Mission Statement

Privatisation in an Open,

Fair and Transparent Manner, for the Benefit of the People of Pakistan,

in the Right Way, to the Right People,

at the Right Price

Glossary

ABL Allied Bank Limited

APSEWAC All Pakistan Sate Enterprises Workers Action Committee

BOI Board of Investment

CCI Council of Common Interests

CCOP Cabinet Committee on Privatisation

CDC Central Depository Company

DCF Discounted Cash Flow

DFIs Development Finance Institutions

DR Depository Receipt

ECO Economic Cooperation Organisation

EMG Employees Management Group

EOI Expression of Interest FA Financial Advisor FDI Foreign Direct Investment FESCO Faisalabad Electricity Supply Company GDR Global Depository Receipt GHS Golden Hand Shake Scheme GOP Government of Pakistan HBL Habib Bank Limited HEC Heavy Electrical Complex HLEG High Level Experts Group IPO Initial Public Offering ICP Investment Corporation of Pakistan KAPCO Kot Addu Power Company KASB Khadim Ali Shah Bokhari KESC Karachi Electric Supply Corporation LOA Letter of Acceptance LPG Liquefied Petroleum Gas MCB Muslim Commercial Bank MRTA Management Right Transfer Agreement NBP National Bank of Pakistan NEPRA National Electric Power Regulatory Authority NGO Non-Governmental Organisation NITL National Investment Trust Limited NIRC National Industrial Relations Commission NPCC National Power Construction Company NPT National Press Trust NRL National Refinery Limited NWFP North Western Frontier Province OGDCL Oil and Gas Development Corporation Limited

OGRA Oil and Gas Regulatory Authority OIC Organisation of Islamic Conference PARC Pakistan Agricultural Research Council PC Privatisation Commission PEs Public Enterprises PICIC Pakistan Industrial Credit and Investment Company PIA Pakistan International Airlines PKR Pakistani Rupee PMDC Pakistan Mineral Development Corporation PMTF Pakistan Machine Tool Factory PO Public Offering PPL Pakistan Petroleum Limited PPP Public Private Partnership PSMC Pakistan Steel Mills Corporation PSO Pakistan State Oil PTCL Pakistan Telecommunications Company Limited PTDC Pakistan Tourism Development Corporation Pvt. Private RFP Request for Proposals RSOQ Request for Statement of Qualifications SBP State Bank of Pakistan SITE Sindh Industrial Trading Estate SME Small and Medium Enterprises SNGPL Sui Northern Gas Pipelines Limited SOEs State Owned Enterprises SOQ Statement of Qualifications SPA Share Purchase Agreement SPO Secondary Public Offering SSGC Sui Southern Gas Company SPV Special Purpose Vehicle UAE United Arab Emirates USA United States of America US$ US Dollar UBL United Bank Limited VSS Voluntary Separation Scheme WAPDA Water and Power Development Authority

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Contents Privatisation Commission Board Members Management Information Chairman’s Review Gallery Institutional Setup

Privatisation Commission History Institutional Arrangements The Board of the Privatisation Commission Privatisation Commission Secretariat Consultants/ Transaction Mangers Organization Chart Cabinet Committee on Privatisation Role of Council of Common Interests

Our Finances and Accounts Privatisation – A Rationale Legal Framework Privatisation Process

Identification Hiring of Financial Advisor Hiring of Valuers Due Diligence Enacting Needed Regulatory and Sectoral Reforms Valuation of Property Pre-bid and Bid Process Post bid Matters General

Modes of Privatisation Sale of Assets and Business Sale of Shares through Public Auction or Tender Public Offering of Shares through a Stock Exchange Management or Employee Buyouts Lease, Management or Concession Contracts Any other Method As May Be Prescribed

Historical Milestones of Privatisation Highlights for the Period (1st July 2007 – 31st December 2008)

Workers’ Welfare Privatisation Policy Revamped

Upcoming Transactions Frequently Asked Questions Privatisation Transactions from 1991 to June 2008Financial Statements and Auditor’s Report

Auditor’s Report Balance Sheet Income and Expenditure Account Cash Flow Statement Notes to the Accounts

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Privatisation Commission Board Members

Syed Naveed Qamar Chairman

Ahmed Jawad Secretary

Mr. Iftikhar-ul-Haq Member

Mr. Mahmood Nawaz Shah Member

Mr. Laeeq Ahmed Member

Mr. Pervaiz A. Khan Member

Mr. Abdul Latif Yousafzai Member

Mr. Hameedullah Khan Paracha Member

Mr. Farid Malik Member

Mr. Tanvir Ahmad Sheikh Member

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Management Information

Management Syed Naveed Qamar Minister & Chairman Mr. Ahmed Jawad Secretary Mr. Inamullah Khan Toru Director General (Industries &Transport) Mr. Akhlaq Ahmad Malik Director General (Minerals & Natural Resources) Mr. Shahzad Iqbal Director General (Administration & Accounts) Mr. Ashiq Hussain Director General (Finance & Utility) Mr. Muhammad Ameen Director (Industries & Transport) Dr. Asmat Nawaz Director (Policy & Coordination) Mr. Zahoor Ahmed Director (Administration) Mr. Arshad Ali Chaudhary Director (Legal) Mr. Muhammad Younas Khan Deputy Director Mr. Khalil Ahmed Chaudhary Deputy Director

