Pakistan: Corruption in Privatization

Posted June 30, 2008

$23.84 billion corruption in privatization process during Musharraf dictatorship

There has been massive corruption during the eight years of the Pervez Musharraf-Shoukat Aziz period (1999-2007). While the regime has claimed the privatization process key to economic development, the reality is that it was a total disaster.

On 12 November 2007, former Prime Minister Shoukat Aziz announced that the country earned 417 billion Rupees ($6.41 billion) through privatization. , Claiming this was a record amount, he contrasted it with the 57 billion Rupees ($.870 million) earned by civilian governments between 1991-1999. He stated that the cornerstone of our economic growth has been liberalization, deregulation and privatization.

Today it is clear to everyone in Pakistan that there has been a massive economic decline during the period of Shoukat Aziz’s military-led government. According to Anti-privatization Alliance Pakistan, a massive 1550 billion Rupees ($23.84 billion) worth of corruption occurred during this eight-year privatization push. This level of looting and plundering state assets tops any other period during the 61 years of Pakistan’s independence.

Looking at the privatization of financial institutions alone, a record looting of 700 billion Rupees ($10.76 billion) took place. When 51% of Habib Bank Limited (HBL) shares were sold to the Agha Khan Fund for Economic Development in December 2004 for only 22 billion Rupees, its total assets were worth more than 570 billion Rupees. (HBL had 1437 branches and another 40 in 26 countries; the company owned the branch buildings as well.) Another large bank, United Bank Limited (UBL), was sold for only 13 billion Rupees. The sale of these two banks at throw-away prices is the largest financial scandal in Pakistan history.

Another gross violation of the rules set up by Privatization Commission Pakistan was the privatization of 26% of the Pakistan Tele Communication Limited shares to Dubai-based Aitsalat, which bought PTCL after a 10-day strike against privatization. The military regime crushed the strike in June 2005 and Aitsalat then demanded additional concessions. Slashing $370 million from the original price of $2.59 billion, PTCL agreed that the price could be paid in installments.

At the time of privatization Aitsalat announced that none of the 70,000 workers would loose their jobs. However by 2007 the company has reduced the work force by 30,000.

Karachi Electrical Supply Corporation was sold for only 16 billion Rupees. Since that time service has declined and most political parties have demanded its renationalization.

There has been a severe crisis in agriculture due to the privatization of fertilizer companies. Pak Saudi Fertilizer in Mir Pur Mathelo was handed over to the Fauji (military) Foundation in 2002 for just 8 billion Rupees. At the time, it annual profit was more than 4 billion Rupees. At Multan, Pak Arab Fertilizer was handed over to the Arif Habib Group for only 13 billion Rupees. Yet when the company was sold in 2006 the factory’s land alone was worth over 40 billion Rupees. On 15 July 2006, the largest public sector factory, Pak American Fertilizer, was sold for just 16 billion Rupees.

Following privatization the price of fertilizer has tripled (from 1300 to 3700 Rupees), placing a massive burden on the peasants. In fact the price of all agricultural inputs have risen.

Large-scale corruption can be seen in almost every deal. There has been a massive price hike in the products produced by the privatized companies. The economy is declining while multinational companies have further monopolized the economy. These facts negate the very justification for privatization.

Unfortunately the present Pakistan Peoples Party government has continued the policies of the previous regime. The new finance minister has been the chairperson of Privatization Commission and minister of privatization during the previous two periods of Benazir Bhutto’s government (1988-90, 1994-1996). He declared on 30 April 2008 that we have learned a lot from our previous experiences and we will do a “clean” privatization. He also tried to justified privatization as “pro-worker and pro-people.”

The issue is not of clean versus corrupt privatization. The process itself is anti-worker and anti-people as experience has shown both in Pakistan and internationally. The result has been higher unemployment, price hikes, monopolization, low quality, inefficiency and huge profits for the rich.

