatized.
Enacting Needed Regulatory and Sectoral Reforms
For major transactions, the ability to privatise and realize the amount of proceeds
depend on the level of regulated prices of inputs, outputs and sectoral/ regulatory
policies. For many monopolies or quasi-monopolies, the “rules of the game” specifying
the competition framework post-privatisation, the manner and type of regulation, and the
institutions regulating them are key to investor interest. In addition to rules determining
prices or tariffs, there may be rules determining standards, penalties for noncompliance, the extent, form and timing of any proposed deregulation, and the evolving
structure of the market following liberalization. Clarification of these rules and passage
of required legislation and regulations will often be necessary before taking the
transaction to market.
Valuation of Property
Despite using scientific methods, valuation remains more an art than a science. The
true value is dependent on many difficult variables such as country risk, corporate
psychology and strategy, investor specific synergies and perceptions of future
macroeconomic performance. The Financial Advisor, where engaged, carries out the
valuation to obtain a “reference price” for the property. In other cases, the Commission
contracts with an external valuation firm or accounting firm as specified in the rules on
the valuation of property, which can be obtained from the PC website. The methods
used for the valuation vary with the type of business and often more than one method is
23
used in determining the value. These include the Discounted Cash Flow method,
Transaction Multiple Method, Asset Valuation at Book or Market value, and Stock
Market Valuation. Therefore, it is important to focus on designing appropriate
transaction structures, on advertising in relevant media, in choosing and implementing
appropriate pre-qualification criteria for bidders, and in following an appropriate bidding
process to obtain a fair price for privatisation.
Pre-bid and Bid Process
Expressions of Interest (EOI) are invited by advertising in the relevant media. The PC
Ordinance 2000 spells out some of the advertising procedures. Depending on the kind
of transaction, the EOI describes the broad qualifications that potential bidders must
possess. Those submitting an EOI are provided with Request for Statement of
Qualification (RSOQ) document. Statement of Qualification (SOQ) submitted by
interested parties is then evaluated to determine whether the party meets the requisite
qualifications; pre-qualified parties are then provided with the Instructions to Bidders,
Draft Sale Agreement and other relevant documents.
Pre-qualified bidders are given a specified period to conduct their own due diligence,
following which they are invited to pre-bid meeting(s) where their questions and
concerns can be addressed. The meetings are useful in determining the bidding
procedure to be followed and could in some cases determine the proportion of shares
that the Government may want to offload. The bidding itself is done openly, with all
bidders and media invited.
Post-bid Matters
Following bidding and identification of the highest bidder, the Board of the PC makes a
recommendation to the CCOP as to whether or not to accept the bid. The reference
price is a major determinant in the recommendation, although the Board may
recommend the sale even if the offer price is below the reference price. However, bids
received, which are lower by more than 10% of reference price, are not accepted. Once
the bid price and bidder are approved, the PC issues a letter of acceptance (LOA) to the
successful bidder, indicating the terms and conditions of the payment. Once sale
proceeds have been collected, on the same day or immediately thereafter PC executes
the share purchase agreement (SPA) or asset sale agreement (ASA) which results in
transfer of the property to the successful bidder. Under PC’s current policy, privatisation
proceeds are generally required to be paid upfront rather than over time. However,
transaction specific exceptions are possible as had been the case for many earlier
transactions. Within 30 days of the sale, the PC is required to publish the summary
details of the transaction in the official gazette.
General
In summary, the privatisation process is lengthy for major transactions, mainly to ensure
transparency in the process. After receiving CCOP approval for the privatisation, it
typically takes about 12 months to close a major transaction, even when no major
restructuring of the company is required. This includes about three to four months to
24
appoint a Financial Advisor and another five to six months for the FA to complete its
legal, technical, financial and human resource due diligence and to propose a
privatisation strategy. Following approval of the strategy, the marketing and bidding
process may take four to five months (valuation efforts proceed in parallel), while it may
take another two months after bidding to obtain approvals, finalize sale documents, and
close the transaction. Delays in privatisation are often caused due to non availability of
clear land titles, absence of necessary regulatory framework and sectoral policies and
any needed restructuring of the entity. In addition, resolution of transactional and interministerial issues often results in causing delays in the bidding process.
25
Modes of Privatisation
In legal terms, privatisation “includes a transaction by virtue of which any property, right,
interest, concession or management thereof is transferred to any person from the
Federal Government or any enterprise owned or controlled, wholly or partially, directly
or indirectly, by the Federal Government”. Person, in turn, is broadly defined to include
partnerships, companies and the like, other than those owned or controlled by the
Federal Government.
The Privatisation Ordinance 2000 specifies the following modes of privatisation: a).
b).
c).
d).
Sale of assets and business
Sale of shares through public auction or tender
Public offering of shares through a stock exchange
Management or employee buyouts by management or employees of a state
owned enterprise:
e). Lease, management or concession contracts; or
f). Any other method as may be prescribed
a) Sale of Assets & Business
The Government has been selling 100 % shares as a strategic sale for the
industrial plants like fertilizers and cement etc. However, in large companies
where investors may be unwilling to invest substantial amounts up front, the
Government transferred the management control to pre-qualified investors with
minority stake of 26%.
Privatisation Commission has successfully privatized assets like Faletti’s Hotel,
Dean’s Hotel, Cecil’s Hotel, Federal Lodges and Al-Haroon Building Karachi etc.
b) Sale of Shares through Public Auction or Tender
This methodology also known as listing/public offer is adopted for the fast track
process of issuance of shares as it does not require offering circular. This is
achieved through advertisement in the leading local and international press
where the investors including institutions and banks are invited to bid a price on
minimum lot size. A reserve price is determined internally as a benchmark. All
the terms and conditions are disclosed in the advertisement.
Privatisation Commission followed this mode for the sale of shares of National
Bank of Pakistan. This mode is not generally followed as it may not be possible
to sell shares at a premium to the market price.
c)
Public Offering of Shares through a Stock Exchange
Listing and selling shares in the local stock exchange gives a much needed
boost to the stock markets and help tap into savings. It may also improve
26
corporate governance as companies will be forced to comply with the stringent
reporting requirement of the stock exchange and Securities & Exchange
Commission. This includes initial public offering (IPO) or secondary offering
(SPO).
Generally the issue price is determined through the process of book building.
However, the lead managers also use the historical methods to determine the
offer price i.e. market comparables and dividend discount models etc.
Privatisation Commission has also sold the shares of state enterprises through
Global Depositary Receipts (GDR). GDR is a negotiable certificate held in the
bank of one country representing a specific number of shares of a stock quoted
on exchange of another country. GDR has been used to earn foreign exchange
and usually denominated in U.S. Dollars or at times in Euros.
When a Depositary Receipt (DR) of a locally listed concern is to be created in a
foreign stock exchange, it is listed on a particular foreign stock exchange after
meeting certain requirements. Usually the GDRs are listed on the London Stock
Exchange.
The price of GDRs issued in US Dollars/Euros is converted from the equivalent
domestic price. After the GDR issuance process is completed, the GDRs can be
traded freely among investors. The GDR investor holds privileges like those
granted to shareholders of ordinary shares, such as voting rights and cash
dividends. The Privatisation Commission issued the shares of OGDCL and UBL
through GDR after registering the share in the London Stock Exchange.
IPOs undertaken
Shares offered
Name of the Entity
National Bank of
Pakistan (NBP)
Oil & Gas Development
Company Limited
(OGDCL)
Number
Percentage
37,300,000
10%
215,046,420
2.5% with
green shoe
option of addl.
2.5%
10% with green
shoe option of
addl. 5%
10% with green
shoe of addl.
10%
4.2%
Pakistan Petroleum
Limited (PPL)
102,875,000
Kot Addu Power
Company Limited
(KAPCO)
United Bank Limited
(UBL)
(4,867,000 shares)
160,798,500
21,743,800
Proceeds
realized
Rs.
(million)
373.04
6,851.0
Offering
Date
February,
2002
November,
2003
5,632.6
July, 2004
4,814.8
April, 2005
1,087.19
June, 2005
27
Habib Bank Limited
(HBL)
51,750,000
7.5 %
12,161.00
July 2007
GDRs undertaken
Shares offered
Name of the Entity
Oil and Gas
Development Company
Limited (OGDCL)
United Bank Limited
Number
Percentage
408,588,000
9.5%
202,343,752
25%
Proceeds
realized
Rs.
(million)
46,963
39,450
Offering
Date
December
2006
June 2007
d) Management or Employee Buyouts
The Government encourages the management buyouts consisting of employees
and officers of the state entities. However, the employees have to participate in
the bidding process. The pre-qualification of employees management group
(EMG) is almost automatic unless the crucial staff abstains from participation in
the EMG. The group is provided the opportunity to match the highest bid offered
on the same terms and conditions.
There are many examples of employee management buyouts which include sale
of Allied Bank Ltd., Millat Tractors Ltd., Bolan Casting, Dandot Cement, Wah
Cement, Sindh Alkalis Ltd., Pakistan Switch Gear Ltd., Hydary Industries Ltd.,
Bengal Vegetables, International Advertising Pvt. Ltd. and Mashriq Quetta &
Karachi.
The above list does not include the 10% share holdings offered to the employees
of all state enterprises in accordance with the agreement with “All Pakistan Sate
Enterprises Workers Action Committee” (APSEWAC).
e) Lease, Management or Concession Contracts
Privatisation Commission has not used this mode directly but other state entities
are using this mode. Concession contracts are commonly used by the Ministry of
Petroleum & Natural Resources for granting concession to the international
exploration companies for oil and gas exploration.
f) Any Other Method As May Be Prescribed
Such mode includes Public Private Partnerships. The Govt. of Pakistan has
already set up Infrastructure Project Development Facility (IPDF) through
Ministry of Finance Which is executing this mode in case of green field projects.
PC is now venturing into this mode in brown field areas.
28
Historical Milestones of Privatisation
When Privatisation Commission was established on January 22, 1991 its mandate was
restricted to industrial transactions. In 1993 it was expanded to also include Power, Oil
& Gas, Transport (aviation, railways, ports and shipping), Telecommunications,
Banking and Insurance. From January 1991 to June 2007 the Commission completed
165 transactions for Rs 457.761 billion.
To date, Government of Pakistan has
completed 167 transactions at gross sale price
of Rs 476.421 billion and has realized proceeds
amounting to Rs. 427.753 billion. The balance
proceeds on account of privatisation of 26%
PTCL shares is receivable in terms of the SPA.
Figure 1: Sources of Proceeds
Industrial &
Others
14%
Energy
11%
Telecom
39%
Of the total proceeds and interest on balance
sale price/bank deposits etc received, about
Banking & Capital Market
36%
67% were transferred to the Federal
Government, 26% was returned to legal entities
whose shares were sold, 5% was used for restructuring expenses associated largely
with golden handshakes and rehabilitation, and 2% was used for transaction’s
privatisation-related expenditures.
While almost all the transactions were settled in local currency, about 66.3% of the
proceeds have been received in foreign exchange from transactions pertaining to 2nd
tranche of PTCL vouchers, Kot Addu Power Plant (KAPCO), Six Oil & Gas
Concessions, Habib Credit & Exchange Bank, United Bank Limited, Habib Bank
Limited, KESC, 26% shares of PTCL, OGDCL GDR and UBL GDR. The table overleaf
provides the number of transactions privatised and the Annex provides detail of each
transaction.
29
Number of Privatized Transactions
Table-2
(Rs. in million)
SECTOR
Banking
From 1991 to Jun
07
No.
7
Amount
41,023
Capital Market Transaction
21
115,804
Energy
14
Telecom
From Jul 07 to
Jun 08
No.
No.
Amount
No.
7
Amount
41,023
133,124
51,756
14
51,756
4
187,360
4
187,360
Automobile
7
1,102
7
1,102
Cement
17
16,176
17
16,176
Chemical / Fertilizer
23
40,584
24
41,924
Engineering
7
183
7
183
Ghee Mills
23
842
23
842
Rice / Roti Plants
23
326
23
326
Textile
4
371
4
371
Newspapers
5
270
5
270
Tourism
4
1,805
4
1,805
Others
6
159
6
159
165
457,761
17,320
Total
22
Total
1
Amount
From Jul 08 to
Dec 08
1
1
17,320
1
1,340
1,340
167
476.421
Highlights for the Period (1st July, 2007 – 31st
December 2008)
During the financial year 2007-2008, the Commission has completed sale of 3.26%
Shares of UBL through GDR in July 2007 and 7.50% shares of HBL through IPO in
October 2007. PC also concluded the successful Privatisation of Hazara Phosphate
Fertilizers Limited in November 2008. A brief resume of these transactions is as under:-
United Bank Limited – Global Depository Receipts
(GDRs)
The Privatisation Commission has completed the divestment of 25% equity of the
United Bank Limited (UBL) through an international offering of Global Depository
Receipts (GDRs). The CCOP, in its meeting held on October 30, 2006, approved a
proposal for the divestment of 14 % to 20 % of UBL’s equity through GDR offering.
However, after reviewing the demand level and on the PC Board recommendations, the
CCOP on June 12, 2007 enhanced the size of the proposed divestment to the range of
20% to 30%.
Pursuant to the CCOP’s approval a financial advisor (FA) was appointed on April 26,
2007. The FA carried out due diligence of UBL and together with the bank management
held road shows in global financial centres including Hong Kong, Singapore, London,
Dubai and New York from June 15, 2007 to June 22, 2007. During this period
institutional offering was carried out through book building. The marketing effort
succeeded in generating a demand of US$ 2.5 billion (at PKR180 per shares) and US$
1.2 billion (at PKR195 per share).
Price sensitivity was witnessed in the demand book, as 72.6% of the demand was at or
below PKR 195 per share (5.3% discount to UBL’s June 22, 2007 closing price of PKR
206 per share on Karachi Stock Exchange). On the PC Board recommendation the
CCOP approved the final offering size of 202,343,752 shares (25% of the share capital
of UBL), which comprises 50,585,938 GDRs at four shares per GDR at Rs.195 i.e. US $
12.8543 per GDR. The GDR was attractively priced at approximately five times to book
value per share which was higher than the valuation of similar transactions elsewhere.
