Regulatory Administrative Institutions MPA 517

1. Regulatory Administrative InstitutionsMPA 517 Lecture-10

2. Recap • Economic Affairs Division is responsible for assessment of requirements, programming and negotiations of external economic assistance related to the Government of Pakistan and its constituent units from foreign Governments and multilateral agencies. • The issues regarding external debt management and matters relating to technical assistance to foreign countries, credit to friendly countries on lending / re-lending of foreign loans and monitoring of aid utilization are being handled by this division.

3. Functions • Matters relating to technical assistance to foreign countries. • External debt management, including authorization of remittances for all external debt service, compilation, accounting and analysis of economic assistance from foreign governments and organizations. • Review and appraisal of international and regional economic trends and their impact on the national economy. Proposals concerning change in international economic order. • Matters relating to transfer of technology under UNDP assistance. • Matters relating to Islamic Development Bank.

4. Advantages of Privatization • Increase in efficiency and Profitability Most Govt. industries and services are inefficient and running in losses, when these will be transferred to private sector, their administration will improve and non-development expenditures will be reduced, their efficiency will increase and will be converted into profitable ventures. 2. Increase in Foreign Investment and Export Earnings Privatization will increase foreign investment when foreigners will purchase them. Their production will increase which will more foreign exchange for Pakistan and if these enterprises are set up by foreign loans, these loans will be repaid out of the sale proceeds, which will reduce the burden of foreign loans.

5. Today’s Lecture • Disadvantages of Privatization • Ministry of Privatization

6. Disadvantages of Privatization • Increase in Tax Evasion Private sector generally tries to avoid payment of taxes. Thus privatization of enterprises will result in the decrease of tax income. 2. Concentration of Wealth Privatization of large industrial units and services sector such as banks and insurance companies will increase concentration of wealth in private hands. It means only rich people will reap the fruits of industrialization and the society will be divided between “haves and have-nots”. 3. Exploitation by Private Sector Privatization will result in exploitation by rich people. They may charge more prices for their goods and services. They may terminate workers to reduce cost of production. Thus different types of exploitation may be started and the concept of welfare state for Pakistan will be jeopardized. 4. National Security Endangered Telecommunication, Civil Aviation (Airlines) and railways if privatized then it would be a security risk for the country.

7. Disadvantages of Privatization • Government no longer receives profits (if it was previously profitable), therefore, the revenue accruing to the government from public sector enterprises becomes shortened as a result of privatization. • Privatization may decrease safety due to greater profit incentives. • In extremely unavoidable cases, staff down-sizing could result to workers lay-off, and then unemployment rises. This aptly results to more crimes and social vices because ‘an idle hand is a devil’s workshop’. • Prices may actually rise if the service was previously subsidized by the government. This is a common experience after a successful privatization process. This becomes imperative in a bid to provide qualitative service, improve efficiency and profitability.

8. Disadvantages of Privatization • Privatization alone may not lead to better quality or cost reduction in public service delivery. • The standard economic measures used to make privatization decisions fail to accurately assess the real costs and benefits of care. • A major concern to the organized labour is the impact of privatization on job security and employment. Workers layoffs, erosion of wages and benefits, and decreased levels of union membership could be parts of labour’s setbacks for embracing privatization. • There are concerns that constitutional protections of citizens may suffer a setback as a result of privatization which may threaten citizens’ constitutional rights. • One of the disadvantages is that the privatized company will no longer operate in the public interest. While a state-owned company primarily serves the citizens of the state, the primary goal of a privately operated company is to make profit. It may make these profits at the expense of its customers without serving them properly. For example, it may choose the market which is most profitable to operate in and leave less wealthy customers without a service.

9. Ministry of privatization The main objectives of privatisation are as follows: • To improve the operational efficiency and overall performance of entities proposed to be privatized and to promote competition. • To reduce the financial burden imposed upon the Government by public enterprises and to release resources for utilization on alternate urgent requirements such as those of the social sectors and the development of physical and technological infrastructure, thereby accelerating the pace of industrialization. • To promote and strengthen the capital market by broadening and deepening its base through enlarging the number of share-holders and listing new enterprises.

10. Strategic plan • Safeguard the interests of the consumers by formulating a regulatory framework prior to divestiture, particularly in the case of utilities. • Avoid concentration of economic power in a few hands and to secure widespread ownership of assets being divested. • Provide reasonable compensation to employees rendered surplus as a result of privatisation and help in their retraining for employment elsewhere.

11. Privatization EXAMPLES

12. Privatization EXAMPLES

13. CONSTRAINTS • In the beginning there was a lot of mistrust about the Government policies and prospective investors had little confidence in Pakistan’s economy and continuity of policies. Much of this criticism vanished when people witnessed continuity of policies and bipartisan support to the principles of liberalization, deregulation and privatization.   • Substantial progress has been made to accelerate the pace of privatization by overcoming resistance from the vested interests and negative market sentiment.

14. Notwithstanding the above, the Government is taking further measures to overcome the following constraints in the implementation of the privatisation policy and to further improve transparency: • Perception issues and lack of understanding about the privatisation process • Regulatory uncertainty particularly in the utilities and infrastructure sectors • Litigation from losing parties and occasionally from public • Continued opposition both overt and covert from the vested interests.

15. REMEDY • Many people ignore the hidden costs of the services provided by the public sector due to their inefficiencies. There is very limited awareness of the cost incurred to the Government (and indirectly to the people) in the shape of subsidies. Therefore, there is a need to rationalize tariff structures to reflect cost of service. • Resistance of vested interests has subsided to a large extent but whenever an entity is brought on the privatization agenda, the interest groups benefiting from its continued national ownership start their tactics to resist privatization. The PC remains vigilant of their resistance and uses various methods to overcome the resistance.

16. Being realistic in the amount of proceeds that can be obtained from the transactions; in some    instances, those opposed to privastisationinflate expectations of likely proceeds with the intention of raising controversy and undermining the privatisation process.  • Ensuring that federal investigation teams carry out their work with an open mind and in a professional manner so as not to demoralize investors and others involved in the privatisation process so that decisions are taken at different for a based on sound business practices. • Developing, structuring and timing capital market transactions in a manner that broadens, deepens and strengthens the capital markets in Pakistan

17. Summary • Disadvantages of Privatization • Ministry of Privatization

18. Next Lecture • Ministry of Communications • Functions as a central policy making and administrative authority on Communications and Transport Sector in the Country. Ministry of Communications consists of one division Communications Division