Which way privatisation?
Tuesday, 14 December 2010
It is mainly the 'indecisiveness' on the part of economic policy planners of the government about the future privatization programmes that is responsible for leaving a negative impact on the investment activities of the country. The pace of development activities in the public sector remains yet to be accelerated to the extent that might help create favourable conditions to crowd in private investments.
In fact, there is no clear cut direction on the privatisation issue in the new industrial policy. Before the policy was approved by the cabinet, Finance Minister AMA Muhith sent a letter to the chairman of the Privatisation Commission (PC) expressing the government's desire to wound up its (commission) activities. In addition, the minister wanted to know how many of the privatised industrial units are operating successfully, how many of them could pay loans and how many are now in production.
A disappointed chairman of the PC, after getting such a letter, told the media at a press conference that it would be improper to wind up the commission since it has a role in gearing up industrialisation and in overall economic activities. He said the commission has prepared a review report on industrial units which have remained closed and that report will be sent to the minister.
In fact, the functional role of the PC still remains largely uncharted. This is partly because no firm signal about the future of the privatisation progress is yet available. After coming to power, some government functionaries clearly expressed their firm position on not undertaking any further privatisation of public sector mills and industries.
It is believed that there has been a persistent discord between the line ministries and the commission over privatization of the state-owned enterprises (SoEs). Many ministries are not very enthusiastic about privatisation. Even if privatisation is deemed essential, they want to do this themselves, bypassing the commission. This had happened in several occasions in the past.
In its election manifesto, the ruling party did, however, state that no industry would be privatised or closed down without creating alternative employment opportunities for the workers and employees. The government has already reopened some of the closed jute mills in order to rejuvenate the long-ailing jute sector. But many loss-making entities in the public sector are still responsible for haemorrhage to the country's public exchequer. Will the government continue to sustain such heavy losses years after years on account of such SoEs? Inefficient management, corruption and worn-out machineries have been sapping the vitality of many public sector mills and factories. Such industries have not been modernised with the change of time.
During the previous caretaker government, now-defunct Regulatory Reform Commission (RRC) had made a number of recommendations, in conjunction with some other proposals that were mooted to reinvigorate the Privatisation Commission (PC). Then, the updating of the old, ineffective and complicated laws was put on the agenda for actions to help boost investment and facilitate increased trade. The recommendations of the RRC, particularly relating to privatisation, were termed by a cabinet minister of the incumbent government as 'brilliantly clustered'. The RRC exists no more. But there is no move to carry forward its unfinished work.
There is no denying that key institutions responsible for investment facilitation and promoting private sector-led growth, should be revamped at the earliest. Otherwise, it would be difficult to help boost production in industries on a sustained basis and to expedite the privatisation process in transparent ways. Policy flip-flops and foot-dragging on matters of consequence for facilitating expansion of new investment activities on a sustained footing do have huge economic costs, particularly in terms of lost opportunities.
The new industrial policy stated that efforts would be made to make the losing SoEs profitable before taking any move to privatise them. More than 99 per cent SoEs with obsolete machinery remain sick. There is slim chance that these industries would run profitably with age-old machinery. Successive governments have pumped hundreds of crores into state-run enterprises and there was no return.
Yet the fact remains that the PC could not make any headway in the task of disposing of a large number of SoEs due to bureaucratic red tape, legal complexities and lukewarm response from the prospective buyers.
Lack of coordination among various public sector agencies and inaccurate valuation of the SoEs were also the stumbling blocks to the PC's privatisation process. It was gathered that the valuation of the properties, movable and immovable, was so unrealistic that prospective entrepreneurs found the same unattractive. The PC invited bids for many SoEs on several occasions but response was very poor.
The nation saw the unfortunate demise of the world's largest and yet greatest loss-making Adamjee Jute Mills (AJM) at the hands of the Commission. The move was seen as having been taken in the right direction as the AJM was draining out a huge amount of money from the national exchequer. Nevertheless, between 1976 and 1992, about 500 SoEs were sold out or returned to their former owners. Afterwards, the process of privatisation was painfully slow. Despite relentless media campaign, the privatisation process progressed at a snail's pace, as the successive governments were seen casually dealing with the all-important issue.
The country, of course, slowly opened up some major sectors to private entrepreneurs -- both domestic and international. For example, the government had declared a policy of allowing private sector power generation companies to set up, produce and sell power to the government. Approval for such companies had already been given and more may come in the future. The natural gas and oil exploration business was also offered to the private sector entirely and it appears that this sector is attracting some foreign investment. The telecommunication sector was also privatised and a number of private sector telecom operators are now operating in the country.
Yet unfortunately, some of the disinvested units are not bringing about the desired results. Many private entrepreneurs could not run the units properly after purchasing the same, resulting in either lay-off or running those at a loss. Some buyers followed the most negative way, showing their units as loss making and took a large amount of loans from the banks in the name of restructuring. Some entrepreneurs were reported to have bought the SoEs at very nominal prices in connivance with a section of corrupt PC officials. Critics say even the face value of a disinvested unit was several times more than the sold prices. There is apparently no opposition to the decision of handing over some of the loss-making units to their aggrieved employees. They are believed to try their level best to survive in the world of globalisation by putting in their hard labour.
By all counts, the process of privatisation should be reviewed with all fairness. The government needs to update and modernise the privatisation policy suiting to the needs of the present time. The loopholes in the policy need to be checked and crosschecked with minute attention. The government may also contemplate inviting foreign direct investment for participation in the tenders for selling the SoEs in order to bring about a radical change in the country's ailing industrial sector.