Conditional trading of the UBL GDR on the London Stock Exchange began on June 25,
2007 and full trading commenced on June 29, 2007. The GDRs were sold in two parts.
On June 29, 2007, 21.74% (175.95 million) shares of UBL were divested with total
proceeds of $565.43 million. On July 13, 2007, another 3.26% (26.39 million) shares
were divested pursuant to a stabilization agreement with the FA for total proceeds of
$84.81 million.
As the divested shares were owned by the State Bank of Pakistan (SBP), the net sales
were remitted to SBP.
31
Habib Bank Limited – Initial Public Offering (IPO)
HBL established operations in Pakistan in 1947 and moved its head office to Karachi.
With a domestic market share of over 40%, HBL was nationalized in 1974 and it
continued to dominate the commercial banking sector with a major market share in
inward foreign remittances (55%) and loans to small industries, traders and farmers.
On June 13, 2002 Pakistan's Privatization Commission granted the Aga Khan Fund for
Economic Development (AKFED) rights to 51% of the shareholding in HBL, against an
investment of PKR 22.409 billion (USD 389 million). The HBL-IPO consisted of a 5%
offer (34.5 m shares) with additional green shoe option of 2.5% (17.25 m shares). It was
the largest offering ever in Pakistan in terms of both value and number of successful
applicants. Total subscription of Rs. 18.94 billion has been received against the base
offer of Rs.8.11 billion (excluding Greenshoe Option) resulting in an oversubscription of
2.33 times.
In keeping with the objectives of the Government’s “Privatisation for the People”
programme, for the first time ever shares were offered in lots of 100 and multiples of
100 up to 500 shares and thereafter multiples of 500 shares, in order to make the
subscription affordable for the common man.
The subscription of HBL shares commenced on July 16, 2007 and closed on July 31,
2007. The provisional trading commenced on July 6, 2007 with stock opened at
Rs.375/- per shares. Balloting took place on August 11, 2007. The IPO has generated
gross proceeds of 12.161 billion against the divestment of 51.75 million.
Hazara Phosphate Fertilizers Limited
Hazara Phosphate Fertilizers (Pvt.) Ltd (HPFL) was incorporated as a private limited
company in 1985 under National Fertilizer Corporation of Pakistan (Private) Limited
(NFC). The authorized capital of the Company is 20 million shares. The issued,
subscribed & paid up capital is 19,143,207 shares of Rs. 10/- each. The plant is located
at Haripur (NWFP) – 75 KM from Islamabad. The company has 57 acres of developed
land and includes factory, housing and other amenities.
HPFL has installed capacity to produce 90,000 metric tons per annum of Granular
Single Super Phosphate (GSSP) and 30,000 metric tons per annum of Sulphuric Acid
required for the production of GSSP.
The latest Expression of Interest (EOI) of HPFL was issued on November 13, 2007.
Thirteen (13) parties submitted EOIs by the due date of December 08, 2007 namely (i)
Afzal Motors (Private) Limited, Rawalpindi; (ii) Akbar Brothers, Multan; (iii) Grain Tech
(Private) Limited, Lahore; (iv) ITHACA Capital (Private) Limited, Karachi; (v) Ittehad
Steel Group, Islamabad; (vi) Khawaja Bashir Ahmad Group, Multan; (vii) Kissan
Chemicals & Fertilizers (Private) Limited, Lahore; (viii) National Steel Re-rolling Mills
(Private) Limited, Islamabad; (ix) NH Pesticides Group International, Multan; (x) Niagara
Mills (Private) Limited, Faisalabad; (xi) Oil Industries Pakistan (Private) Limited, Karachi;
32
(xii) Pak American Fertilizer Limited, Lahore and (xiii) Warble (Private) Limited, Lahore /
Farm Fertilizers (Private) Limited, Lahore.
All the thirteen (13) parties were provided Request for Statement of Qualification
documents (RSOQs) dated November 13, 2007. In response to RSOQ, nine (9) parties
filed Statement of Qualification documents (SOQs) by the due date of January 15, 2008.
Seven (7) parties were pre-qualified namely (i) Afzal Motors (Private) Limited,
Rawalpindi; (ii) Consortium of Akbar Brothers, Multan & Green Force (Private) Limited;
(iii) Consortium of Khawaja Bashir Ahmad Group, Multan; (iv) Consortium of Kissan
Chemicals & Fertilizers (Private) Limited, Lahore & Chaudhry Steel Re-rolling Mills
(Private) Limited; (v) Niagara Mills (Private) Limited, Faisalabad; (vi) Pak American
Fertilizer Limited, Lahore and (vii) Warble (Private) Limited, Lahore / Farm Fertilizers
(Private) Limited, Lahore. Niagara Mill (Private) Limited, Faisalabad backed out from the
transaction later.
The Cabinet Committee on Privatisation (CCOP) approved the Reference Price as
recommended by the PC Board in its meeting of September 24, 2008. Four (4) parties
submitted the Earnest Money of Rs.40,000,000 by the due date of September 22, 2008
namely:
a. Consortium of Akbar Brothers, Multan & Green Force (Private) Limited;
b. Consortium of Kissan Chemicals & Fertilizers (Private) Limited, Lahore &
Chaudhry Steel Re-rolling Mills (Private) Limited;
c. Pak American Fertilizer Limited, Lahore;
d. Warble (Private) Limited, Lahore.
All parties who had submitted Earnest Money participated in the bidding held on
September 25, 2008. Pak American Fertilizers Limited exceeded the highest bid by
Re.1 per share by increasing their bid to Rs.70 per share and total price for 100%
shares came to Rs.1,340,024,490 (Rupees one billion three hundred forty million twenty
four thousand four hundred ninety only).
The Board of the Privatisation Commission in its meeting held on September 29, 2008
recommended for the approval of Cabinet Committee on Privatisation (CCOP) the
Highest Bid offered by Pak American Fertilizers Limited and to declare them as the
Successful Bidder for issuance of Letter of Acceptance (LoA). The Cabinet Committee
on Privatisation (CCoP) in its meeting held on September 29, 2008 approved highest
bid of Rs.70/- per share and Pak American Fertilizers Limited was declared as the
Successful Bidder for issuance of Letter of Acceptance. Letter of Acceptance was
issued to Pak American Fertilizers Limited on September 30, 2008.
Besides above, PC also received third installment amounting to US$ 133.218 million
from Etisalat against sale of PTCL shares. Therefore, total proceeds of Rs. 25.254
billion were realized. The third PTCL installment together with the second installment
received earlier was utilized to pay PTCL employees VSS amounting to Rs. 15.265
billion in accordance with the directions of the Finance Division. During the year, the
Commission has remitted an amount of Rs. 1.600 billion to GOP from profit earned from
its interest bearing deposits and has also paid an amount of Rs. 1.769 billion in
settlement of tax liabilities of Pak American Fertilizers Limited absorbed by the GOP.
33
Workers’ Welfare
In order to ensure smooth implementation of privatization program and to safeguard the
interests of the employees working in State Owned Enterprises, an agreement was
signed between Inter-Ministerial Committee appointed by the then Prime Minister and
All Pakistan State Enterprises Workers Action Committee (APSEWAC) in 1991 whereby
following benefits to the workers of the units to be privatized were recognized.
ƒ
ƒ
ƒ
ƒ
Protection of service for 12 months.
Sale of 10 % shares to the employees at mutually agreed rate.
Payment of Golden Hand Shake (GHS) to the employees who opt to retire.
Employee’s right of negotiation on the highest bid to buy a unit.
Subsequently in 1992, the Cabinet Committee on Privatisation (CCOP) also approved
Voluntary Separation Scheme (VSS) for the executives of the unit to be privatized.
Privatisation Commission has been strictly following the spirit of APSEWAC Agreement
in case of workers and CCOP approvals in case of executives.
In pursuance of above mentioned policies, Privatisation Commission has so far paid Rs.
22.725 billion as GHS/VSS to 59,646 employees of different units since 1991. This
includes dues of Rs. 15.2658 billion paid to 26,000 PTCL employees during the financial
year 2007-08.
According to APSEWAC Agreement, 10 % shares of privatized industrial units were
reserved for the employees who did not opt for GHS. As per CCOP decision the shares
retained for the employees can be given to them after allowing 10% discount on the
Successful Bidder’s offered price.
Antibiotics (Pvt.) Limited was privatized in October, 1992. 10% shares retained for
employees could not be handed over/sold to the concerned due to non-settlement of the
modalities. During the Year 2007-08 200,000 shares have been sold to 282 entitled
employees of this unit at the nominal rate of Rs. 1.20 per share.
34
Privatisation Policy Revamped
The Government of Pakistan has reviewed the existing privatisation policy of strategic
sale (51%-100% shares) in order to model it around the concept of Public Private
Partnership (PPP) wherein the management may be transferred to investors through
sale of 26% shares while ensuring transparency and all other aspects are safeguarded
through comprehensive documentation.
The main objective of Privatisation Policy through PPP model is to put national
resources and assets to optimal use and in particular to unleash the productive potential
inherent in Pakistan’s State Owned Enterprises (SoEs). The policy of Privatisation
specifically aims at enhancing value of GoP shareholding value, maximization of profits,
modernization and up-gradation of State Owned Enterprises; exploration and creation of
new assets; management and technological transfer benefit, increasing investments in
the SoEs by identifying business bench marks and outputs, remedial measures, and
generation of employment. Government would continue to ensure that divestment does
not result in alienation of national assets and reduction in quality of production and
service to the detriment of its people.
A sound contractual regime working under the enabling provisions of law would be put
in place to accomplish cutting-edge innovative PPP structures reflecting best
international industry practices in particular for utilities, tourism, retail, infrastructure, and
services sectors. In order to achieve the most optimal results, in-house capacity will be
made formidable through recruitment, capacity building and continued learning.
The Privatisation Commission intends to engage advisors to assist in designing
appropriate parameters, guidelines, procedures and mechanisms to implement and
accelerate the privatisation program under the PPP model. The Project will include
components that will identify the legislative, administrative and procedural measures
that need to be put in place relating to the PPPs including:
o
o
o
o
o
o
An appropriate legal framework
Sound financial infrastructure
Guidance from experienced advisors
Standardized contract documentation
Creating in-house expertise in government bodies undertaking projects
Identify and undertake pilot projects
35
Upcoming Transactions
A number of entities are on active privatization list and are likely to be taken for bidding
in near future. Some of these entities are listed below:
S. No.
Name of Transactions
1.
SME Bank Limited
2.
Peshawar Electric Supply Company (PESCO)
3.
Quetta Electric Supply Company (QESCO)
4.
6.
Hyderabad Electric Supply Company (HESCO)
National Power Construction Company (NPCC)
(51% divestment)
Faisalabad Electric Su. pply Company (FESCO)
7.
Jamshoro Power Company Limited (JPCL)
8.
Heavy Electrical Complex (HEC)
9.
Pakistan Machine Tool Factory
10.
Pakistan Mineral Development Corporation (PMDC)
11.
Morafco Industries (Machinery as is where is basis)
12.
Pakistan Railways
13.
PTDC Motels and Restaurants
14.
Utility Stores Corporation
15.
Pakistan Post
16.
19.
Kot Addu Power Company (KAPCO) - GDR
National Insurance Company (ex - National Insurance
Corporation)
Pakistan Reinsurance Company (ex - Pakistan Insurance
Corporation)
State Life Insurance Corporation
20.
Printing Corporation of Pakistan Limited
21.
Services International Hotel
22.
Sindh Engineering Limited
23.
Republic Motors Limited
5.
17.
18.
On Lease
36
Frequently Asked Questions
1.
Of late PC’S procedures htave been described as opaque.
What PC has to say on this?
Suspicions often arise from the price received for the sale. Before a company or
shares in a company are offered for sale, its value is estimated by independent
valuators using different methodologies. This value is known as the reference price.
Even when the valuators are competent, it is often difficult to arrive at an accurate
valuation. The true value is dependent on many difficult to quantify variables such as
country risk, corporate psychology and strategy, and perceptions of future
macroeconomic performance. Only by offering the entities in an open and
transparent manner to the public can the true market value of the company be
determined.
When companies were sold at prices that were substantially higher than the
reference price, federal investigative agencies questioned the valuators’ motives.
This, in turn, led to some valuators to overestimate the property value in subsequent
exercise. When the reference price was higher than the market price, the
investigative agencies have conducted investigations for alleged collaboration
between PC officials and investors to sell the property for a low price. Fuelling the
zeal for prosecution are political factors, inadequate public dissemination of the
objectives and process of privatisation, and a general distrust of public officials. This
zeal has delayed or stopped the sale of many companies, which has allowed for the
continuation of widespread corruption via contract kickbacks and pilferage
embezzlement, fraud, undue or misused perks for senior officials, coerced lending,
and appointment of staff and managers on political or nepotistic grounds. While
privatisation will not eliminate such corruption, the scale and opportunity for
corruption are likely to be much lower. In any case, company shareholders rather
than taxpayers will in general pick up the corruption costs.
In spite of allegations of corruption in a few transactions, which have emanated
largely from a lack of understanding of the process of privatisation, many units have
been sold successfully. By making the process transparent and enshrined in law,
and by having sufficient checks and balances, the ability of any individual or group to
manipulate the system has been greatly reduced.
2.
Why are we privatizing profitable companies such as
OGDC and PTCL, thereby foregoing a positive revenue
stream?
Although the companies are profitable now, there is no guarantee that they will
remain profitable after the telephone market opens up to competition, if oil prices
were to go into a slump, or if future governments interfere in the operations of the
companies. Many of today’s loss making public enterprises were once profitable.
However, even if one could be assured that the companies would continue making
profits, the Government is likely to receive more fiscal revenues if the companies
37
were privatized, mainly because the private company is likely to make higher profits.
Moreover, government policy makers would than be free to set policies and govern
rather than be involved in management decisions of the companies.
A simplistic, stylized example will explain how the fiscal flow would improve following
privatisation. Suppose that a 100% publicly owned company is making $ 300 million
in profits before taxes and that this company is valued at $ 3 billion. Revenues to the
Government would therefore total $ 300 million (the sum of $ 100 in tax revenues at
a 33% tax rate and after-tax profits of $ 200 million).