Accounts Mr. Muhammad Asghar Senior Financial Consultant Mr. Manzoor Malik Financial Consultant Mr. Ghulam Asghar Jafferi Senior Accounts Officer Mr. Muhammad Sarwar Zahid Accounts Officer/Drawing & Disbursement Officer

Transaction Managers Mr. Malik Muhammad Afzal Mr. Javaid Ali Khan Mr. Shahid Raza Syed Sikander Zulkarnain Syed Saqib Mohyuddin Agha Waqar Javed Abdul Karim Nayani Mir Zeeshan Riaz

Auditors M. Yousaf Adil Saleem & Company Chartered Accountants

Legal Advisors Barrister Assad Sikanderkhel Consultant (Legal Corporate) Barrister Abdul Haseeb Khan Consultant (Legal)

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Chairman’s Review

As Chairman, Privatisation Commission, it is great honour for me to present the Annual Report of the Privatisation Commission as required under Section 37 of PC Ordinance 2000. Privatisation Commission has been quite successful in taking forward the Government’s economic reform agenda whereof privatisation, along with deregulation and liberalization, forms an important pillar. Despite many bottlenecks and resistance offered by vested interests, Pakistan’s privatisation programme has been one of the most successful in the region. The Privatisation Policy is currently being shaped on the directions of the President of Pakistan who, during a presentation on 31st December, 2008, had been pleased to ask to remodel the existing Privatisation Policy on the concept of Public Private Partnership (PPP) through divestment of 26% shares along with management transfer to the private sector. This was subsequently approved by CCOP on 17th February, 2009. The basic purpose of such a policy is to gradually withdraw the Government from commercial venture on the premise that it is not Government’s business to do business. The general public’s perception that privatisation is meant for meeting the fiscal deficit is not based on facts. The new policy will be implemented ensuring complete transparency and comprehensive documentation to safeguard public interest. The shift from strategic sales to Public Private Partnership (PPP) Mode, will not affect the basis of overarching Privatisation Policy as has traditionally been executed by PC during the last two decades. The main objective of Privatisation of 26 % equity stake with management rights through a PPP mode will put the national resources and assets to optimal use and would unleash the productive potential inherent in Pakistan’s SOEs. Government would continue to ensure that divestment does not result in alienation of national assets and reduction in quality of production and service to the detriment of people. It would also ensure that divestment does not result in private monopolies and cartels. To ensure that the policy is implemented and operated in accordance with the agreed conditions, representation of Government by nominated Directors on the Boards of the entities will be ensured along with capacity enhancement of the Privatisation Commission to provide the Directors with compliance reports vis-à-vis the agreed benchmarks. The Privatisation Commission will divest residual shareholding of the GoP in the privatised entity at an appropriate time ensuring that such divestment will not unreasonably affect the strategic partner. The timing of such future divestments will vary depending on the post privatisation performance of the entity, agreements with the private partners, the market appetite reflected by the capital market conditions and approval of the relevant regulating agencies.

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Privatisation cannot be accomplished in a vacuum without the support of all the stakeholders including various Government agencies, departments and organisations and most importantly the people of Pakistan without whose continued support and understanding, this process cannot be undertaken successfully. I would like to acknowledge the cooperation extended by all arms of the Government and its various agencies and departments and the efforts of the team in the PC in making the privatisation process a success and call upon them to continue in this national endeavour.

Syed Naveed Qamar Chairman

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Gallery

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PC BOARD MEETINGS

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OTHER MEETINGS

Hazara Phosphate Fertilizers Limited SPA Signing Ceremony on November 28, 2008

Delegation from ABN Amro Bank meeting Mr. Ahmed Jawad, Secretary, PC on April 28, 2008

Mr. Naveed Zaidi, Chief Executive, Investment Capital Bank, Islamabad meets with Mr. Ahmed Jawad,

Secretary Privatisation Commission on April 28, 2008

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Mr. Ahmed Jawad Secretary, PC chairing a meeting regarding FESCO on 20th March, 2008

Delegation from China meeting the Minister, Syed Naveed Qamar on 5th May, 2008

Syed Naveed Qamar, Minister for Privatisation during a meeting on 23rd July 2008

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Institutional Setup Privatisation Commission The Privatisation Commission (PC), the main executing arm for implementing the Government’s privatisation policy, is entrusted with privatising federal government assets including its shares in banks, industrial units, public utilities, oil, gas and transport companies, and infrastructure service providers. In addition to the sale of shares or assets, it may offer concessions or the right to operate publicly owned assets. While carrying out these tasks, the PC has to ensure openness and transparency in the process.

Privatisation Defined Privatisation is transfer of a property or control of assets used to deliver goods or services from the public to the private sector. Privatisation as defined in PC Ordinance 2000 is a transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person (entity) from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the Federal Government.