..................................
The writer is the Executive Editor of the FE. He can be reached at e-mail: szkhan@dhaka.net
In fact, there is no clear cut direction on the privatisation issue in the new industrial policy. Before the policy was approved by the cabinet, Finance Minister AMA Muhith sent a letter to the chairman of the Privatisation Commission (PC) expressing the government's desire to wound up its (commission) activities. In addition, the minister wanted to know how many of the privatised industrial units are operating successfully, how many of them could pay loans and how many are now in production.
A disappointed chairman of the PC, after getting such a letter, told the media at a press conference that it would be improper to wind up the commission since it has a role in gearing up industrialisation and in overall economic activities. He said the commission has prepared a review report on industrial units which have remained closed and that report will be sent to the minister.
In fact, the functional role of the PC still remains largely uncharted. This is partly because no firm signal about the future of the privatisation progress is yet available. After coming to power, some government functionaries clearly expressed their firm position on not undertaking any further privatisation of public sector mills and industries.
It is believed that there has been a persistent discord between the line ministries and the commission over privatization of the state-owned enterprises (SoEs). Many ministries are not very enthusiastic about privatisation. Even if privatisation is deemed essential, they want to do this themselves, bypassing the commission. This had happened in several occasions in the past.
In its election manifesto, the ruling party did, however, state that no industry would be privatised or closed down without creating alternative employment opportunities for the workers and employees. The government has already reopened some of the closed jute mills in order to rejuvenate the long-ailing jute sector. But many loss-making entities in the public sector are still responsible for haemorrhage to the country's public exchequer. Will the government continue to sustain such heavy losses years after years on account of such SoEs? Inefficient management, corruption and worn-out machineries have been sapping the vitality of many public sector mills and factories. Such industries have not been modernised with the change of time.
During the previous caretaker government, now-defunct Regulatory Reform Commission (RRC) had made a number of recommendations, in conjunction with some other proposals that were mooted to reinvigorate the Privatisation Commission (PC). Then, the updating of the old, ineffective and complicated laws was put on the agenda for actions to help boost investment and facilitate increased trade. The recommendations of the RRC, particularly relating to privatisation, were termed by a cabinet minister of the incumbent government as 'brilliantly clustered'. The RRC exists no more. But there is no move to carry forward its unfinished work.
There is no denying that key institutions responsible for investment facilitation and promoting private sector-led growth, should be revamped at the earliest. Otherwise, it would be difficult to help boost production in industries on a sustained basis and to expedite the privatisation process in transparent ways. Policy flip-flops and foot-dragging on matters of consequence for facilitating expansion of new investment activities on a sustained footing do have huge economic costs, particularly in terms of lost opportunities.
The new industrial policy stated that efforts would be made to make the losing SoEs profitable before taking any move to privatise them. More than 99 per cent SoEs with obsolete machinery remain sick. There is slim chance that these industries would run profitably with age-old machinery. Successive governments have pumped hundreds of crores into state-run enterprises and there was no return.
Yet the fact remains that the PC could not make any headway in the task of disposing of a large number of SoEs due to bureaucratic red tape, legal complexities and lukewarm response from the prospective buyers.
Lack of coordination among various public sector agencies and inaccurate valuation of the SoEs were also the stumbling blocks to the PC's privatisation process. It was gathered that the valuation of the properties, movable and immovable, was so unrealistic that prospective entrepreneurs found the same unattractive. The PC invited bids for many SoEs on several occasions but response was very poor.
The nation saw the unfortunate demise of the world's largest and yet greatest loss-making Adamjee Jute Mills (AJM) at the hands of the Commission. The move was seen as having been taken in the right direction as the AJM was draining out a huge amount of money from the national exchequer. Nevertheless, between 1976 and 1992, about 500 SoEs were sold out or returned to their former owners. Afterwards, the process of privatisation was painfully slow. Despite relentless media campaign, the privatisation process progressed at a snail's pace, as the successive governments were seen casually dealing with the all-important issue.
The country, of course, slowly opened up some major sectors to private entrepreneurs -- both domestic and international. For example, the government had declared a policy of allowing private sector power generation companies to set up, produce and sell power to the government. Approval for such companies had already been given and more may come in the future. The natural gas and oil exploration business was also offered to the private sector entirely and it appears that this sector is attracting some foreign investment. The telecommunication sector was also privatised and a number of private sector telecom operators are now operating in the country.
Yet unfortunately, some of the disinvested units are not bringing about the desired results. Many private entrepreneurs could not run the units properly after purchasing the same, resulting in either lay-off or running those at a loss. Some buyers followed the most negative way, showing their units as loss making and took a large amount of loans from the banks in the name of restructuring. Some entrepreneurs were reported to have bought the SoEs at very nominal prices in connivance with a section of corrupt PC officials. Critics say even the face value of a disinvested unit was several times more than the sold prices. There is apparently no opposition to the decision of handing over some of the loss-making units to their aggrieved employees. They are believed to try their level best to survive in the world of globalisation by putting in their hard labour.
By all counts, the process of privatisation should be reviewed with all fairness. The government needs to update and modernise the privatisation policy suiting to the needs of the present time. The loopholes in the policy need to be checked and crosschecked with minute attention. The government may also contemplate inviting foreign direct investment for participation in the tenders for selling the SoEs in order to bring about a radical change in the country's ailing industrial sector.
..................................
The writer is the Executive Editor of the FE. He can be reached at e-mail: szkhan@dhaka.net