Now suppose the Government decides to sell a 25% share, thereby receiving $ 750
million, while retaining a 75% share for sale at a later date. According to law, it would
use 90% of the $ 750 million, or $ 675 million, to retire debt and $ 75 million for
poverty alleviation programmes. Assuming that the debt it retires has an interest rate
of 10% this would generate annual savings of $ 67.5 million.
Now suppose the new management of the privatized company can enhance profits
to say, $ 450 million before taxes, or $ 300 after taxes. The Government will gain in
two additional ways. First, it will obtain 75% of this after-tax profit, or $ 225 million.
Secondly it will collect taxes of 33% of $ 450 million, or $ 150 million. All in all, the
Government will receive $ 67.5 million in lower interest payments, $ 225 million in
after-tax profits, and $ 150 million in tax revenues, for a total of $ 442.5 million, as
opposed to $ 300 million earlier, for a net gain of $ 142.5 million. In addition, it
would have $ 75 million available for poverty reduction programmes.
3.
Haven’t PC taken cognizance of the possibility that the
sale of strategic assets such as oil and gas,
telecommunications, and PIA to foreign parties will
compromise our security and national interests?
Efficient enterprises providing enhanced quality and quantity of goods and services
safeguard the security and national interests of the country more effectively than
inefficient and loss-making public enterprises. The experience in many countries has
shown that foreign know-how and capital can contribute to economic growth, higher
tax revenues, and transfer of technology.
The countries that have followed the privatisation route have not bargained away
their national security. In fact, the countries that were more open to foreign
investment and gave economic development prime importance have flourished and
gained international influence. A nation that is made up of people who are
economically better off is a better guarantee of national security than an
impoverished nation that pays high taxes and receives poor services but takes pride
in owning a poorly run company. Truly strategic assets are not included in the
privatisation programme.
38
4.
What is the source of obtaining financial information of a
company for valuation purposes of any unit under
privatisation?
The management of the organization in accordance with the generally accepted
auditing principles prepares the accounts of the company. The company law
requires that accounts are audited and certified by an independent firm of Chartered
Accountants who conduct audit of the accounts in accordance with the international
accounting standards and practices.
The audit of accounts is hence obligatory to protect the interest of its shareholders.
Other interested groups like banks, creditors, investors etc. also use the audited
financial statements. Full reliance is placed by the shareholders on the audited
financial statements of a company under normal circumstances. However, in very
rare circumstances or in case the shareholder has any doubts the management may
appoint another independent firm of Chartered Accountants (Auditor) to probe the
authenticity of the audited accounts. It is, therefore, not a standard practice to
appoint another auditor under normal circumstances.
5.
In some cases the valuation of the land alone may be
more than the valuation of the company. Why this is so?
This is a matter of perception only. It is not so. Any business has two kinds of assets
– core assets that are part of the business and non-core assets that are not directly
utilized as part of core operation and hence can be treated surplus assets. The asset
valuation of core assets is reflected in the cash flow of the companies and is,
therefore, not added separately to the value. The non-core assets are not reflected
in the cash flows. Therefore, valuation of the non-core assets is done separately and
added to the DCF method. This methodology of adding non-core assets value has
been followed in some transactions.
Further, it may be appreciated that the land is a provincial subject and it is not easy
for any successful bidder to change the objective of land utilization for industrial
purposes to the housing schemes.
Investors are not interested in high cost land for an industrial unit as it does not get
them any financial returns. Normally the industries are set up in industrial zones or
areas far away from the cities as the land under industrial use would not generate
any revenues to the operating company. The industrial units being sold at present
were all set up long time ago and did not have the market value when the units were
set up as they were located away from city centres. Privatisation Commission carries
out valuation under all the methodologies including Asset Valuation Method and
compares it appropriately. It is only under special circumstances that the valuation
under Asset Valuation Method is higher than the other methods used.
39
6.
One of the sections of PC Ordinance 2000 stipulates that
90% of privatisation proceeds will be used for debt
retirement. How PC hopes to achieve that goal?
The residents of Pakistan are burdened with high debt. Over 60 percent of all
revenues of the government go towards debt-service at the expense of financing
social development activities in education, health, or water supply. Retiring the
national debt is therefore one of the many objectives of privatisation. Much of the
debt stems from financing losses of state-owned enterprises. Even where the
enterprises are profitable, private ownership is likely to increase profits and
associated tax revenues. Thus, public finances are strengthened from increased
revenues from privatisation proceeds, higher tax receipts, and having funds released
from not having to finance future losses of privatized entities.
However, in many instances, the more important reason to privatise is to attract
private management and capital that can improve the quality of goods and services
for consumers, who are presently suffering from inefficiencies in the operation of
public sector units. State-owned enterprises often lack funds to undertake fresh
investments to improve services or to expand output. In addition, privatisation will
provide an impetus to deregulation and competition, introduce new technology and
management to these units, and broaden the base of the capital market in the
country, which in turn will help boost fresh investments and create new jobs.
7.
How PC will like to comment on a frequent experience
witnessing higher prices of goods and services after
privatisation?
The prices of goods and services have increased where they had been held down
artificially through subsidies. Ostensibly, this was done to protect the people from
higher prices. However, typically the government was then compelled to provide
fiscal support to these units. Thus all taxpayers, rather than just the users,
contributed towards providing these goods and services more cheaply. Often the
benefit of subsidies went to middlemen and producers rather than to poor
consumers.
Artificial controls on prices also discourage fresh investment. As the privatisation
experience of many countries shows, once prices are adjusted to reflect their true
costs, substantial investments were made in modernization and capacity expansion
by the new investors. This helped in meeting growing demand and ensuring better
quality and services. The expanded services will mean that the poorer segments of
society, which were typically excluded from the rationed service, will now be able to
avail it. Even though prices may be higher for those who already received the
service, those who did not receive the service often relied on costlier, less effective
alternatives.
For example, while gas prices for the 18 percent of households that presently
receive gas will rise following privatisation, they will be less costly than the kerosene
and other fuels used by large segments of the population. Market-based pricing and
40
privatisation will increase gas production and the distribution network, thereby
allowing many formerly excluded households and businesses to receive gas at lower
cost than alternatives such as petroleum products or electricity. They will also allow
foreign exchange savings from lower imports of petroleum products. The expansion
of gas supplies for electricity would also mean that electricity prices would drop (or
not rise as much) as they would have without the new gas supplies.
8.
Usually privatisation leads to workers layoff. Won’t this
aggravate the already existing unemployment in the
country?
State owned enterprises often have many more employees than needed for efficient
operation of the company. Many of the employees perform little or no work and/or
have low productivity. In fact, taxpayers and consumers are paying their salaries
through lowered profits or increased losses and/or lowered output or reduced
quality.
Although privatisation does lower employment in a particular enterprise, its overall
impact on economy is an increase in employment rate through injection of new
investment, introduction of better management and improvement in competiveness.
9.
In today’s investment climate, who will be interested in
buying the public entities?
Although today’s investment climate is not as good as a few years ago, there is no
assurance that it will improve substantially in the future. Delaying privatisation in the
hope of subsequent improvement risks having a continuation of: (a) losses or low
profits, (b) failure to enhance the quality and quantity of goods and services, (c)
failure to correct distorted price signals, and (d) failure to generate privatisation
proceeds and additional tax revenues. Moreover, delaying privatisation may send a
signal to potential investors that the Government is not serious about leaving the
business of running business to the private sector, thereby keeping away investment
resources that are necessary to jumpstart the economy and create new jobs. There
is still sufficient investors interest to proceed with virtually all transactions. In any
case, the Government always retains the option of declining any bid that it believes
to be too low.
10. How do we know that the private sector will be any more
efficient than the public sector? After all private
companies go bankrupt and close down all the time.
Worldwide experience has shown private companies to be more efficient than public
ones. The incentives work towards having greater efficiency in the private sector.
However, even with improved efficiency some private companies will go bankrupt.
The big difference is that the pain will be felt mainly by its private shareholders,
rather than by taxpayers.
41
11. Privatisation Commission should prefer sale of SOEs to
the
domestic
investors
instead
of
the
foreign
organizations.
Pakistan needs foreign investment in order to improve its foreign currency reserves,
improve management techniques and technology. By restricting sales to only
domestic investors, PC will be limiting open participation. In addition imposition of
such a restriction would harm the Foreign Direct Investment (FDI) interests of
Pakistan. Most developed and developing countries encourage FDI in their countries
and Pakistan ranks high among them. There is only a very limited list of specified
industries which is not open for the private sector. These include arms &
ammunition, high explosives, radioactive substances, security printing, currency and
mint.
12. Why Privatisation Commission does not bind the
successful bidders to modernize and expand the units
they would own?
The idea appears to be very attractive and beneficial. However, it is recognized that
new investment in modernizing or expansion requires appropriate feasibility and
study of related issues which can impact on the profitability of such investments like
future tariff and taxation etc. However, such provisions can be included for
transactions which involve sale of limited shares (say 26%) with management
control.
42
Privatised Transactions
From 1991 to June 2007
Rs (in million)
Sr. No
Unit Name
Sale
Price
Date of
Transfer
Buyer Name
Banking and Finance
1
2
3
4
5
6
7
Bank
Allied Bank Limited (51%)
Muslim Commercial Bank (75%)
Bankers Equity Ltd. (51%)
Habib Credit & Exchange 70 %
(52,500,000)
United Bank Ltd. 51% (1,549,465,680
shares)
Bank Alfalah 30% (22,500,000
shares)
Habib Bank (51%)
Total
41,023.2
971.6
2,420.0
618.7
1,633.9
Feb-91
Apr-91
Jun-96
Jul-97
EMG
National Group
LTV Group
Sh. Nahyan bin Mubarik AlNahyan
Consortium of Bestway & Abu
Dhabi Group
Abu Dhabi Group
12,350.0
Oct-02
620.0
Dec-02
22,409.0
Dec-03
Agha Khan Fund for Economic
Development
8
Capital Market Transaction
Muslim Commercial Bank (6.8%)
563.2
Jan-01
9
Muslim Commercial Bank (4.4%)
364.0
Nov-01
10
NBP 10% shares IPO (37,300,000)
373.0
Feb-02
11
Muslim Commercial Bank-CDC
(24,024,560 shares)
Pakistan Oil Fields Limited -CDC
(28,546,810 shares)
Attock Refinery Limited -CDC
(10,206,000 shares)
ICP Lot – A
ICP Lot – B
ICP – SEMF
NBP 10% SPO (37,303,932 shares)
DG Khan Cement -CDC (3,601,126
shares)
NBP 3.52% 3rd offer (13,131,000
shares)
OGDCL 5% IPO (215,046,420
shares)
664.0
Oct-02
MCB Employees-PF & PensionFund
MCB Employees-PF & PensionFund
General Public Thru Stock
Exchange
Sale thru CDC
5,138.0
Oct-02
Sale thru CDC
1,039.0
Jan-03
Sale thru CDC
175.0
303.0
787.0
782.0
63.0
Sep-02
Oct-02
Apr-03
Nov-02
Dec-02
604.0
Nov-03
6,851.0
Nov-03
ABAMCO
PICIC
PICIC
Sale thru CDC
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
12
13
14
15
16
17
18
19
20
43
Sr. No
Unit Name
Sale
Price
1,734.0
Date of
Transfer
Feb-04
21
SSGC10% -SPO (67,117,000 shares)
22
PIA 5.8% SPO (66,057,000 shares)
1,215.1
Jul-04
23
PPL15% IPO (102,875,000 shares)
5,632.6
Jul-04
24
KAPCO 20% IPO (160,798,500
shares)
UBL 4.2% IPO (21,867,400 shares)
4,814.8
Apr-05
1,087.2
Aug-05
46,963.0
Dec-06
2,359.6
Apr-07
34,291.7
Jun-07
25
26
27
28
OGDCL 9.5% GDR (408,588,000
shares)
OGDCL 0.5% SPO (21,451,141
shares)
UBL 21.74% GDR (175,951,092
shares)
Total
Total Banking & Finance
Buyer Name
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
General Public Thru Stock
Exchange
GDR offering to international &
domestic institutions
General Public Thru Stock
Exchange
GDR offering to international &
domestic institutions
115,804.2
156,827.4
Energy Sector
29
30
31
32
33
34
35
Mari Gas (20%)
Kot Addu Power Company (26%)
Kot Addu Power Company (10%)
Kot Addu (Escrow A/c)
SSGC LPG business
SNGPL LPG business
Badin II (Revised)
102.4
7,105.0
3,046.0
900.7
369.0
142.0
503.2
Apr-94
Jun-96
Nov-96
Apr-02
Aug-00
Oct-01
Jun-02
36
37
38
39
Adhi
Dhurnal
Ratana
Badin I
618.9
161.0
24.6
6,433.0
May-02
May-02
May-02
Jun-02
40
41
Turkwal
NRL (51% shares)
75.6
16,415.0
Jun-02
May-05
42
KESC (73% GOP shares)
Total
Nov-05
Mari Gas Company Ltd.
National Power
National Power
National Power
Caltex Oil Pak.(Pvt) Ltd.
Shell Gas LPG Pakistan
BP Pakistan & Occidental
Pakistan
Pakistan Oil Field
Western Acquisition
Western Acquisition
BP Pakistan & Occidental
Pakistan
Attock Oil Company
Consortium of Attock Refinery
Ltd.
Hassan Associates
15,859.7
51,756.1
Telecommunications
43
PTCL (2%)
44
45
PTCL (10%)
26% (1.326 billion) B class shares of
PTCL
3,032.5
Aug-94
27,499.0
156,328.4
Sep-94
Jul-05
General Public Thru Stock
Exchange
Through DR form
Etiselat UAE
44
Sr. No
46
Unit Name
Carrier Telephone Industries
Total
Sale
Price
500.0
Date of
Transfer
Oct-05
Buyer Name
Siemens Pakistan Engineering
Co. Ltd.
187,359.9
Industrial Units
47
Automobile
Al-Ghazi Tractors Ltd.
105.6
Nov-91
48
49
50
51
52
National Motors Ltd.
Millat Tractors Ltd.
Baluchistan Wheels Ltd.
Pak Suzuki Co. Ltd.
Naya Daur Motors Ltd.
150.4
306.0
276.4
172.0
22.3
Jan-92
Jan-92
May-92
Sep-92
Jan-93
53
Bolan Castings
Total
69.2
1,101.9
Jun-93
Al-Futain Industries (Pvt) Ltd.