History Although, the process of privatisation had started as early as 1988 (when minority shares of PIA were floated), the process took a pace when it was institutionalized in 1991 through establishment of Privatisation Commission. It was further strengthened when it was corporatized through promulgation of the Privatisation Commission Ordinance 2000. This strengthened the PC’s legal authority and increased PC’s independence and accountability. It also provided greater comfort to investors. Prior to that PC had been working as a part of Ministry of Finance. In November 2000, the Ministry of Privatisation was created, to enhance the stature of privatisation and facilitating transactions. The Chairman of the PC was designated as Minister for Privatisation, while the Secretary of the PC became the Secretary of the Ministry of Privatisation.

Institutional Arrangements

Council of Common Interests (CCI)

Cabinet / Cabinet Committee on Privatisation (CCOP)

Macro Privatisation policy decisions

Key transaction related Decision Making

PC Board

Chairman / Minister

PC Secretariat

Civil Servants Consultants / Transaction Managers

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The Board of Privatisation Commission

Section 6 & 7 of PC Ordinance 2000 provides for Constitution of PC Board. The Board of the PC is headed by the Chairman and comprises of six (6) or higher regular members. Secretary of the Privatisation Division is ex-officio Secretary of the Board. Members from the private sector represent all the provinces and different sectors of economy. In addition, the Secretaries of the Divisions whose matters come under discussion are also invited to attend the Board Meetings. The PC Board held 15 meetings during July 2007 to December 2008. The current composition of PC Board is as under:

i. Syed Naveed Qamar Chairman i. Mr. Ahmed Jawad Member / Secretary ii. Mr. Iftikhar-ul-Haq Member iii. Mr. Laeeq Ahmed Member iv. Mr. Mahmood Nawaz Shah Member v. Mr. Abdul Latif Yousafzai Member vi. Mr. Pervaiz A. Khan Member vii. Mr. Hameedullah Khan Paracha Member viii. Mr. Farid Malik – CFA Member ix. Mr. Tanvir Ahmed Sheikh Member

Privatisation Commission Secretariat PC is headed by the Chairman who is also the Chairman of the Board of the Privatisation Commission. Currently this post is held by Minister for Privatisation. The remaining staff consists of regular civil servants, consultants/ transaction managers and support staff. Currently 53 Government officers/staff, 11 Consultants and 15 Technical Assistants are in place. Government officers and Consultants make recommendations for decisions through collective wisdom and submit cases for approval of the Secretary and the Chairman. Policy and important decisions related to privatisation transactions require approval of the Board of the PC while final policy decisions are made by the Cabinet Committee on Privatisation (CCOP).

Consultants / Transaction Mangers Privatisation, especially of major entities, is a technical and complex activity requiring inputs from highly qualified and experienced professionals. PC has, therefore, hired professionals from the private sector designated as Consultants who are responsible for processing of the privatisaton transactions. The basic criteria for appointment of Consultants is strong academic background, specialised skills and experience in the relevant field like business administration, economics, commerce, finance, accounting and law etc. depending upon the nature of the transactions. Consultants engaged have quality experience in the private sector institutions. The privatisation transactions are being processed by the Transaction Managers whereas technical and legal support is

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provided by other external Consultants. These Consultants have further improved their knowledge and experience by working in the Privatisation Commission. Their services are being utilized efficiently and effectively by the Commission. Typical tasks for in house consultants / transactions managers include preparing the terms of reference and hiring external consultants/advisors, overseeing and assisting the external consultants to ensure timely submission of deliverables, liaising with the relevant ministry staff, regulators, and management of the entity being privatized, and advising on sectoral policies and regulatory frameworks related to privatisation. In-house consultants/transaction managers are also involved in providing legal, financial and technical support.

Annual Report 2008 Privatisation Commission

Organisation Chart

Chairman

Secretary

Director General Financial Sector & Utilities

Director General Industries & Transport

Director General Mineral & Natural Resources

Director Policy & Coordination

Deputy Director Policy & Coordination

Director Administration

Director Legal

Drawing & Disbursing Officer

Deputy Director Administration

Senior Accounts Officer

Director Industries & Transport

Board of Privatisation Commission

Director General Administration & Finance

Consultants / Transaction Mangers

Legal Consultant Corporate

Consultants Legal & Finance

Consultants / Transaction Mangers

Consultants / Transaction Mangers

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Cabinet Committee on Privatisation (CCOP) The CCOP is normally headed by the Prime Minister and Ministers of various economic ministries are its members. It is a forum for taking macro level decisions on privatization either on its own or on recommendations of PC Board. Since 15th November, 2008, it is headed by Advisor to PM on Finance, Revenue, Economic Affairs and Statistics. The current composition of CCOP is as under:

Chairman Advisor to PM on Finance, Revenue, Economic Affairs and

Statistics Members

1. Minister for Commerce 2. Minister for Industries and Production 3. Minister for Information Technology and

Telecommunications 4. Minister for Investment 5. Minister for Labour & Manpower 6. Minister for Law & Justice 7. Minister for Petroleum and Natural Resources 8. Minister for Ports & Shipping 9. Minister for Privatisation 10. Minister for Textile Industry 11. Minister for Water & Power

By Special Invitation 1. Deputy Chairman, Planning Commission 2. Chairman, Board of Investment 3. Governor State Bank of Pakistan 4. Chairman, Securities and Exchange Commission of

Pakistan 5. Secretary, Communication Division 6. Secretary, Finance Division 7. Secretary, Industries and Production Division 8. Secretary, Information Technology & Telecom Division 9. Secretary, Investment Division 10. Secretary, Labour and Manpower Division 11. Secretary, Law and Justice Division 12. Secretary, Petroleum & Natural Resources Division 13. Secretary, Planning & Development Division 14. Secretary, Ports and Shipping Division 15. Secretary, Privatisation Division 16. Secretary, Textile Industry Division 17. Secretary, Water and Power Division

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Terms of Reference of CCOP are:

To formulate the Privatisation Policy for approval of the Government/Cabinet To approve the State Owned Enterprises to be privatised on the recommendation

of the PC or otherwise To take policy decisions on inter-ministerial issues relating to the privatisation

process To review and monitor the progress of privatisation To instruct the PC to submit reports/information/data relating to the privatisation

process or any matter relating thereto To take policy decisions on matters pertaining to privatisation, restructuring,

deregulation, regulatory bodies and Privatisation Fund Account To approve the Reference Price in respect of the State Owned Enterprises being

privatised To approve the successful bidders To consider and approve the recommendations of the PC on any matter To assign any other task relating to privatisation to the PC.

Role of Council of Common Interests (CCI) Council of Common Interests (CCI) is a constitutional body headed by the Prime Minister and comprising of the Chief Ministers of the provinces as well as an equal number of members from the Federal Government. It formulates and regulates policies in relation to matters in Part-II of the Federal Legislative List as well as the subject of electricity in the Concurrent Legislative List, in so far as it is in relation to the affairs of the Federation as provided in Article 154 of the Constitution of Pakistan. Decisions of the Council are expressed in terms of opinion of the majority.

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Finances and Accounts The Privatisation Commission Finances and Accounts are managed in accordance with the provisions of the Privatisation Commission Ordinance 2000. All privatisation proceeds are deposited in a distinct and separate account called Privatisation Fund Account. The privatisation transaction related expenditure is drawn from this account as supplementary contribution and expensed through Commission Account. The Commission Account has been established to receive supplementary contribution from Privatisation Fund for payment of transaction related expenditure and to receive budgetary grant for payment of office running expenses of the Commission. Net sale proceeds after meeting privatisation transaction related expenditure are transferred to Federal Government and the legal entities entitled to such proceeds. According to the Privatisation Commission Ordinance the net privatisation proceeds received by the Federal Government are utilized in the following manner:-

a) 90% for retirement of Federal Government Debt. b) 10% for poverty alleviation program

The disbursements/payments are made in accordance with the provisions of the Ordinance and Privtisation Commission (Delegation of Powers) Regulation 2002 which delegates administrative and financial powers, within the ambit of the Ordinance, to the Chairman and the Secretary PC for running the day to day business of the Commission. The accounts of the Commission are audited annually by the Auditor General of Pakistan and as required by the Privatisation Commission Ordinance, the financial statements prepared in accordance with the provisions of the Ordinance and approved accounting standards as applicable in Pakistan are also audited by the firm of Chartered Accountants for each financial year. The audited financial statements, including the balance sheet, income and expenditure statement and cash flow for the financial year ending June 30, 2008 and the auditors’ report thereon follow the main body of the annual report.

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Privatisation – A Rationale The Government envisages the private sector as the engine for economic growth and employment. Privatisation, deregulation, and liberalization are all aimed at promoting market-based growth that leads to sustainable employment and to benefit both consumers and taxpayers. Long-term economic growth and improved services are at the heart of poverty reduction. Distorted prices, lack of competition, and poor public sector management of business have hindered economic development, introduced inefficiencies, generated unproductive and unsustainable employment, slowed down investment, reduced access to services by the poor, resulted in sub-standard goods and services, and contributed to fiscal bleeding. Privatisation is aimed at strengthening public finance and attracting investment while simultaneously enhancing the quantity and quality of goods and services. Privatisation would send a strong signal to investor that the Government has faith in the private sector to generate economic growth and productive employment. International investors, in particular view privatisation as a principal proxy to measure the seriousness of a government’s reforms programme. Privatisation also provides an impetus for needed liberalization and taxation reforms, which are important in improving the business environment. An improved business climate would bring in new investment, including foreign direct investment, reversing the capital flight that has occurred in recent years. Privatisation would also bring in better management with the right incentives to cut down waste, reduce corruption, and improve the coverage and households. At the same time, the Government would be free from micro-managing business. Senior policy makers presently spend much time and effort in making business decisions to attempt to stop fiscal haemorrhaging from state-owned enterprises and improve their efficiency. The Government is firmly committed to carrying out privatisation in a fair and transparent manner. This includes ensuring a level playing field for existing and future entrants, protecting consumer and taxpayer interests, and dealing with public employees in a fair manner. The PC Ordinance 2000 strives, among other things, to ensure that such policy objectives are met. In addition to specifying advertising requirements to ensure the widest possible participation in privatisation, the Ordinance also directs the Privatisation Commission to ensure that monopolies are not created in the privatisation process, to propose or strengthen a regulatory framework for independent and fair regulation, and to deregulate the economy to the maximum extent possible. Another policy decision of the Government that has also been enshrined in the Ordinance relates to utilizing the proceeds of privatisation primarily to reduce debt. Fiscal finances would improve in three additional ways. First, many public companies are making losses. They obtain fiscal support via such means as equity injections, loans, bonds, and guarantees or direct budgetary support. If the Government were to divest all its holdings in the company, it would no longer be responsible for financing any losses. Second, privatisation is likely to enhance profits, which would generate higher income tax revenues as well as increased profits per share on any remaining Government shareholdings. Finally, as the number of public companies falls, the

