Pakistani Generals
Prepare to Take Over Billion Dollar State-owned Oil Company
Special
SAT Report
KARACHI: The ruling Army junta is all set to take over Pakistan’s
only Fortune-500 private company, the multi-billion dollar Pakistan
State Oil (PSO), through a rigged and manipulated privatization
process, being supervised by the Generals.
Excellently run under a team of professional manageRs., the PSO
is one of Pakistan’s best-managed state enterprises. In
the fiscal year that ended in June, the PSO posted a record net
profit of Rs. 4.03bn.
It
is now being eyed by the Fauji Foundation, the corporate face
of the serving and retired generals watching and serving their
collective financial interests, as the biggest fish they could
net in the Musharraf regime.
PSO has more than 3,800 petrol pumps all over the country and
it commands about 68 per cent market of motor fuel in Pakistan.
Being the main supplier of fuel oil to independent power projects,
it also commands roughly 85 per cent of the market share of fuel
oil. Last year, the PSO sold petroleum products worth Rs. 148
billion (over US$ 2.5 billion) in Pakistan and Afghanistan.
According to Pakistani media reports, independent analysts have
billed the PSO as a "gold mine" for its prospective
buyers and believe that at its present stock value, the PSO sale
must earn at least US $1 billion (Rs. 58 billion) for the national
exchequer.
The
Army is viewing the PSO as a prize which will turn the Army into
the unquestionable corporate leader of Pakistan, leaving the over-awed
private sector screaming and scared.
While many Pakistani business groups are now known to be interested
in the PSO privatization, the Army had started focusing on acquiring
PSO back in 2001. Though Fauji Foundation is technically devoted
to the welfare of retired Army personnel, it is run by a serving
lieutenant-generals, who reports to General Musharraf as chief
of army staff and the defence secretary of the Government of Pakistan.
Many
independent analysts and informed officials question the Fauji
Foundation’s financial capacity to undertake the PSO take-over
that may cost up to Rs. 58 billion. The Fauji Foundation, presently,
has about Rs. 17 billion in assets and unrealized profits and it
will have no choice but to borrow the entire amount at a relatively
higher price because of an existing weak balance sheet. The Fauji
Foundation is currently headed by Lt-Gen Syed Mohammad Amjad,
the former chairman of the National Accountability Bureau (NAB).
The
Fauji Foundation is currently running the Fauji-Jordan Fertilizer
Company, the Fauji Fertilizer Company, the Fauji Cereals, the
Fauji Corn Complex, the Fauji Polypropylene Products, the Foundation
Gas, the Fauji Oil Terminal and the Distribution Company Limited,
the Mari Gas Company Limited and the Fauji Kabirwala Power Company
Limited.
The Pakistan Army-run Army Welfare Trust (AWT), separately, runs
an empire of business projects that also includes banks, insurance
companies, and pharmaceutical and cement plants.
While the AWT is facing serious financial problems in various
projects, the Fauji Foundation-controlled Fauji Jordan Fertilizer
Company nearly faced bankruptcy as imprudent financial and technical
decisions caused the FJFC an incredible loss of at least Rs. 5
billion in 2001. Severe financial health of FJFC had also dealt
a serious blow to the financial viability of the entire Fauji
Foundation two year ago.
But
it is not the financial worth of the Fauji Foundation that may
hinder its bid for the PSO. Senior PC officials also agree that
the PSO take-over by the Fauji Foundation will not reflect the
true spirit of the privatization as several active service generals
govern the Fauji Foundation through a governing committee.
Business analysts agree that in case the Fauji Foundation gets
the controlling share of PSO, the control of Pakistan’s
largest oil company will simply shift from the Ministry of Petroleum
to the Ministry of Defence, if not the GHQ.
The
Fauji Foundation, the Kuwait Petroleum and a little-known Saudi
group, Midrock, short listed by the Privatization Commission in
2001, have been invited to place their bids for the purchase of
PSO at a yet to be announced date of early next month, according
to a senior PC official, Pakistan’s Daily ‘The
News’ reported.
"No
doubt, it’s not the ideal situation," commented Dr
Abdul Hafeez Sheikh, Chairman, Privatization Commission. "But
we have to generate the momentum and every one is waiting for
the PSO’s privatization"
Reliable officials have disclosed that with only a few weeks left
in the bidding, the Kuwait Petroleum Corp is still not ready to
participate in the process, pending clearance from the Kuwaiti
government and its parliament, a unique example of the supremacy
of parliament in any of the Gulf kingdoms. Kuwait’s Oil
Minister Sheikh Nader H Sultan serves as the chief executive officer
and deputy chairman of the Kuwait Petroleum Corporation that has
a spending budget of about $10 billion.
Some Pakistani officials who have dealt with the KPC on the PSO
privatization issue spoke of various guarantees demanded by the
KPC management to protect its interests. For instance, as one
official said, the KPC wanted guarantee that the government of
Pakistan will not object to the PSO’s future purchase of
oil exclusively from the KPC sources only. The KPC controls oil
and gas reserves of 96.5 billion barrels of oil and 52.7 trillion
cubic feet of natural gas.
Privatization Commission (PC) sources said the Kuwait Petroleum’s
requests for further delay in the bidding process would encourage
the PC to initiate a fresh speedy process of seeking more letters
of interest from prospective local and international buyers.
The Privatization Commission has rarely adhered to the laid-down
rules. For instance, in the case of the United Bank Limited’s
privatization, the second highest bidder was allowed to increase
its bid much after the completion of the bidding process.
Recently,
while inviting offeRs. from various brokerage houses for their
selection as lead manageRs. for the sale of a fraction of the
government shares of the PIAC, Privatization Commission Secretary
Ahmad Waqar made a unilateral decision to not to publicly open
the bids and made a selection on the basis of personal judgment.
In the case of PSO, when the Generals are directly interested
in acquiring this crown jewel of Pakistan’s corporate landscape,
the poor civilians at the Privatization Commission can hardly
resist. They will bend the rules and bend their backs to ensure
that the men in khaki become the owners of a national asset.
The irony is that the blame for the handing over of the country’s
billion dollar company to the Army will be placed at the door
of a civilian “elected” government although poor Prime
Minister Jamali has almost no say in what is going on.