Under the Nawaz Sharif government (1990-1993), the proceeds of privatization were to be distributed equally for defense, repayment of foreign loans and social welfare. The Sharif government did not practice this formula but at least that was the declared purpose. Under Musharaf Shoukat Aziz, this formula was changed: 90% was to go toward the repayment of foreign debts with the other 10% used to operate the Privatization Commission and for social welfare expenditures.

The Musharaf Shaukat regime earned $2.5 billion during 2006-2007 from privatizations with the target for the following year an additional billion. If the chief justice of Supreme Court of Pakistan had not stopped the privatization of Pakistan Steel Mills Karachi in 2006, the regime would have sold most of the remaining public institutions at bargain prices. This would have been like selling Pakistan.

Still, the website of Privatization Commission updated in March 2008 announces the planned privatization of Pakistan Railways, Pakistan International Airlines (PIA), State Life Insurance Corporation, Oil and Gas Development Corporation, Sui Northern and Sui Southern Gas Companies, Faisalabad Electric Supply Corporation, Peshawar Electric Supply Corporation, National Fertilizer Corporation, Port Qasim Authority, Civila Aviation Authority, Karachi Port Trust, Printing Corporation of Pakistan, All Utility Stores and Corporation, Rice Export Corporation, Cotton Export Corporation and Convention Center Islamabad.

We demand that the PPP government stop the process of privatization. An independent commission should be established to investigate the corruption involved in the previous privatizations. The Privatization Commission and the Privatization Ministry should be abolished. Because it gives constitutional protection to the process of privatization, the Protection of Economic Reform Ordinance should be withdrawn

Here are some facts:

According to the Privatization Ordinance of 2000, the purpose of privatization is to alleviate poverty and repayment of foreign debts. But obviously these two purposes have not been accomplished. When privatization began in 1991, the foreign debt was $23.323 billion, today it is $45 billion. Internal debts have also been increasing. According to all government and independent surveys, over 45% of the population lives below the poverty line. The country’s national economic growth during the previous decade (1981-1991) averaged 6.7%; during the first decade of privatization (1991-2001), growth averaged only 4.4%.

The direct negative impact of privatization has been seen on working class. At least 600.000 workers have lost their jobs during the 15 years of privatization and those still working in the privatized factories are on a contract system. There are no permanent jobs in these factories. Meanwhile the informal sector has grown. But no labor laws govern informal work, consequently superexploitation rules, particularly for women workers.

According to the 2002 report of Public Inquiry Committee of National Parliament, 80 billion Rupees earned by the Privatization Commission cannot be traced. In addition the privatization process has helped create five large cartels that have looted the masses at an unprecedented level. These are:

• An oil cartel based on 10 oil companies,
• A brokerage cartel based on 4 groups,
• An Automobile cartel based on 3 companies,
• A sugar cartel based on 24 companies,
• A cement cartel based on 10 companies.

The creation and effective functioning of these cartels has resulted in an unprecedented price hikes and profits for the companies. On the other hand, the privatization process has weakened the trade union movement. While registered trade union membership stood at 870,000 in the early ‘80s, by 2007, it declined to 296,250.

Clearly privatization is a political weapon in the hands of the capitalists. It is not just an economic attack but a political attack as well. It retards the growth of social, political and class-based consciousness. It reduces the country’s social capital and increases private capital. Instead of meeting social needs, it creates and increases private greed.

The World Bank, Transparency International and other international institution talk of state corruption but never speak about the corruption involved in privatization process. The stories of corruption during the privatization process are in abundance in every country but are ignored for political reasons.

The Anti-Privatization Alliance will do its best to stop the path of privatization by exposing the corruption and other irregularities in the process and launching a movement against privatization. We are happy to hear the stories of re-nationalization of privatization companies in several Latin American countries. That is the only answer that can be followed by all countries.

English translation of Anti Privatization Alliance (APA) press conference by members of APA: Farooq Tariq, Khaliq Shah, Azra Shad, Yousaf Baluch, Maqsood Mujahid

11 June 2008, Lahore Press Club