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number of employees in their respective ministries can also be reduced. Not only would this result in fiscal savings, it would also spare human capital that could be more productively employed in the private sector, which would become more vibrant after receiving improved infrastructure services. In addition to privatizing companies by handing over management control to new investors, the Government would like to use privatisation as a means of broadening the ownership of assets, mobilizing savings, and help strengthening capital markets. For this reason, the Government is selling minority shares via the stock market in selected companies either before or after the transfer of management control. Listing and selling companies in the local stock exchanges is likely to give a much needed boost to the stock markets and help tap into savings. Simply listing a company in the stock exchange may also improve corporate governance as companies will be forced to comply with the stringent reporting requirements of the stock exchange and Securities and Exchange Commission. Last, but not least, privatisation is seen as a way to reduce corruption. The experience in many countries, including Pakistan, is that public ownership of business provides many opportunities for corruption. Kickbacks on the purchase of goods and services are one form of corruption. Theft and abuse of public property are others. Some employees of public companies providing services such as electricity, telephony, or banking may collude with certain consumers to provide free or cheap services in exchange for side payments. Decision makers, senior ministry officials, and other influential people may exacerbate the situation by staffing state-owned enterprises with their cronies and supporters and by pressuring state-owned banks to lend funds to bankrupt state-owned companies or to influential businessmen for risky or dubious projects. Honest consumers and taxpayers become the big losers. Privatisation will quickly curtail such forms of corruption.

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Legal Framework The Privatisation Commission Ordinance enshrines many of the processes that were already being followed such as valuating the property being privatized and advertising widely before all privatizations. To ensure that the management of the entity being privatized does not jeopardize the privatisation, the law requires the entity being privatized not to perform any action that would result in assets being lost or wasted and not to incur any liability other than in the normal course of business without the written approval of the PC. Not only does the law serve as a checklist, it clarifies the Commission’s mandate and ensures adherence to the process. Rules and Regulations framed pursuant to Privatisation Commission Ordinance 2000 are given below.

Rules and Regulations 1. The Privatisation (Modes and Procedure) Rules, 2001 as well as

addition of Rule 7 regarding Special Purpose Vehicle (SPV).

2. The Privatisation Commission (Valuation of Property) Rules, 2007.

3. Privatisation Commission (Hiring of Valuers) Regulations, 2001.

4. The Privatisation Commission (Hiring of Financial Advisors) Regulations, 2007.

5. Privatisation Commission (Authentication of Documents under Common Seal) Regulations, 2001.

6. Privatisation Commission (Conduct of Board’s) Meetings Procedure, 2001.

7. Privatisation Commission (Delegation of Power) Regulations, 2002.

8. Privatisation Commission (Members Travelling Allowance/Daily Allowance) Regulations, 2001.

9. Privatisation Commission Employees (Appointment and Terms and Conditions of Service) Regulations, 2002.

10. Privatisation Commission Advisors/Senior Consultants, Consultants/ Transaction Managers and Technical Assistants (Terms and Conditions of Appointment) Regulations, 2002.

11. The Privatisation Commission (Confidentially and Secrecy of Documents) Regulations, 2003.

12.

The Privatisation Commission (Declaration of Fidelity and Secrecy) Rules, 2003.

