View From Islamabad: PSO sale won't lead to more privatisation

Pakistan's upcoming privatisation target could both be ambitious as well as a trendsetter for the country's economic prospects. The decision to set a date for calling bids for the state owned Pakistan State Oil (PSO) brings one of the country's most important companies a step closer to its eventual privatisation. The PSO is responsible for marketing at least 70 per cent of the petroleum products sold in Pakistan.

In its latest financial result for the year which ended in June, PSO reported a net profit of Rs4.03 billion. The company's prominence in Pakistan can be judged by the fact that it has around 3,800 petrol stations across the country. At least 750 of those stations have been modernised in the past few years with add on facilities such as retail outlets for consumer goods.

So far, the front runners to bid for PSO include the Kuwait Petroleum Corporation, Pakistan's Fauji Foundation group and MIDROC corporation of Saudi Arabia, each attracted to bid in view of the substantial financial returns expected. The outcome of PSO's privatisation plans will influence sentiment on the Karachi Stock Exchange where its stock is easily counted among some of the most vital trendsetters.

Hope

The hope among Pakistani officials is to successfully oversee the privatisation of PSO's 26 per cent stock by the end of the year to a new buyer who would also take charge of its management. Though there are no consensus figures on the expected value of the company, market analysts expect it to run from several hundred million dollars to an upward range of well over $1 billion.

But analysts are among those who acknowledge that success on the PSO front is unlikely to spur a wider drive towards many other privatisations, despite the considerable interest at hand. Unlike PSO which is considered a cash rich company, many other companies on the prospective privatisation list suffer from financial constraints and routine losses.

But the PSO's success is certain to help Pakistan gain the limelight from analysts in offshore locations where interest in the country's economic future is on the rise, thanks to positive indicators such as the fast rise of liquid foreign currency reserves which have considerably improved Pakistan's balance of payment position.

The US-led western political and economic support to Pakistan has also played its role in lifting the country's image across global capital markets.

One important though perhaps unnoticed barometer of Pakistan's success and determination towards its privatisation programme, however, may be exactly how the country spends its gains from the PSO sell-off. The use of most of the funds from a successful transaction to pay off some of Pakistan's foreign debt may be in line with official policy.

But using part of the proceeds to funnel towards relieving some of the other government-owned companies from liabilities such as their debt or indeed the burden of a large work force, may also be a worthwhile cause for improving economic prospects.

In the process, a successful revamp of one or two companies in preparation for their eventual privatisation may indeed promise more hope for Pakistan than the one-off success in the shape of the PSO transaction.

The writer is a Pakistan-based journalist