UAE
Biboo Jee Services
EMG
A. Qadir & Saleem I. Kapoorwala
Suzuki Motors Co. Japan
Farid Tawakkal & Saleem I.
Kapoorwala
EMG
Cement
54
55
Maple Leaf Cement
Pak Cement
485.7
188.9
Jan-92
Jan-92
56
White Cement
137.5
Jan-92
57
58
59
60
61
62
63
64
65
66
67
D.G Khan Cement
Dandot Cement
Garibwal Cement
Zeal Pak Cement
Kohat Cement
Dandot Works - National Cement
General Refractories Limited
Wah Cement
Associated Cement Rohri
Thatta Cement
10% additional shares – Dandot
Cement
10% additional shares – Kohat
Cement
Mustehkam Cement Limited
Javedan Cement Company Limited
Total
1,960.8
636.7
836.3
239.9
527.9
110.0
18.9
2,415.8
255.0
793.7
8.3
May-92
May-92
Sep-92
Oct-92
Oct-92
Jan-95
Feb-96
Feb-96
Nov-03
Jan-04
Oct-04
40.7
Oct-04
3,204.9
4,315.9
16,176.9
Nov-05
Aug-06
Bestway Cement Limited
Haji Ghani Usman & Group
756.6
33.8
63.6
152.3
Feb-92
Feb-92
Jun-92
Oct-92
Schon Group
Upjohn Company USA
Riaz Shaffi Reysheem
EMG
68
69
70
Nishat Mills Ltd.
Mian Jehangir Ellahi &
Associates
Mian Jehangir Ellahi &
Associates
Tariq Sehgal & Associates
EMG
Haji Saifullah & Group
Sardar M. Ashraf D. Baluch
Palace Enterprises
EMG
Shah Rukh Engineering
EMG
National Transport Karachi
Al Abbass Group
EMG
EMG
Chemical
71
72
73
74
National Fibres Ltd
Kurram Chemicals
Pak PVC Ltd
Sind Alkalis Ltd
45
Sr. No
75
76
77
78
79
80
81
82
83
84
85
86
Unit Name
Antibiotics (Pvt) Ltd
Swat Elutriation
Nowshera PVC Co. Limited
Swat Ceramics (Pvt) Limited
Ittehad Chemicals
Pak Hye Oils
Ravi Engineering Limited
Nowshera Chemicals
National Petrocarbon
National Petrocarbon (add’l 10%
shares)
Khuram Chemicals (additional 10%)
10% additional shares – Ittehad
Chemicals
Total
Sale
Price
24.0
16.7
20.9
38.6
399.5
53.6
5.4
21.2
21.9
2.3
Date of
Transfer
Oct-92
Dec-94
Feb-95
May-95
Jul-95
Jul-95
Jan-96
Apr-96
Jul-96
Mar-02
6.0
26.1
Oct-03
Oct-04
Buyer Name
Tesco Pvt) Ltd.
Sahib Sultan Enterprises
Al Syed Enterprises
Empeiral Group
Chemi Group
Tariq Siddique Associates
Petrosin Products
Mehboob Ali Manjee
Happy Trading
Happy Trading
Pfizer Pakistan
EMG
1,642.5
Engineering
87
88
89
90
91
92
93
94
95
96
97
98
99
Karachi Pipe Mills
Pioneer Steel
Metropolitan Steel Mills Limited
Pakistan Switchgear
Quality Steel
Textile Machinery Co
Indus Steel Pipe
Total
18.9
4.4
66.7
8.9
13.2
27.9
42.5
182.5
Jan-92
Feb-92
May-92
Jun-92
Apr-93
Oct-95
Jul-97
Jamal Pipe Industries
M. Usman
Sardar M. Ashraf D. Baluch
EMG
Marketing Enterprises
Mehran Industries
Hussien Industries
Fertilizer
Pak China Fertilizers Company
Limited
Pak Saudi Fertilizers Ltd. (90%)
435.4
May-92
Schon Group
7,335.9
May &
Sep-02
Sep-02
May-05
Jul-06
Dec-06
Fauji Fertilizers
Fauji Fertilizers Ltd.
Export Reliance- Consortium
Azgard 9
Al Hamd Chemical (Pvt) Limited
21.2
152.0
64.3
2.3
Sep-91
Feb-92
Apr-92
May-05
Mian Mohammad Shah
Mehmoob Abu-er-Rub
Rose Ghee Mills
Rose Ghee Mills
55.3
15.5
May-92
May-92
Mehmoob Abu-er-Rub
A. Akbar Muggo
Pak Saudi Fertilizers Ltd. (10%)
Pak Arab Fertilizers (Pvt) Ltd. (94.8%)
Pak Amercian Fertilizers (100%)
Lyallpur Chemical & Fertilizers
Total
815.0
14,125.6
15,949.0
280.2
38,941.1
Ghee
100
101
102
103
104
105
Fazal Vegetable Ghee
Associated Industries
Sh Fazal Rehman
Sh Fazal Rehman (additional 10%
shares)
Kakakhel Industries
United Industries
46
Sr. No
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
Unit Name
Haripur Vegetable Oil
Bara Ghee Mills
Hydari Industries
Chiltan Ghee Mills
Wazir Ali Industries
Asaf Industries (Pvt) Limited
Khyber Vegetable
Suraj Vegetable Ghee Industries
Crescent Factories Vegetable Ghee
Mills
Bengal Vegetable
A & B Oil Industries Limited
Dargai Vegetable Ghee Industries
Punjab Vegetable Ghee
Burma Oil
E&M Oil Mills
Maqbool Oil Company Ltd.
Kohinoor Oil Mills
United Industries Limited
Total
Sale
Price
30.1
27.8
42.5
31.9
11.4
8.0
10.8
46.0
Date of
Transfer
Jul-92
Jul-92
Aug-92
Sep-92
Dec-92
Jan-93
Jan-93
Jan-93
Jan-93
Buyer Name
19.1
28.5
26.2
18.7
20.1
94.0
27.6
80.7
7.7
841.7
Mar-93
Mar-93
Nov-97
May-99
Jan-00
Jul-02
Jul-02
May-04
Sep-05
6.1
Jul-95
Ghani Group of Industries
28.0
21.2
16.2
20.0
24.1
79.2
14.4
32.5
235.6
May-92
May-92
Jul-92
Sep-92
Nov-92
Jun-93
Nov-93
Mar-96
Contrast Pvt Ld.
Packages Ltd.
Enkay Enterprises
Pak Pearl Rice Mills
Pak Arab Food Industries
Dhonda Pakistan Pvt Ltd.
Maktex Pvt) Ltd.
Afzaal Ahmad
8.7
2.6
10.2
2.6
11.5
1.6
2.5
4.8
3.6
Jan-92
Jan-92
Jan-92
Jan-92
Jan-92
Feb-92
Feb-92
Feb-92
Mar-92
Packages Ltd.
Saleem Group of Industries
Hajra Textile Mills
Utility Stores Corp.
Azad Ahmad
Utility Stores Corp.
Utility Stores Corp.
Utility Stores Corp.
Utility Stores Corp.
Malik Naseer & Associates
Dawood Khan
EMG
Baluchistan Trading Co.
Treat Corporation
Muzafar Ali Isani
Haji A. Majid & Co.
Trade Lines
S. J. Industries
EMG
Al-Hashmi Brothers
Gul Cooking Oil Industries
Canal Associates
Home Products International
Star Cotton Corp. Ltd.
Madina Enterprises
Iqbal Khan
A. Akbar Muggoon
Mineral
124
Makerwal Collieries
Rice
125
126
127
128
129
130
131
132
Sheikhupura
Faizabad
Siranwali
Hafizabad
Eminabad
Dhaunkel
Mabarikpur
Shikarpur
Total
Roti Plants
133
134
135
136
137
138
139
140
141
Gulberg, Lahore
Peshawar
Head Office, Lahore
Hyderabad
Faisalabad
Bahawalpur
Multan
Quetta
Islamabad
47
Sr. No
142
143
144
145
146
147
Unit Name
Taimuria, Karachi
SITE, Karachi
Multan Road, Lahore
Korangi, Karachi
Mughalpura, Lahore
Gulshan-e-Iqbal, Karachi
Total
Sale
Price
9.2
5.1
3.5
4.6
20.2
90.7
Date of
Transfer
Jun-92
Sep-92
Dec-92
Apr-93
Jun-96
Mar-98
Buyer Name
85.5
1.2
128.0
156.0
370.7
59,589.7
Jan-93
Jun-95
Oct-05
Nov-06
Jehangir Awan Associates
Hamid Mirza
Sadaf Enterprises
Raees Ahmed
18.6
12.5
6.3
110.0
5.0
152.4
Sep-99
Sep-99
Nov-99
Sep-02
Apr-05
Through Auction
Weitnaur Holding Ltd.
Muhammad Mushtaq
LG Group
EMG
185.0
26.6
6.2
46.1
6.7
270.6
Oct-93
Jun-95
Jan-96
May-96
Aug-96
Army Welfare Trust
Syed Tajmir Shah
EMG
Mian Saifu-ur-Rahman
EMG
190.9
39.2
364.0
1,211.0
1,805.1
2,228.1
457,760.2
Jun-98
Jan-99
Dec-99
Jul-04
Imperial Builders
Hussain Global Assoc.
Shahid Gul & Partners
4B Marketing
Spot Light Printers
Specialty Printers
Utility Stores Corp.
Utility Stores Corp.
Pakistan Railways
Ambreen Industries
Textile
148
149
150
151
Quaidabad Woollen Mills
Cotton Ginning Factory
Bolan Textile Mills
Lasbella Textile Mills
Total
Total (all Industrial Units)
Miscellaneous
152
153
154
155
156
National Tubewell Const Corpn
Duty Free Shops
Republic Motors (Plot)
Al Haroon Building Karachi
International Advertising (Pvt) Ltd.
Total
Newspapers
157
158
159
160
161
N.P.T Building
Mashriq – Peshawar
Mashriq – Quetta
Progressive Papers Ltd.
Mashriq – Karachi
Total
Tourism
162
163
164
165
165
Cecil's Hotel
Federal Lodges - 1- 4
Dean's Hotel
Falleti's Hotel Lahore
Total
Total (Misc.)
Total (1991 to June 2007)
48
From July 2007 to December 2007
Rs (in million)
Sr. No
Unit Name
Sale
price
Date of
Transfer
Buyer Name
Capital Market Transaction
1
UBL 3.26% thru GDR (26,392,660
shares)
HBL 7.5% thru IPO (51,750,000
shares)
Total
5,159.0
Jul-07
12,161.0
Oct-07
GDR offering to international &
domestic institutions
General Public Thru Stock
Exchange
17,320.0
Fertilizer
2
Hazara Phosphate Fertilizers Limited
Total Jul 2007 to December 2008
1,340.0
18,660.0
167
Main Total 1991 to December 2008
476,420.2
Nov 08
Pak American Fertilizers
49
Financial Statements
and
Auditor’s Report
50
51
52
BALANCE SHEET
AS AT JUNE 30, 2008
Note
2007
Restated
2008
(Rupees '000')
NON-CURRENT ASSETS
Property, plant and equipment
4
10,167
8,190
Long term receivables
5
27,179,784
40,273,067
Long term investments
6
103,584
167,019
Due from buyers of privatised entities
7
29,511,152
18,440,914
Due from privatised entities
8
286,139
286,139
Advances, deposits, prepayments and receivables
9
83,290
70,300
Cash and cash equivalents
10
2,377,777
12,416,520
32,258,358
31,213,873
59,551,893
71,662,149
7,246
CURRENT ASSETS
TOTAL ASSETS
NON-CURRENT LIABILITIES
DEFERRED INCOME
Grants from Government of Pakistan
11
25,841
Grant from World Bank
12
303
355
26,144
7,601
CURRENT LIABILITIES
Liabilities assumed of privatised entities
13
142,896
142,896
Other payables
14
234,299
446,730
377,195
589,626
403,339
597,227
59,148,554
71,064,922
59,148,554
71,064,922
CONTINGENCIES AND COMMITMENTS
15
TOTAL LIABILITIES
NET FUNDS EMPLOYED
REPRESENTED BY:
PAYABLE TO GOVERNMENT OF PAKISTAN
16
The annexed notes from 1 to 22 form an integral part of these financial statements.
Chairman
Member/Secretary
INCOME AND EXPENDITURE ACCOUNT
FOR THE YEAR ENDED JUNE 30, 2008
Note
2008
2007
(Rupees '000')
INCOME
Grant from World Bank
Grants from Government of Pakistan
Fees, charges and other receipts
12
17
18
52
45,469
1,068,708
1,114,229
67
39,514
626,801
666,382
53,928
1,436
10,208
3,671
1,408
2,112
2,592
1,974
,
2,373
120
1,962
81,784
48,611
1,749
7,804
6,212
1,499
1,368
2,623
960
2,284
120
4,038
77,268
1,032,445
589,114
EXPENDITURE
Salaries, allowances and benefits
Advertisement
Rent and utilities
Traveling
Printing and stationery
Depreciation
Telephone and communication
and maintenance
Repairs
p
Fuel and lubricants
Audit fee
Others
4
Net income transferred to Payable to Government of Pakistan
The annexed notes from 1 to 22 form an integral part of these financial statements.
Chairman
Member/Secretary
CASH FLOW STATEMENT
FOR THE YEAR ENDED JUNE 30, 2008
Note
2008
2007
Restated
(Rupees '000')
Cash flows from operating activities
Net income transferred to Payable to Government of Pakistan
1,032,445
589,114
Adjustments for:
Amortisation of grant from World Bank
(52)
Depreciation
2,112
Gain on disposal of property, plant and equipment
(559)
Amortisation of grants from Government of Pakistan-related to income
18,595
(Increase) in due from buyers of privatised entities
(Increase) / decrease in advances, deposits, prepayments and receivables
20,096
2,454
591,568
(11,070,238)
(69,541)
-
(Decrease) in other payables
(Decrease) in Payable to Government of Pakistan
Net cash (used in) operating activities
(523)
1,676
1,052,541
(12,990)
(Decrease) in advances against sale
(67)
1,368
31,952
(9,797,952)
(212,431)
(249,789)
(12,948,813)
(7,677,538)
((24,244,472)
,
,
)
((17,762,868)
,
,
)
(23,191,931)
(17,171,300)
Cash flows from investing activities
Investment available for sale
63,435
Purchase of property, plant and equipment
(4,133)
Proceeds from sale of property, plant and equipment
(167,019)
(2,836)
603
571
Decrease in long term receivables
13,093,283
15,865,838
Net cash from investing activities
13,153,188
15,696,554
(10,038,743)
(1,474,746)
12,416,520
13,891,266
2,377,777
12,416,520
Net ( decrease) in cash and cash equivalents
Cash and cash equivalent at beginning of year
Cash and cash equivalent at end of year
10
The annexed notes from 1 to 22 form an integral part of these financial statements.