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Privatisation Process The privatisation process varies depending on the nature of the asset being privatized, or the proportion of shares being offered for privatisation, and on whether a transfer of management is involved. The Board of the PC decides what kind of process will be followed. Approval of Council of Common Interests is also obtained. Following are typical steps in the privatisation process of a major unit:

Identification of an entity for privatisation CCOP / Cabinet approval Approval of CCI Appointment of Financial Advisor (FA) for major transaction(s) with approval of

PC Board Appointment of Valuator where FA is not hired Due diligence by FA / Valuator Privatisation strategy Restructuring, sectoral / regulatory reforms if required Expressions of Interest (EOI) Screening - Statement of Qualification (SOQ) Pre-qualification Due diligence by potential bidder(s) Valuation approved by PC Board and CCOP Pre-bid conference(s) Bidding process approval by Board and CCOP Open bidding: media invited to observe Board and CCOP approve price and bidder Letter of Acceptance to successful bidder Management transfer (through execution of Share Purchase Agreement / Asset

Sale Agreement) after 100% receipt of payment A brief description of some of the steps common to major transactions is given below: Identification The first step is the identification of the entity or list of entities to be privatized. In a typical transaction the PC, in consultation with the relevant ministry, submits a Summary of the proposed transaction to its Board. The Summary justifies the need for privatizing the property, outlines the likely mode of privatisation, and sometimes seeks guidance on issues relating to such matters as pricing, restructuring, legal considerations, and the regulatory framework. Once endorsed by the Board, it is submitted to the Council of Common Interests (CCI) and/or Cabinet Committee on Privatisation or Cabinet for approval, if necessary. Hiring of a Financial Advisor In major transactions, the process to hire a financial advisor is carried out by the transaction manager with the approval of the Board. Terms of reference for the FA are finalized, expressions of interest from prospective FAs are solicited and short listed

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firms are invited to submit technical and financial proposals in a common format. A Transaction Committee, generally headed by a member of the PC Board is constituted which scores the technical proposals and the highest ranked firm, based on both technical and financial scores, is invited for contract negotiations and signing. In November 2001, the Board approved regulations for hiring a financial advisor in order to make the procedures more transparent. An amendment was made in the PC regulations for hiring FAs in 2007. Hiring of Valuers In other transactions a Valuator is hired according to the Hiring of Valuers, Regulations, 2001. This regulation was amended by PC in 2007. Due Diligence This is aimed at identifying any legal encumbrances, evaluating the condition of the assets, and examining the accounts of the company in order to place a value on the company. For most industrial units and some small transactions, this is done using in-house transaction managers and staff, or by sub-contracting some part of the work to a domestic legal, technical, or chartered accounting firm. However, for major privatizations in banking, infrastructure, or utilities, the FA carries out this function. Following due diligence, the FA finalizes the privatisation plan which include recommendations on any needed restructuring, in addition to specifying the amount of shares or assets to be privatized. Enacting Needed Regulatory and Sectoral Reforms For major transactions, the ability to privatise and realize the amount of proceeds depend on the level of regulated prices of inputs, outputs and sectoral/ regulatory policies. For many monopolies or quasi-monopolies, the “rules of the game” specifying the competition framework post-privatisation, the manner and type of regulation, and the institutions regulating them are key to investor interest. In addition to rules determining prices or tariffs, there may be rules determining standards, penalties for non-compliance, the extent, form and timing of any proposed deregulation, and the evolving structure of the market following liberalization. Clarification of these rules and passage of required legislation and regulations will often be necessary before taking the transaction to market. Valuation of Property Despite using scientific methods, valuation remains more an art than a science. The true value is dependent on many difficult variables such as country risk, corporate psychology and strategy, investor specific synergies and perceptions of future macroeconomic performance. The Financial Advisor, where engaged, carries out the valuation to obtain a “reference price” for the property. In other cases, the Commission contracts with an external valuation firm or accounting firm as specified in the rules on the valuation of property, which can be obtained from the PC website. The methods used for the valuation vary with the type of business and often more than one method is

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used in determining the value. These include the Discounted Cash Flow method, Transaction Multiple Method, Asset Valuation at Book or Market value, and Stock Market Valuation. Therefore, it is important to focus on designing appropriate transaction structures, on advertising in relevant media, in choosing and implementing appropriate pre-qualification criteria for bidders, and in following an appropriate bidding process to obtain a fair price for privatisation. Pre-bid and Bid Process Expressions of Interest (EOI) are invited by advertising in the relevant media. The PC Ordinance 2000 spells out some of the advertising procedures. Depending on the kind of transaction, the EOI describes the broad qualifications that potential bidders must possess. Those submitting an EOI are provided with Request for Statement of Qualification (RSOQ) document. Statement of Qualification (SOQ) submitted by interested parties is then evaluated to determine whether the party meets the requisite qualifications; pre-qualified parties are then provided with the Instructions to Bidders, Draft Sale Agreement and other relevant documents. Pre-qualified bidders are given a specified period to conduct their own due diligence, following which they are invited to pre-bid meeting(s) where their questions and concerns can be addressed. The meetings are useful in determining the bidding procedure to be followed and could in some cases determine the proportion of shares that the Government may want to offload. The bidding itself is done openly, with all bidders and media invited. Post-bid Matters

Following bidding and identification of the highest bidder, the Board of the PC makes a recommendation to the CCOP as to whether or not to accept the bid. The reference price is a major determinant in the recommendation, although the Board may recommend the sale even if the offer price is below the reference price. However, bids received, which are lower by more than 10% of reference price, are not accepted. Once the bid price and bidder are approved, the PC issues a letter of acceptance (LOA) to the successful bidder, indicating the terms and conditions of the payment. Once sale proceeds have been collected, on the same day or immediately thereafter PC executes the share purchase agreement (SPA) or asset sale agreement (ASA) which results in transfer of the property to the successful bidder. Under PC’s current policy, privatisation proceeds are generally required to be paid upfront rather than over time. However, transaction specific exceptions are possible as had been the case for many earlier transactions. Within 30 days of the sale, the PC is required to publish the summary details of the transaction in the official gazette. General In summary, the privatisation process is lengthy for major transactions, mainly to ensure transparency in the process. After receiving CCOP approval for the privatisation, it typically takes about 12 months to close a major transaction, even when no major restructuring of the company is required. This includes about three to four months to

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appoint a Financial Advisor and another five to six months for the FA to complete its legal, technical, financial and human resource due diligence and to propose a privatisation strategy. Following approval of the strategy, the marketing and bidding process may take four to five months (valuation efforts proceed in parallel), while it may take another two months after bidding to obtain approvals, finalize sale documents, and close the transaction. Delays in privatisation are often caused due to non availability of clear land titles, absence of necessary regulatory framework and sectoral policies and any needed restructuring of the entity. In addition, resolution of transactional and inter-ministerial issues often results in causing delays in the bidding process.

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Modes of Privatisation In legal terms, privatisation “includes a transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the Federal Government”. Person, in turn, is broadly defined to include partnerships, companies and the like, other than those owned or controlled by the Federal Government. The Privatisation Ordinance 2000 specifies the following modes of privatisation: -

a). Sale of assets and business b). Sale of shares through public auction or tender c). Public offering of shares through a stock exchange d). Management or employee buyouts by management or employees of a state

owned enterprise: e). Lease, management or concession contracts; or f). Any other method as may be prescribed

a) Sale of Assets & Business

The Government has been selling 100 % shares as a strategic sale for the industrial plants like fertilizers and cement etc. However, in large companies where investors may be unwilling to invest substantial amounts up front, the Government transferred the management control to pre-qualified investors with minority stake of 26%. Privatisation Commission has successfully privatized assets like Faletti’s Hotel, Dean’s Hotel, Cecil’s Hotel, Federal Lodges and Al-Haroon Building Karachi etc.

b) Sale of Shares through Public Auction or Tender

This methodology also known as listing/public offer is adopted for the fast track process of issuance of shares as it does not require offering circular. This is achieved through advertisement in the leading local and international press where the investors including institutions and banks are invited to bid a price on minimum lot size. A reserve price is determined internally as a benchmark. All the terms and conditions are disclosed in the advertisement.

Privatisation Commission followed this mode for the sale of shares of National Bank of Pakistan. This mode is not generally followed as it may not be possible to sell shares at a premium to the market price.

c) Public Offering of Shares through a Stock Exchange

Listing and selling shares in the local stock exchange gives a much needed boost to the stock markets and help tap into savings. It may also improve

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corporate governance as companies will be forced to comply with the stringent reporting requirement of the stock exchange and Securities & Exchange Commission. This includes initial public offering (IPO) or secondary offering (SPO). Generally the issue price is determined through the process of book building. However, the lead managers also use the historical methods to determine the offer price i.e. market comparables and dividend discount models etc. Privatisation Commission has also sold the shares of state enterprises through Global Depositary Receipts (GDR). GDR is a negotiable certificate held in the bank of one country representing a specific number of shares of a stock quoted on exchange of another country. GDR has been used to earn foreign exchange and usually denominated in U.S. Dollars or at times in Euros. When a Depositary Receipt (DR) of a locally listed concern is to be created in a foreign stock exchange, it is listed on a particular foreign stock exchange after meeting certain requirements. Usually the GDRs are listed on the London Stock Exchange. The price of GDRs issued in US Dollars/Euros is converted from the equivalent domestic price. After the GDR issuance process is completed, the GDRs can be traded freely among investors. The GDR investor holds privileges like those granted to shareholders of ordinary shares, such as voting rights and cash dividends. The Privatisation Commission issued the shares of OGDCL and UBL through GDR after registering the share in the London Stock Exchange.

IPOs undertaken Shares offered

Name of the Entity Number Percentage

Proceeds realized

Rs. (million)

Offering Date

National Bank of Pakistan (NBP)

37,300,000 10% 373.04 February, 2002

Oil & Gas Development Company Limited (OGDCL)

215,046,420 2.5% with green shoe

option of addl. 2.5%

6,851.0 November, 2003

Pakistan Petroleum Limited (PPL)

102,875,000 10% with green shoe option of

addl. 5%

5,632.6 July, 2004

Kot Addu Power Company Limited (KAPCO)

160,798,500 10% with green shoe of addl.