Chairman
Member/Secretary
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2008
1.
LEGAL STATUS AND OPERATIONS
The Privatisation Commission ("the Commission") was established under the Federal Government of Pakistan Notification No. F.5 (1)
Adm-I/91, dated January 22, 1991 to process the privatisation of public sector industries and enterprises, to recommend rehabilitation of
effected employees, to prepare public sector units for privatisation and to implement policies of Government of Pakistan ("GoP") on
deregulation and privatisation.
The above said Notification was rescinded by the Privatisation Commission Ordinance, 2000 ("the Ordinance"). promulgated on
September 28, 2000 and the existing Commission stood dissolved on the commencement of this Ordinance. Under the new Ordinance,
the Commission is declared a body corporate having perpetual succession and a common seal, with power, subject to the provisions of
the Ordinance, to enter into agreements, contracts, acquire and hold property, both moveable and immovable, and to sue and be sued
in its own name.
2.
2.1
STATEMENT OF COMPLIANCE AND SIGNIFICANT ESTIMATES
Statement of compliance
These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan.
Approved accounting standards comprise of such International Accounting Standards (IASs) as notified under the provisions of the
Companies Ordinance, 1984. These also comply, as far as practicable, with the requirements of the Privatisation Commission
Ordinance, 2000.
2.2
Significant estimates
The preparation of financial statements in conformity with International Accounting Standards (IASs) as applicable in Pakistan requires
management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgment about
carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Judgments made by management in the application of IASs that have significant effect on the financial statements and estimates with a
significant risk of material adjustments in the next year are discussed in the ensuing paragraphs.
2.2.1 Provisions
Provisions are recognised in respect of due from buyers of privatised entities, advances to privatised entities and loans due to GoP. The
timing of recognition requires the application of judgment to existing facts and circumstances, which can be subject to changes.
Estimates of the amounts of provisions and liabilities recognised are based on current legal and constructive requirements. Because
actual outflows can differ from estimates due to changes in laws, regulations, public expectations, prices and conditions, and can take
place many years in the future, the carrying amounts of provisions and liabilities are regularly reviewed and adjusted to take account of
such changes.
The Commission has disclosed significant contingent liabilities for the pending litigation and claims against the Commission based on its
judgment and the advice of the legal advisors for the estimated financial outcome. The actual outcome of these litigations and claims
can have an effect on the carrying amounts of the liabilities recognised at the balance sheet date. However, based on the best
judgment of the Commission and its legal advisors, the likely outcome of these litigations and claims is remote and there is no need to
recognise any liability at the balance sheet date.
2.2.2 Property, plant and equipment
The Commission reviews the useful lives of property, plant and equipment on regular basis. Any change in the estimates in future years
might affect the carrying amounts of the respective items of property, plant and equipment with a corresponding affect on the
depreciation charge and impairment, if any.
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1
Accounting Convention
These financial statements have been prepared under the historical cost convention and accrual basis of accounting except for cash
flow statement.
3.2
Property, plant and equipment
These are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is charged on reducing
balance method at the rates as referred in note 4 to these financial statements so as to write off the cost over expected useful lives.
Full month depreciation is charged on additions in the month of addition and no depreciation is charged on assets retired/deleted during
the month.
Subsequent costs are included in the assets carrying amount when it is probable that future economic benefits associated with the item
will flow to the Commission and the cost of the item can be measured reliably, and the carrying amounts of the part of asset so replaced
if any, are retired. All other repair and maintenance are charged to income during the year. Gains and losses on disposal of property,
plant and equipment are credited or charged to income in the year of disposal.
3.3
Investments available for sale
These are initially recognised at cost and at subsequent reporting dates measured at fair values. Gains or losses from changes in fair
values are taken to Payable to Government of Pakistan.
Management has determined fair value of investments by using quotations from active market (Karachi Stock Exchange) and
conditions and information about the financial instruments.
3.4
Revenue recognition
Grants from Government of Pakistan for operational expenditure are recognised as income to the extent these are used for that
purpose. Grants related to depreciable assets, including the non-monetary grants at fair value, are recognised as income over the
periods and in the proportions in which depreciation on those assets is charged.
Supplementary contribution from the Privatisation Fund is recognised as income in the year in which it is received/transferred.
Income from investments, including bank deposits is recognised as income on time proportion basis.
Income from fees and charges is recognised on actual receipt basis.
3.5
Foreign currency translation
Transactions in foreign currencies are recorded using the rates of exchange applicable on the transaction date while assets and
liabilities in foreign currencies are converted into Pak rupees at the rates prevailing at the balance sheet date. Exchange differences are
taken to Payable to Government of Pakistan.
3.6
Privatisation proceeds
Privatisation proceeds comprising sale price of the assets or shares of the privatised entities are taken to the Payable to Government of
Pakistan.
3.7
Transactions pertaining to privatisation
Mark-up on unpaid privatisation proceeds, loans and other liabilities of the privatised entities assumed or paid by the Privatisation
Commission are taken to Payable to Government of Pakistan.
Funds transferred for payments to employees of entities privatised and selected for privatisation under the approved golden handshake
and voluntary separation schemes, payments to financial advisors, valuers, legal advisors, consultants and other payments directly
connected with the entities privatised or selected for privatisation are charged to the Payable to Government of Pakistan.
3.8
Bad and doubtful debts
Bad debts and provision for doubtful debts pertaining to the transactions forming part of the privatisation are charged to the Payable to
Government of Pakistan. Other bad debts and provision for doubtful debts are taken to income and expenditure account.
3.9
Taxation
Provision for taxation on income has not been made in these financial statements as Commission is exempt from tax under section 44
of the Privatisation Commission Ordinance, 2000.
3.10
Liabilites assumed of Privatised Entities
Loans liabilities to GoP and government owned corporations assumed by the buyers under the sale agreement of privatised entities are
not recognised in the financial statements of the Commission as due from them. The recovery of such loans remains the responsibility
of the GoP and the concerned government owned corporations.
3.11
Sale of shares on behalf of investor organizations
Expenses incurred on completing disinvestments or sale of shares on behalf of investor organizations, other than payments made
under golden handshake or voluntary separation schemes to the employees, are charged to Payable to Government of Pakistan.
3.12
Government of Pakistan approved payments
The payments made for golden handshake, salaries and legal dues to employees and for liquidating loans of entities privatised or
selected for privatisation specifically sanctioned by the GoP are charged to the Payable to Government of Pakistan.
3.13
Grants related to assets
Grant related to assets are taken as deferred income in the balance sheet and systematically amortised through income statement in
proportion to the depreciation expense relating to assets acquired under the grant.
3.14
Financial instruments
Financial assets and financial liabilities are recognised when the Commission becomes a party to the contractual provisions of the
instruments. These are de-recognised when the Commission ceases to be a party to the contractual provisions of the instrument. Any
gain or loss on de-recognition of the financial assets and financial liabilities is taken to the Payable to Government of Pakistan.
3.15
Offsetting of financial assets and financial liabilities
A financial assets and a financial liability is set-off and the net amount is reported in the balance sheet if the Commission has a legally
enforceable right to set-off the recognised amounts and intends either to settle on net basis or to realize the assets and settle the
liabilities simultaneously. The particular recognition methods adopted by the Commission are disclosed in the respective policy
statements associated with each item of financial instruments.
3.16
Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalent consist of cash in hand, balances with
banks and Special Notice Deposit Receipts (SNDRs) and Term Deopsit Receipt (TDR) which are subject to insignificant risk of change
in value.
3.17
Recognition of sales
The agreed sale price of units privatised is recognised in the books of account at the time of signing of sale agreement or receipt of full
sale price whichever is earlier. While the sale of shares through Initial Public Offering (IPO) and Secondary Public Offering (SPO) are
recognised when cash is received.
3.18
Impairment of property, plant and equipment
The carrying amounts are reviewed at each balance sheet date to determine whether there is any indication of impairment of any asset
or a group of assets. If any such indication exists, the recoverable amount of that asset or group of assets is estimated and impairment
losses are charged to income.
When impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but
limited to the extent of initial cost of the asset.
3.19
New International Accounting Standards, International Financial reporting Standards and International Financial Reporting
Interpretation Committee (IFRIC) interpretations that are not yet effective:
Amendments to the following standards have been published that are applicable to the Commission’s financial statements covering
annual periods beginning on or after the following dates:
IAS 1 - Presentation of Financial Statements (as revised);
Beginning date of
annual period
July 1, 2009
IAS 16 - Property Plant and Equipment (as revised) ;
July 1, 2009
IAS 32 - Financial Instruments:Presentation (as revised);
July 1, 2009
IAS 36 - Impairment of Assets (as revised);
July 1, 2009
IAS 39 - Financial Instruments:Recoginition and Measurement (as revised);
July 1, 2009
IFRS 7 - Financial Instrument: Disclosure
July 1, 2008
Adoption of the above amendments would result in an impact to the extent of disclosures presented in the future financial statements of
the Commission.
4. PROPERTY, PLANT AND EQUIPMENT
PRIVATISATION FUND
Description
Furniture &
Fixtures
Office
equipment
GRANTS FROM GOVERNMENT OF PAKISTAN
Motor
vehicles
Computers
Sub
Total
Furniture &
Fixtures
Office
equipment
Computers
Motor
vehicles
GRANT FROM WORLD BANK
Sub Total
Furniture &
Fixtures
Office
equipment
Sub
Total
Computers
GRAND
TOTAL
------------------------------------------------------------------------------( Rupees '000')-------------------------------------------------------------------------Cost
Balance as at July 01, 2006
931
993
1,504
2,066
5,494
1,379
5,007
792
3,314
10,492
Additions
-
-
-
-
-
361
654
-
1,821
2,836
Deletions
-
-
-
-
-
-
-
-
Balance as at June 30, 2007
931
993
1,504
2,066
5,494
1,740
5,661
(558)
792
(558)
4,577
12,770
2,098
2,998
18,984
-
53
847
-
-
-
2,836
-
-
-
-
(558)
53
847
2,098
2,998
21,262
53
847
2,098
2,998
21,262
-
-
4,133
Balance as at July 01, 2007
931
993
1,504
2,066
5,494
1,740
5,661
792
4,577
12,770
Additions
-
-
-
-
-
786
-
-
-
-
-
-
1,404
-
1,394
(725)
4,133
Deletions
549
-
Balance as at June 30, 2008
931
993
1,504
2,066
5,494
2,526
6,210
2,196
5,246
16,178
53
847
2,098
2,998
24,670
651
659
1,472
1,888
4,670
700
2,973
599
696
4,968
34
549
1,993
2,576
12,214
28
33
11
36
108
82
229
64
818
1,193
2
30
35
67
1,368
-
-
(725)
-
-
-
(725)
Depreciation
Balance as at July 01, 2006
Charge for the year
On deletions
-
-
-
-
-
Balance as at June 30, 2007
679
Balance as at July 01, 2007
692
1,483
1,924
4,778
782
3,202
663
1,004
5,651
36
579
2,028
2,643
13,072
679
692
1,483
1,924
4,778
782
3,202
663
1,004
5,651
36
579
2,028
2,643
25
30
7
28
90
174
301
510
985
1,970
2
27
23
52
13,072
2,112
On deletions
-
-
-
-
-
Balance as at June 30, 2008
704
722
1,490
1,952
4,868
956
38
606
2,051
2,695
14,503
Charge for the year
-
-
-
-
(510)
-
-
3,503
1,173
(681)
1,308
(510)
-
-
(681)
6,940
(510)
-
(681)
Carrying value as at June 30, 2007
252
301
21
142
716
958
2,459
129
3,573
7,119
17
268
70
355
8,190
Carrying value as at June 30, 2008
227
271
14
114
626
1,570
2,707
1,023
3,938
9,238
15
241
47
303
10,167
10
10
33
20
10
10
33
20
10
10
33
Rate of depreciation
%
Note
5
2008
2007
(Rupees '000')
LONG TERM RECEIVABLES
Due from buyers of privatised entities
M/s. Etisalat International Pakistan LLC
Current portion
5.1
7.1
54,359,249
(27,179,465)
27,179,784
56,382,294
(16,109,227)
40,273,067
5.1 M/s. Etisalat International Pakistan LLC
26% shares (1,326 million B class shares) of Pakistan Telecommunication Company Limited (PTCL) have been sold to M/s. Etisalat
International Pakistan LLC for US$ 2,598.96 million through sale agreement dated March 12, 2006. Out of total sales consideration an
initial payment of US$ 1,400 million and three installments of US$ 133.217 million each has been received and the balance of US$
799.307 million is receivable in six semi-annual installments upto September, 2010.Out of which the semi-annual installment for
March, 2008 is overdue as the transfer of title of PTCL properties appearing in the name of provincial and local government to PTCL
as per sale purchase agreement (SPA) is in process.The March, 2008 installment will be paid by the buyer on transfer of title to PTCL .
Note
2008
2007
Restated
(Rupees '000')
6
LONG TERM INVESTMENTS
Available for sale:
Balance at the beginning of the year
Fair value Adjustment
Impairment
6.1
6.2
6.3
167,019
37
(63,472)
103,584
126,451
40,568
167,019
6.1.1
6.1.2
6.1.3
103,031
433
121
103,585
166,374
395
250
167,019
6.1 Investment in shares of listed companies
Shares in National Bank of Pakistan
Shares in Habib Bank Limited
Shares in United Bank Limited
6.1.1 Investment in National Bank of Pakistan (NBP) comprises of 698,516 shares (2007: 635,015 shares) having market value of Rs.
147.50 per share (2007 : Rs.262 per share). Bank has issued 63,501 bonus shares in current year.
6.1.2 Investment in Habib Bank Limited (HBL) comprises of 2,074 shares (2007: 1,886 shares) having market value of Rs. 208.63 per share
(2007 : Rs.209.5 per share). Bank has issued 188 bonus shares in current year.
For valuation of shares of Habib Bank Limited (HBL) in 2007, 80% of share price of National Bank of Pakistan (NBP) share value has
been used because of the non listing of Habib Bank Limited (HBL) on the stock exchange.
6.1.3 Investment in United Bank Limited (UBL) comprises of 1,418 shares (2007: 1,135 shares) having market value of Rs. 85.09 per share
(2007 : Rs.219.95 per share). Bank has issued 283 bonus shares in current year.
6.1.4 The Commission has acquired investment as stated in Note 6.1.1, 6.1.2 and 6.1.3 on privitisation of Karachi Pipe Mills. However, the
dividend on such investment was booked . The investment has now been incorporated in the financial statements in accordance with
the requirements of IAS-8 "Accounting Policies, Changes in Accounting Estimates and Errors".
Had this error not been corrected the balance of Payable to Government of Pakistan would have been lower by Rs. 103.585 million
(2007 : Rs. 167.02 million) and investment would have been lower by the same amount accordingly. Further an amount of Rs. 126.
451 million included in Rs. 167.02 million relates to the period prior to year 2007.
Note
2008
2007
Restated
(Rupees '000')
6.2 Fair value adjustment
Shares in HBL
6.2.1
37
37
40,568
40,568
6.2.1 Investment in HBL comprises of 1,886 shares in 2007 which were not listed on stock exchange they were shown at a price of 80% of
the value( 2007 : Rs. 209.6 Per share) of share of NBP. In December 2007 bank obtained listing on stock exchange, so they are
valued at market value of Rs. 208.63 per share in 2008. Due to bonus issue of 188 shares there has been appreciation in the value of
shares.
Note
2008
2007
Restated
(Rupees '000')
6.3 Impairment
Shares in NBP
Shares in UBL
6.3.1
6.3.2
63,343
129
63,472
-
6.3.1 There has been decrease in market value per share of NBP from Rs. 262 ( 2007 ) to Rs 147.50, resulting in impairment of the
investment in 2008.
6.3.2 There has been decrease in market value per share of UBL from Rs. 219.95 ( 2007 ) to Rs 85.09, resulting in impairment of
investment in 2008.
Note
2008
2007
(Rupees '000')
7
DUE FROM BUYERS OF PRIVATISED ENTITIES
Privatisation proceeds
Unpaid sale price
7.1
27,548,394
Mark-up on unpaid sale price
7.1
4,878,456
4,188,303
32,426,850
20,666,459
Provision for doubtful proceeds
16,478,156
(2,947,569)
(2,257,416)
29,479,281
18,409,043
18,049
Advances to privatised entities-unsecured
Golden Handshake Scheme (GHS) and Voluntary Separation Scheme (VSS)
7.2
18,049
Mark-up on advances for GHS/VSS
7.2
68,678
59,140
86,727
77,189
(54,856)
(45,318)
31,871
31,871
29,511,152
18,440,914
Provision for doubtful advances
7.1
Privatisation proceeds
------------------------- 2008 --------------------------Note
Names of Privatised Entities
Names of Buyers
Unpaid sale price
Unpaid sale price
Mark-up
M/s. Schon Group
7.1.1
-
847,595
847,595
-
763,599
763,599
M/s. Reyaz Shaffi (Reysheen) (Private) Limited
7.1.2
38,142
165,285
203,427
38,142
145,126
183,268
Sind Alkalis Limited
M/s. Sind Alkalis Employees Management Group
7.1.3
32,493
109,284
141,777
32,493
91,873
124,366
Pak China Fertilizers Limited
M/s. Schon Group
7.1.4
-
919,604
919,604
-
763,722
763,722
40,476
Metropolitan Steel Corporation Limited
M/s. Metro Management (Private) Limited
7.1.5
-
46,143
46,143
-
40,476
National Motors Limited
M/s. Bibojee (Private) Limited
7.1.6
8,702
24,546
33,248
8,702
21,251
29,953
Balochistan Wheels Limited
M/s. Abdul Qadir and Saleem .I. Kapoorwala
7.1.7
-
399,620
399,620
-
350,544
350,544
Dandot Works of National Cement (Private) Limited
M/s. Awan National Cement Limited
7.1.8
Wah Cement Company Limited
M/s. Employees Management Group,Askari Cement Limited
7.1.9
234,543
-
223,854
223,854
1,732,128
1,966,671
-
Haripur Vegetable Oil Processing Industries
M/s. Malik Naseer and Associates
7.1.10
12,040
73,627
85,667
12,040
63,107
75,147
Crescent Factories Vegetable Ghee Mills
M/s. S . J Industries / Sh. Javed Rafi
7.1.11
20,783
136,731
157,514
20,783
117,387
138,170
92,163
234,543
196,363
196,363
1,460,863
1,695,406
A and B Oil Industries Limited
M/s. Al-Hashmi Brothers
7.1.12
14,135
90,931
105,066
14,135
78,028
Siranwali Rice Mills
M/s. Enkay Enterprise (Private) Limited
7.1.13
1,127
5,786
6,913
1,127
4,937
6,064
Dhaunkal Rice Mills
M/s. Dhonda Pakistan (Private) Limited
7.1.14
-
43,028
43,028
-
37,744
37,744
17,683
Mubarakpur Rice Mills Limited
M/s. Continental Rice Mills (Private) Limited
7.1.15
-
20,159
20,159
-
17,683
Quaidabad Woolen Mills
M/s. Jehangir Anwar and Associates
7.1.16
6,964
40,135
47,099
6,964
35,600
PTCL - Current portion
M/s. Etisalat International Pakistan LLC
27,179,465
16,109,227
32,426,850
16,478,156
5
27,179,465
Advances to privatised entities - unsecured
4,878,456
------------------------- 2008 ---------------------------
Names of Privatised Entities
Names of Buyers
National Motors Limited
M/s. Bibojee (Private) Limited
Pak PVC Limited
M/s. Reyaz Shaffi (Reysheen) (Private) Limited
Bangal Vegetable
M/s. Employees Management Group
Dhaunkal Rice Mills
M/s. Dhonda Pakistan (Private) Limited
Mubarakpur Rice Mills Limited
M/s. Continental Rice Mills (Private) Limited
Principal
Mark-up
Principal
------------------ (Rupees '000') -----------------------
20,666,459
Mark-up
Total
-------------------- (Rupees '000') --------------------
-
7,796
7,796
-
253
-
253
253
-
63,863
10,000
-
16,109,227
4,188,303
7,796
10,000
42,564
-
------------------------ 2007 --------------------------
Total
53,863
13,803
13,803
-
7,796
253
46,020
56,020
12,108
12,108
-
1,012
1,012
-
1,012
1,012
18,049
68,678
86,727
18,049
59,140
77,189
DUE FROM PRIVATISED ENTITIES
Note
2008
Loans due to Government of Pakistan-unsecured
2007
(Rupees '000')
Principal amount
8.1
109,528
109,528
Mark-up on loans due to Government of Pakistan
8.1
830,293
714,876
Provision for doubtful loans
8.1
Total
------------------- (Rupees '000') --------------------
National Fibres Limited
Note
8
------------------------- 2007 -------------------------
Total
Pak PVC Limited
27,548,394
7.2
Mark-up
------------------ (Rupees '000") --------------------
Loans due to Government of Pakistan - unsecured
-------------------------- 2008 ----------------------Note
Names of Privatised Entities
Names of Buyers
Principal
Mark-up
939,821
824,404
(653,682)
(538,265)
286,139
286,139
----------------------- 2007 --------------------------
Total
Principal
----------------- (Rupees '000') -------------------
Mark-up
Total
--------------------- (Rupees '000') ------------------
Pak PVC Limited
M/s. Reyaz Shaffi (Reysheen) (Private) Limited
32,991
250,094
283,085
32,991
215,329
248,320
Pioneer Steel
M/s. Mr. M. Usman
55,415
419,897
475,312
55,415
361,525
416,940
National Motors Limited
M/s. Bibojee (Private) Limited
2,000
23,823
25,823
2,000
20,652
22,652
Haripur Vegetable Oil Processing Industries
M/s. Malik Naseer and Associates
19,122
136,479
155,601
19,122
117,370
136,492
109,528
830,293
939,821
109,528
714,876
824,404
7.1.1
National Fibres Limited
This entity was sold to M/s. Schon Group through sale agreement dated February 02, 1992 for a price of Rs. 756.64 million with a
mark-up @11% per annum on the outstanding balance. No joint audit was required as per sale agreement. However, the buyer
raised claims against the Commission for an amount of Rs. 209.60 million based on three issues:
a. variation in net worth;
b. increase in income tax liabilities; and
c. payment of dividend by the seller after bidding date, but before the signing of the sale agreement.
The buyer invoked arbitration clause. The Arbitrator announced the award on January 27, 1997 in favor of the Commission and the
Commission filed the same with the Civil Court, Islamabad for making it the rule of Court. The buyer obtained stay from the Court of
Senior Civil Judge, Islamabad. With the promulgation of the Privatisation Ordinance 2000, the case was transferred to Lahore High
Court, Rawalpindi Bench in November 2000. In the last hearing in December 2003, the Lahore High Court Rawalpindi Bench made
the arbitration award rule of the court and decree was drawn in favor of the Commission. The Commission invoked the bank
guarantee and Habib Bank Limited (HBL) has paid Rs. 335.35 million including mark-up on simple basis upto the validity of the bank
guarantee. Suit for the recovery of the balance mark-up through execution of the decree has been filed in the Sindh High Court,
Karachi.
7.1.2
Pak PVC Limited
This entity was sold to M/s. Reyaz Shaffi (Reeyshen) (Private) Limited through sale agreement dated January 23, 1992 for a price of
Rs. 63.57 million with mark-up @11% per annum on the outstanding balance. The buyer has purchased only 51% shares. The
Commission agreed to allow Rs. 13.45 million as audit adjustment being 51% of the variation reported by the seller’s auditor. The
buyer is, however, insisting for 100% variation of Rs. 64.70 million reported by the buyer’s auditor. The buyer has filed a suit in the
Court of Senior Civil Judge Lahore to get stay against encashment of bank guarantee. In view of PC Ordinance 2000 the case was
transferred to Lahore High Court Lahore on March 17, 2003 which was dismissed vide court order June 16, 2003.The bank guarantee
was invoked but the guarantor bank (Faysal Bank Limited) did not encash the guarantee on the ground that a certificate regarding
handing/ taking over possession signed by the buyer and the seller has not been provided to the bank.
The matter was referred to the Negotiation Committee of the Commission and the buyer and the seller has agreed that the joint audit
shall be conducted from the third auditor. A firm of Chartered Accountants was appointed for third audit who have reported reduction
of Rs. 39.16 million in the net worth. The matter was placed before Negotiation Committee, however, the buyer has not agreed to pay
the outstanding dues as determined by the third audit. A recovery suit has also been filed against the buyer and the bank in the
Lahore High Court, Rawalpindi Bench.
7.1.3
Sindh Alkalis Limited
This entity was sold to Sindh Alkalis Employees Management Group (SAEMG) through sale agreement dated October 01, 1993 for a
price of Rs.152.39 million with mark-up @14% per annum on the outstanding balance. No bank guarantee was provided to secure
the outstanding sale price, although required under the sale agreement. There was no provision of joint audit in the sale agreement.
The buyer has raised claim of Rs. 80.00 million on account of unfair deal of land. Further the buyer is also requesting for grant of
GHS/VSS as granted in other cases of employees buyout. Matter was referred to the Negotiation Committee. On the
recommendations of the Negotiation Committee, a revival plan prepared by the Employees Management Group was referred to
Corporate and Industrial Restructuring Corporation ("CIRC") who recommended that in case SAEMG have a good bankable proposal
they should approach the Committee for Revival of Sick Industrial Units through the Federation of Chamber of Commerce and
Industries.The position has been conveyed to SAEMG and Ministry of Labour, Manpower and Overseas Pakistanis. Recovey suit was
filed agianst the buyer in the Sindh High Court Karachi, which has decided the case in favour of the Commission. Execution petition
agaisnt decree dated November 24, 2004 was filed in Lahore High Court Rawalpindi Bench on January 5, 2006 which is pending.
7.1.4
Pak China Fertilizers Limited
This entity was sold to M/s. Schon Group through sale agreement dated May 26, 1992 for a price of Rs. 456.84 million with mark-up
@14% per annum on the outstanding balance. Later, a reduction in sale price was allowed through audit adjustment of Rs. 21.45
million. The buyer made claims for Rs. 183.19 million on account of decrease in the value of stores and spares, adjustment of tax
liabilities and operational losses etc. Matter was taken to the Arbitrator, who decided the case on July 09, 2001 in favour of the
Commission. The buyer filed objections against the award in the Court of Senior Civil Judge Islamabad. The buyer has, however,
withdrawn the suit and the Commission has invoked the bank guarantee was invoked. As a result National Bank of Pakisatn (NBP)
has paid Rs. 138.07 million on July 15, 2004 on account of principal amount of balance sale price and the case of the recovery of the
guaranteed mark-up is under negotiation with NBP. Suit for execution of the decree against the buyers has been filed in Lahore High
Court, Rawalpindi Bench in November 2006.
7.1.5
Metropolitan Steel Corporation Limited
This entity was initially sold to M/s. Sardar M. Ashraf D. Balouch through sale agreement dated May 09, 1992 for a price of Rs.
168.68 million with mark-up @ 14% per annum on the outstanding balance. Later, a reduction in sale price was allowed through audit
adjustment of Rs. 102.01 million. After payment of the principal amount of Rs. 54.70 million and mark-up of Rs. 8.38 million the
buyer defaulted and the entity was resold to M/s. Metro Management (Private.) Limited through Novation agreement dated June 08,
1994 for a balance sale price of Rs.11.97 million with mark-up @14% per annum on the outstanding balance.
The new buyer defaulted the payment of balance sale price and obtained stay against encashment of the bank guarantee. Upon
resumption of management of Metropolitan Steel Corporation by consortium of the banks and National Development Finance
Corporation (NDFC), the Commission informed it that the shares sold are in the custody of the Commission and can only be released
on settlement of the Commission/State Engineering Corporation's liabilities. On withdrawal of the court case by Metropolitan Steel
Corporation Limited, an amount of Rs.13.80 million was realised through encashment of the bank guarantee. Mark-up of Rs. 40.476
million is outstanding. The M/s. Metro Management has filed a case in the Supreme Court stating that the shares have not been
handed over to the buyer and the Commission is defending its claim of outstanding mark-up. The Supreme Court referred the suit to
Sindh High Court, Karachi.The buyer has agreed to pay Rs. 11.622 million simple markup basis provided the markup on markup is
waived off and the shares are released to Metro Management. The matter was referred to Negotiation Committee whose
recommendations were discussed in PC Board meeting on June 26, 2008. The board recommended the submission of Summary to
CCOP which is under process.
7.1.6
National Motors Limited
This entity was sold to M/s. Bibojee Services (Private) Limited through sale agreement dated January 09, 1992 for a price of
Rs.150.44 million with mark-up @11% per annum on the outstanding balance. On the basis of 51% shares purchased by the buyer,
audit adjustment for Rs. 11.40 million was allowed by the Commission against golden handshake advance. The buyer is insisting on
obtaining adjustment of total variation of Rs. 22.36 million. The matter has been referred to the Arbitrator (Secretary Finance).
Arbitration proceedings were held on January 23, 2007. The buyer requested for adjournment which the Arbitrator has allowed. The
PC has requested the Secretary Finance to fix the next date for hearing.
7.1.7
Balochistan Wheels Limited
This entity was sold to M/s. Abdul Qadir and Saleem .I. Kapoorwala through sale agreement dated May 26, 1992 for a price of Rs.
270.68 million with mark-up @14% per annum on the outstanding balance. Later, an increase in sale price was allowed through
adjustment of share of profit of Rs. 5.76 million and a reduction of Rs. 23.31 million was made from receivable balance as the amount
represented the excess receipt against sale of M/s. Naya Daur Motors, sold to the same buyer. The balance sale price was secured
by the guarantees provided by the defunct Mehran Bank Limited, NBP, which is the successor Bank. A suit was filed in the Lahore
High Court, Lahore by the Commission against NBP and the buyer, which was dismissed by the Court in September 2000. After
negotiation the NBP has paid Rs. 91.25 million including markup on simple basis upto the validity of the guarantee. The recovery of
the balance mark-up is being pursued in the Islamabad High Court, Islamabad.
7.1.8
Dandot Works of National Cement (Private) Limited
This entity was sold to M/s. Awan National Cement Limited through sale agreement dated January 13, 1993 for a price of Rs.110
million with mark-up @14% per annum on the outstanding balance. NBP did not encash the bank guarantee on the plea that
condition regarding creation of first charge of the bank on the assets of the entity was not fulfilled by the buyer/Commission. The title
documents are with NBP as security against the bank guarantee. The matter was taken up by Army Monitoring Team who has
submitted its report to the Chief Executive Secretariat.
On demand of the employees, Commission has paid its share of GHS / VSS and final dues on behalf of the buyer. The Commission
has lodged the claim in the Lahore High Court for the payment made on behalf of buyer. As there was no stay, the matter was
pursued with NBP who has paid Rs. 93.72 million for the principal amount and simple Mark-up upto the date of the validity of the
bank guarantee. Suit for the recovery of Rs. 132.59 million on account of outstanding mark-up has been filed in Lahore High Court,
Rawalpindi Bench.
7.1.9
Wah Cement Limited
This entity was sold to M/s. Employees Management Group Wah Cement/Askari Cement Limited through sale agreement dated
February 15, 1996 for a price of Rs. 2,752.09 million with mark-up @16% per annum on the outstanding balance. Later, a reduction
in sale price was allowed through audit adjustment of Rs.116.55 million. The buyer was demanding audit adjustment of Rs.633.00
million as variation in the net worth. The buyer filed a suit to press his demand. The Lahore High Court, Rawalpindi Bench was
requested by the both parties to refer the matter to the Arbitrator, Secretary General Finance. The Arbitration Award was passed on
August 22, 2002 wherein audit adjustment of Rs. 336.35 million was allowed and was referred to Lahore High Court for making rule of
the court. The buyer has filed objection to the award. Various hearings were held and in March 2004, the court made the award the
rule of the court and bank guarantee was invoked. However, the buyer managed to obtain a fresh stay order. The matter is subjudice.
The buyer has now agreed to pay outstanding principal amount with simple markup.
The matter was discussed in PC Board meeting on June 26, 2008 which has recommended to put up the matter in next CCOP
meeting. The matter is under process.
7.1.10
Haripur Vegetable Oil Processing Industries
This entity was sold to M/s. Malik Naseer and Associates through sale agreement dated June 30, 1992 for a price of Rs. 30.10
million with mark-up @14% per annum on the outstanding balance. The buyer has filed a suit and obtained stay order against
encashment of the bank guarantee. The buyer has asked for the transfer of title deeds in his favour and finalization of joint audit. The
Civil Court Abbotabad decided the case against the Commission and passed a decree in favour of the buyer. As required by PC
Ordinance, the case been transferred to High Court. On the request of the buyer, the case was also referred to the Negotiation
Committee which advised conduct of third Audit. M/s Khalid Majeed Rehman Hussain, Chartered Accountants provided their findings
to which the buyer did not agree. The case is now being pursued in court of law.
7.1.11
Crescent Factories Vegetable Ghee Mills
This entity was sold to Mr. Sh. Javed Rafi of M/s S. J. Industries through sale agreement dated January 05, 1993 for a price of Rs.63
million with mark-up @14% per annum on the outstanding balance. The buyer paid 40% sale price and provided bank drafts for
balance 60% to be kept by the Commission till the settlement of joint audit. Later the bank drafts were returned against the
undertaking from the buyer to provide bank guarantee on settlement of audit adjustment. The buyer’s auditor reported negative
movement in the net worth of Rs.41.40 million, whereas the seller’s auditor indicated negative movement of Rs.19.05 million.
After adjustment of 5%, the buyer was allowed a decrease in the price for an amount of Rs. 17.02 million. The buyer did not accept
audit adjustment of Rs 19.05 million and filed a suit seeking temporary injunction against demanding / claiming balance sale price
from him. On the directions of Cabinet Committee on Privatisation, the matter was reported to the National Accountability Bureau
(NAB) in July 1998. However, it was decided to refer the matter to the Negotiation Committee and the buyer consent was sought,
which remained awaited. The case was also referred to National Accountability Bureau. A suit for recovery of the outstanding amount
was filed by the Commission in Lahore High Court, Rawalpindi Bench in July 2003 which is subjudice.
7.1.12
A and B Oil Industries Limited
This entity was sold to M/s. Al-Hashmi Brothers through sale agreement dated February 11, 1993 for a price of Rs.36 million with
mark-up @14% per annum on the outstanding balance. Later, a reduction in sale price of Rs.7.47 million was made on account of
audit adjustment. The buyer filed a suit in the Sindh High Court and obtained stay against encashment of bank guarantee. The buyer
in his plaint stated that, basement covering whole area of the factory, a plot adjacent to factory and two storage tanks are still in the
custody of the ex-owner who has denied to hand over the physical possession. The Court referred the case for arbitration. Date fixed
for hearing was postponed at the request of the buyer and matter is pending before the Arbitrator. The matter was also referred to
Negotiation Committee which decided conduct of third audit. M/s Muniff Ziauddin & Co., Chartered Accountants appointed as third
auditor have reported negative movement of Rs. 18.907 million.
The buyer did not pay the oustanding amount as per the finding the third auditor and has not agreed to handover the land to the GCP
(Ghee Corporation of Pakistan) which he has illegally occupied. The matter is pending in Sindh High Court.
7.1.13
Siranwali Rice Mills
This entity was sold to M/s. Enkay Enterprises (Private) Limited through sale agreement dated June 07,1992 for a price of Rs.16.20
million with mark-up @14% per annum on the outstanding balance. The buyer has claimed Rs.1.22 million on account of shortage of
stores and stocks at the time of taking over possession. The Arbitrator admitted the claim for an amount of Rs.0.09 million. The
balance amount is payable by the buyer. HBL has obtained the decree against the buyer from Lahore High Court for recovery. The
Commission has filed objection petition requesting to satisfy the Commission's claim prior to settlement of HBL claim.
7.1.14
Dhaunkal Rice Mills
This entity was sold to M/s. Dhonda Pakistan (Private) Limited through sale agreement dated June 28, 1993 for a price of Rs.79.20
million with mark-up @14% per annum on the outstanding balance. The buyer filed a suit and obtained stay order. On vacation of the
stay by the Court, bank guarantee was invoked on July 27, 1998 and Union Bank paid Rs.81.06 million including mark-up of Rs.33.54
million determined by the bank on simple interest method. The case for the waiver of outstanding mark-up is under process.
7.1.15
Mubarakpur Rice Mills
This entity was sold to M/s. Continental Rice Mills (Private) Limited through sale agreement dated November 14, 1993 for a price of
Rs. 16.20 million with mark-up @14% per annum on the outstanding balance. On the default of the buyer, the bank guarantee was
invoked, HBL paid full principal amount on the plea that the guarantee did not secure mark-up. The buyer had made a claim of Rs.
4.49 million on account of shortage of stores and stocks at the time of taking over possession of the entity. The matter was referred to
the Negotiation Committee and on its recommendations, the Board of the Commission had accepted the shortage of Rs. 1.86 million
and charging of the simple interest on the balance sale price. The buyer has signed the agreement but has not paid the agreed
amount. The recovery suit was filed in Lahore High Court, Rawalpindi Bench which has decided in favour of the Commission. Suit for
execution of decree has been filed.
7.1.16
Quaidabad Woolen Mills
This entity was sold to M/s. Jehangir Anwar and Associates through sale agreement dated January 21, 1993 for a price of Rs. 86.76
million with mark-up @14% per annum on the outstanding balance. An audit adjustment of Rs. 1.24 million was allowed which was
not accepted by the buyer. The buyer referred the case to the Arbitrator who decided the case in favour of the Commission with the
instructions that mark-up be charged on the principal amount and outstanding mark-up @ 14% and 10% per annum respectively. A
part of third annual installment is outstanding. During a meeting with the representatives of NAB, Soneri Bank proposed to pay Rs.
3.00 million in final settlement of the guaranteed amount. The offer was not accepted and the Commission has filed a recovery suit
against the buyer and the bank in the Lahore High Court, Rawalpindi Bench.
Note
2008
2007
(Rupees '000')
9
ADVANCES, DEPOSITS, PREPAYMENTS AND RECEIVABLES
Advances to employees- against expenses
9.1
Security deposits
Prepaid rent
Receivable from Citibank (Escrow account)
9.1
260
9,315
580
5,744
67,048
63,367
83,290
70,300
Advances to employees
Advances to employees- against expenses
Provision for doubtful advances
9.2
349
260
6,461
9.2
Accrued interest on bank accounts
206
349
(143)
349
-
206
349
An interest bearing foreign currency account was opened jointly by Privatisation Commission and the prospective buyers National Power Plc UK with
Citibank. Citibank claimed losses of US$ 95,000. The Commission denied claim and recognised the charge as receivable from Citibank, acting as an
agent.
Note
2008
2007
(Rupees '000')
10
CASH AND CASH EQUIVALENTS
Cash in hand
45
42
Cash at bank on :
- Current accounts
10.1
17,893
9,299
- Saving accounts
10.2
237,839
3,670,505
255,732
3,679,804
Term Deposit Receipt (TDR) with NBP, UBL and HBL
10.1
10.3
2,122,000
8,736,674
2,377,777
12,416,520
Current accounts
Pak Rupee accounts
World Bank loan - IDA 3808 with NBP
378
378
1,897
1,836
15,618
7,085
17,893
9,299
State Bank of Pakistan
Commission's account with NBP
10.1.1
10.1.1
These accounts are established under section 14 of the Privatisation Commission Ordinance, 2000. The account is used for grants from Federal
Government, supplementary contributions from the Privatisation Fund, receipts of fees and charges, grants of money and sums borrowed and for
meeting operations of the Commission.
Note
2008
2007
(Rupees '000')
10.2
Saving accounts
Pak Rupee accounts
NBP Account
47,775
1,927
National Investment Daily Account (NIDA) with NBP
63,321
154,021
Bank Alfalah
42
1,789,933
Bank of Punjab
98
1,342,125
Habib Bank
2,952
United Bank
2,511
116,699
3,288,006
121,140
382,499
237,839
3,670,505
Foreign currency accounts
NBP US$ 1,781,180 (2007: US$ 6,326,366)
10.2.1
10.2.1
Finance Division vide U.O. No. F.7(10)-INV.(IV)/2001 dated October 09, 2001 has allowed the Commission to maintain interest / profit bearing US
Dollars and Pak Rupees accounts with National Bank of Pakistan, Main Branch, Islamabad to deposit the amounts received from the potential bidders /
successfull bidders as earnest money or sale proceeds (in part or total) till such time either the possession of the entities or shares / assets are handed
over to the buyers. Moreover, Finance Division (Budget Wing) vide their OM F.4(1)/2000-BRII dated November 12, 2002, as part of their programme
for further development of the financial sector have allowed public sector enterprises and local / autonomous bodies to deposit their working balances
required for their operations with any public or private bank having minimum 'A' rating. Accordingly, the funds have been deposited with National Bank of
Pakistan, Habib Bank Limited and United Bank Limited.
Note
2008
2007
(Rupees '000')
10.3
PLS Special Notice Deposit Receipts (SNDRs)
10.3.1
This represents Term Deposit Receipts (TDR) for Rs. 1,700 million ( 2007 : Nil ) with NBP, Rs. 300 million with UBL and Rs. 122 million with HBL
(2007: Rs. 8,736.634 million) carrying effective interest rate of 10.30%, 9.50% and 8.15% per annum respectively.
10.3.1
Note
2,122,000
2008
8,736,674
2007
Restated
(Rupees '000')
11
11.1
GRANTS FROM GOVERNMENT OF PAKISTAN
Grant related to income
11.1
16,603
127
Grant related to assets
11.2
9,238
7,119
25,841
7,246
Grant related to income
Balance at beginning of year
Grant received related to income during the year
17
Amortisation for the year
Balance at end of year
11.2
127
46
59,931
38,354
(43,455)
(38,273)
16,603
127
7,119
5,524
Grant related to assets
Balance at beginning of year
Assets acquired during year
4
4,133
2,836
11,252
8,360
Book value of the assets disposed off
Amortisation for the year
4
(44)
(48)
(1,970)
(1,193)
(2,014)
(1,241)
9,238
7,119
Balance of grant at end of year
12
GRANT FROM WORLD BANK
Total grant for acquisition of assets
2,998
2,998
Opening amortised balance
4
2,643
2,576
Amortisation for year
4
52
(2,695)
Balance of grant at end of year
13
67
(2,643)
303
355
LIABILITIES ASSUMED OF PRIVATISED ENTITIES
These represent liabilities of privatised entities which are assumed by the Commission on behalf of Government of Pakistan at the time of privatisation.
These comprise the following:
Note
2008
2007
(Rupees '000')
Description
Assumption
date
Share deposit money (Swat Ceramics)
31-05-95
1,424
1,424
MCB Bank Limited (Swat Ceramics)
31-05-95
1,960
1,960
Industrial Development Bank of Pakistan (General Refractoriness Ltd.)
14-02-96
5,947
5,947
State Engineering Corporation Limited (Textile Machinery)
05-10-95
49
49
Sales tax and Income tax (Kohinoor Oil Mills)
11-06-03
50,639
50,639
Nowshera PVC (Private) Limited
01-02-95
862
Swat Ceramics Company (Private) Limited
31-05-95
6,349
7,211
75,666
142,896
75,666
142,896
Creditors, accruals and other liabilities
13.1
-
2008
2007
(Rupees '000')
13.1
13.2
Creditors, accruals and other liabilities
Khyber Vegetable Ghee Mills Limited
05-01-93
101
101
Ravi Engineering Limited
07-01-96
39,386
39,386
Nowshera Chemical
22-04-96
2,285
2,285
Burma Oil Mills Limited
18-01-00
1,560
1,560
Swat Ceramics Company (Private) Limited
31-05-95
15,238
15,238
General Refractoriness Limited
14-02-96
4,376
4,376
Textile Machinery Company (Private) Limited
05-10-95
2,365
2,365
Makarwal Collieries
13-06-95
6,955
6,955
E and M Oils Limited
31-07-02
3,400
3,400
75,666
75,666
The Committee set up by the Commission, for the adjustment/settlement of liabilities absorbed on behalf of Government of Pakistan, concluded the task
assigned to it and based on its report the Board of the Commission approved the adjustment/settlement of liabilities, which were accepted by the banks,
corporations and others. Liabilities included in the financial statements were adjusted in accordance with the aforestated decision.
2008
2007
(Rupees '000')
14
OTHER PAYABLES
M/s Merrill Lynch and KASB
M/s Pricewaterhouse Coopers
M/s Citigroup Global Market
25,095
148,131
3,332
2,963
75,693
130,960
Legal advocates
-
2,905
1,225
1,225
Advances against OGDCL (IPO)
13,414
13,414
Advances against SSGCL (IPO)
4,924
4,924
Hayat Regency Project's liabilities
42,490
42,490
Income tax refund in case of Pak American payable to IPIC
Advances against NBP (IPO)
45,620
45,620
Withholding tax liability- Citigroup
-
32,164
Audit Fee
120
120
Dividend payable to SBP for shares in UBL
1,935
-
Others
6,951
5,314
220,799
430,230
Earnest money payable
Sadiq, Riaz and Hussain-Lasbella Textile Mills
Bagh Construction-Republic Motors
Bin Ham Group-First Women Bank Limited
Citi School-Chamba House
15
CONTINGENCIES AND COMMITMENTS
15.1
Contingencies
-
3,000
1,000
1,000
10,000
10,000
2,500
2,500
13,500
16,500
234,299
446,730
There were about 162 (2007: 155) cases under litigation, arbitration and negotiation. These include the following major cases:
2008
2007
(Rupees '000')
Claims under litigation -19 (2007: 11) cases
Claims under negotiation -1 (2007:1) case
1,065,980
445,026
10,953
10,953
1,076,933
455,979
The financial impact of the remaining cases could not be quantified.
15.2
Commitments
Commitments under contracts signed with financial advisors
193,415
176,428
1,270,348
632,407
Note
2008
2007
Restated
(Rupees '000')
16
PAYABLE TO GOVERNMENT OF PAKISTAN
Balance at beginning of year
6.1.4
71,064,922
78,279,797
Additions during the year
16.1
25,035,702
106,085,297
Deletions during the year
16.2
(36,952,070)
(113,300,172)
59,148,554
71,064,922
17,204,922
104,315,018
Balance at the end of year
16.1
Additions during the year
Sales proceeds of privatised entities
16.1.1
Fee on sales transferred to other income
(20,000)
(20,000)
Mark-up on unpaid privatisation proceeds
690,153
561,037
Mark-up on loans due to Government of Pakistan by privatised entities
124,955
109,610
Mark-up on late payment of sale price by Azgard Nine
Available for sale investment
6
Recovery of repair cost from EDB
153,975
(63,435)
40,568
5,653
Exchange gain on receivables
6,061,009
Transferred from income and expenditure account
16.1.1
-
335,975
1,032,445
589,114
25,035,702
106,085,297
12,042,124
5,128,072
34,759
240
130
(403)
34,322,855
Sales proceeds of privatised entities
These represents sales against privatisation of the following entities7.5% shares of HBL through IPO
3.26% shares of UBL through GDR
Balance proceeds of OGDCL SPO
10% shares of Antibiotics (Pvt) Ltd.
Balance proceeds of UBL - IPO
Refund of proceeds of 10% shares of Gharibwal Cement
16.2
100% shares of Pak American Fertilizers Limited
-
15,948,900
10% shares of OGDCL through GDR & SPO
-
49,291,116
96.32% shares of Javedan Cement
-
4,315,947
Lasbella Textile Mills
-
156,000
100% shares of Lyallpur Chemicals
-
280,200
17,204,922
104,315,018
15,265,197
531,479
and professional consultants
38,906
899,017
Advertisements
16,690
12,785
Remittances to Government of Pakistan
1,649,947
71,464,011
CBR dues in case of Pak American Fertilizers Limited
1,769,503
4,961,782
Deletions during the year
Payment of GHS/VSS
16.2.1
Professional charges to financial advisors, valuers, legal
EAD loan in case of Thatta Cement
Payments to enterprises owned / controlled by Federal Government
16.2.2
200,000
17,240,720
34,476,185
561,037
Provision increase:
Provision for doubtful proceeds
7
690,153
Provision for doubtful advances
7
9,538
8,492
Provision for doubtful loans
8
115,417
101,243
815,108
670,772
Others
16.2.1
155,999
84,141
36,952,070
113,300,172
Payment of GHS/VSS
Pakistan Telecommunication Corporation Limited
15,264,928
-
Pak American Fertilizers Limited
175
267,989
Javedan Cement Limited
-
165,557
Pak Saudi Fertilizers Limited
-
90,687
Lyallpur Chemicals Limited
94
6,947
National Press Trust
-
Pak Hy Oil
-
(11)
Suraj Ghee Mills
-
139
15,265,197
171
531,479
2008
2007
(Rupees '000')
16.2.2
Payments to enterprises owned / controlled by Federal Government
State Bank of Pakistan for shares in HBL
11,854,219
State Bank of Pakistan for shares in UBL GDR
Pakistan Telecommunication Company Limited (PTCL) - CTI
-
5,089,838
33,976,185
152,391
500,000
International Petroleum Investment Company (IPIC)
65,262
Investment Corporation of Pakistan (ICP)
79,010
17,240,720
34,476,185
The above payments are made under the provision of section 16 of the Privatisation Commission Ordinance, 2000.
17
GRANTS FROM GOVERNMENT OF PAKISTAN
These represent the amounts utilised out of annual federal budget allocation for the Commission. These are utilised for the acquisition of fixed assets
and for payment of the operational expenditure of the Commission.
Note
2008
2007
(Rupees '000')
Federal budgetary grant received during the year
64,064
Grant allocated for assets
(4,133)
(2,836)
59,931
38,354
43,455
38,273
Balance related to income
17.1
11.1
Amortisation of grant
Related to income
Related to assets
18
41,190
11.2
2,014
1,241
45,469
39,514
FEES, CHARGES AND OTHER RECEIPTS
Fee on sales
Mark-up on interest bearing bank accounts
Gain on disposal of property, plant and equipment
Other receipts
20,000
20,000
998,908
548,690
559
523
49,241
57,588
1,068,708
626,801
19
FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
Interest bearing / Mark-up bearing
Maturity
More than
More than one More than two three years but
Less than or year but less years but less less than or
equal to one than or equal than or equal equal to four
to two years to three years
years
year
Financial Assets
Long term receivables
Due from buyers of privatised entities
Due from privatised entities
Advances, deposits, prepayments and receivable
Cash and cash equivalents
Sub Total
Non - Interest bearing / Mark-up bearing
Maturity
More than
More than one More than two three years but
Less than or year but less than years but less less than or
than or equal equal to four
equal to one or equal to two
to three years
years
year
years
Sub Total
2008
…....………………………………………..………………………………………………………...(Rupees '000')…………………...………………..…………………………………………………………
2,331,687
-
-
-
2,331,687
27,179,465
18,119,747
-
286,139
-
-
286,139
-
-
-
-
-
73,769
-
-
73,769
-
-
-
-
-
-
-
-
17,938
2,377,777
-
54,377,187
59,428,621
-
142,896
234,299
142,896
234,299
2,359,839
-
-
-
2,359,839
17,938
5,051,434
-
-
-
5,051,434
27,197,403
18,119,747
-
-
-
234,299
142,896
-
9,060,037
-
9,060,037
-
27,179,784
27,179,465
27,179,784
29,511,152
286,139
73,769
Financial Liabilities
Liabilities assumed of privatised entities
Other payables
-
On Balance Sheet Gap
5,051,434
-
-
-
-
-
-
-
-
-
5,051,434
234,299
142,896
26,963,104
17,976,851
9,060,037
-
377,195
377,195
-
53,999,992
59,051,426
-
1,076,933
193,415
1,076,933
193,415
Off Balance Sheet items
Contingencies
Commitments
-
Off Balance Sheet Gap
5,051,434
-
-
-
-
-
-
Interest bearing / Mark-up bearing
Maturity
More than
More than one More than two three years but
Less than or year but less years but less less than or
equal to one than or equal than or equal equal to four
years
to two years to three years
year
Financial Assets
5,051,434
Sub Total
1,076,933
193,415
1,270,348
25,692,756
17,976,851
9,060,037
-
1,270,348
1,270,348
-
52,729,644
57,781,078
Non - Interest bearing / Mark-up bearing
Maturity
More than
More than one More than two three years but
Less than or year but less than years but less less than or
than or equal equal to four
equal to one or equal to two
years
to three years
years
year
Sub Total
2007
…....………………………………………..………………………………………………………...(Rupees '000')…………………...………………..…………………………………………………………
Long term receivables
Due from buyers of privatised entities
2,331,687
Due from privatised entities
286,139
Advances, deposits, prepayments and receivable
69,371
Cash and cash equivalents
12,407,179
15,094,376
-
-
-
-
2,331,687
286,139
69,371
12,407,179
15,094,376
16,109,227
9,341
16,118,568
16,109,224
16,109,224
16,109,224
16,109,224
8,054,619
8,054,619
40,273,067
16,109,227
9,341
56,391,635
40,273,067
18,440,914
286,139
69,371
12,416,520
71,486,011
15,094,376
-
-
-
15,094,376
446,730
446,730
15,671,838
142,896
142,896
15,966,328
16,109,224
8,054,619
142,896
446,730
589,626
55,802,009
142,896
446,730
589,626
70,896,385
15,094,376
-
-
-
15,094,376
455,979
176,428
632,407
15,039,431
15,966,328
16,109,224
8,054,619
455,979
176,428
632,407
55,169,602
455,979
176,428
632,407
70,263,978
Financial Liabilities
Liabilities assumed of privatised entities
Other payables
On Balance Sheet Gap
Off Balance Sheet items
Contingencies
Commitments
Off Balance Sheet Gap
19.1Risk management
a) Concentration of credit risk
Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed completely to perform
as contracted. All financial assets except cash and bank balances, are subject to credit risk. As part of the Commission credit risk
management policy, the Commission obtains bank guarantees for the balance price from the contractual parties.
b) Interest rate risk
Interest rate risk arises from the possibility that the changes in the interest rates will affect the values of financial instruments. The
effective interest rates for the monetary financial assets and liabilities are mentioned in the respective notes to the financial statements.
c) Currency risk
Currency risk is the risk of loss through changes in foreign currency exchange rates. Foreign currency risk arises where receivables and
payables exist due to transactions with foreign undertakings. Financial assets and liabilities includes Rs 54,365.71 million (2007: Rs
56,388.03 million) and Rs 104.12 million (2007: Rs 282.05 million) respectively which are subject to credit risk.
d) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of
grants received from Government of Pakistan. Due to effective cash management, planning policy and supervision of Government of
Pakistan, there is no significant liquidity risk.
19.2 Fair value of financial assets and liabilities
The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values.
20
CORRESPONDING FIGURES
The comparative figures have been rearranged/reclassified, wherever necessary, for the purpose of comparison in these financial
statements. Financial statements for the year ended June 30, 2007 has been restated subject to the adjustment of note 6 of the
financial statements.
21
GENERAL
Figures have been rounded off to the nearest thousand Rupee.
22
DATE OF AUTHORISATION FOR ISSUE
These financial statements were authorised for issue on________________ by the Board of Privatisation Commission.
Chairman
Member/Secretary
MINISTRY OF PRIVATISATION
PRIVATISATION COMMISSION
5-A, EDB Building, Constitution Avenue, Islamabad
Phones: +92-51-9205146-7, Fax: +92-51-9203076
53