10%

4,814.8 April, 2005

United Bank Limited (UBL) (4,867,000 shares)

21,743,800 4.2% 1,087.19 June, 2005

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Habib Bank Limited (HBL)

51,750,000 7.5 % 12,161.00 July 2007

GDRs undertaken

Shares offered

Name of the Entity Number Percentage

Proceeds realized

Rs. (million)

Offering Date

Oil and Gas Development Company Limited (OGDCL)

408,588,000 9.5% 46,963 December 2006

United Bank Limited 202,343,752 25% 39,450 June 2007

d) Management or Employee Buyouts

The Government encourages the management buyouts consisting of employees and officers of the state entities. However, the employees have to participate in the bidding process. The pre-qualification of employees management group (EMG) is almost automatic unless the crucial staff abstains from participation in the EMG. The group is provided the opportunity to match the highest bid offered on the same terms and conditions. There are many examples of employee management buyouts which include sale of Allied Bank Ltd., Millat Tractors Ltd., Bolan Casting, Dandot Cement, Wah Cement, Sindh Alkalis Ltd., Pakistan Switch Gear Ltd., Hydary Industries Ltd., Bengal Vegetables, International Advertising Pvt. Ltd. and Mashriq Quetta & Karachi. The above list does not include the 10% share holdings offered to the employees of all state enterprises in accordance with the agreement with “All Pakistan Sate Enterprises Workers Action Committee” (APSEWAC).

e) Lease, Management or Concession Contracts

Privatisation Commission has not used this mode directly but other state entities are using this mode. Concession contracts are commonly used by the Ministry of Petroleum & Natural Resources for granting concession to the international exploration companies for oil and gas exploration.

f) Any Other Method As May Be Prescribed

Such mode includes Public Private Partnerships. The Govt. of Pakistan has already set up Infrastructure Project Development Facility (IPDF) through Ministry of Finance Which is executing this mode in case of green field projects. PC is now venturing into this mode in brown field areas.

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Figure 1: Sources of Proceeds

Energy11%

Banking & Capital Market36%

Telecom 39%

Industrial &Others

14%

Historical Milestones of Privatisation When Privatisation Commission was established on January 22, 1991 its mandate was restricted to industrial transactions. In 1993 it was expanded to also include Power, Oil & Gas, Transport (aviation, railways, ports and shipping), Telecommunications, Banking and Insurance. From January 1991 to June 2007 the Commission completed 165 transactions for Rs 457.761 billion. To date, Government of Pakistan has completed 167 transactions at gross sale price of Rs 476.421 billion and has realized proceeds amounting to Rs. 427.753 billion. The balance proceeds on account of privatisation of 26% PTCL shares is receivable in terms of the SPA. Of the total proceeds and interest on balance sale price/bank deposits etc received, about 67% were transferred to the Federal Government, 26% was returned to legal entities whose shares were sold, 5% was used for restructuring expenses associated largely with golden handshakes and rehabilitation, and 2% was used for transaction’s privatisation-related expenditures. While almost all the transactions were settled in local currency, about 66.3% of the proceeds have been received in foreign exchange from transactions pertaining to 2nd tranche of PTCL vouchers, Kot Addu Power Plant (KAPCO), Six Oil & Gas Concessions, Habib Credit & Exchange Bank, United Bank Limited, Habib Bank Limited, KESC, 26% shares of PTCL, OGDCL GDR and UBL GDR. The table overleaf provides the number of transactions privatised and the Annex provides detail of each transaction.

Number of Privatized Transactions Table-2

(Rs. in million) From 1991 to Jun

07 From Jul 07 to

Jun 08 From Jul 08 to

Dec 08 Total SECTOR

No. Amount No. Amount No. Amount No. Amount Banking 7 41,023 7 41,023

Capital Market Transaction 21 115,804 1 17,320 22 133,124

Energy 14 51,756 14 51,756

Telecom 4 187,360 4 187,360

Automobile 7 1,102 7 1,102

Cement 17 16,176 17 16,176

Chemical / Fertilizer 23 40,584 1 1,340 24 41,924

Engineering 7 183 7 183

Ghee Mills 23 842 23 842

Rice / Roti Plants 23 326 23 326

Textile 4 371 4 371

Newspapers 5 270 5 270

Tourism 4 1,805 4 1,805

Others 6 159 6 159

Total 165 457,761 1 17,320 1 1,340 167 476.421

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Highlights for the Period (1st July, 2007 – 31st December 2008) During the financial year 2007-2008, the Commission has completed sale of 3.26% Shares of UBL through GDR in July 2007 and 7.50% shares of HBL through IPO in October 2007. PC also concluded the successful Privatisation of Hazara Phosphate Fertilizers Limited in November 2008. A brief resume of these transactions is as under:-

United Bank Limited – Global Depository Receipts (GDRs) The Privatisation Commission has completed the divestment of 25% equity of the United Bank Limited (UBL) through an international offering of Global Depository Receipts (GDRs). The CCOP, in its meeting held on October 30, 2006, approved a proposal for the divestment of 14 % to 20 % of UBL’s equity through GDR offering. However, after reviewing the demand level and on the PC Board recommendations, the CCOP on June 12, 2007 enhanced the size of the proposed divestment to the range of 20% to 30%. Pursuant to the CCOP’s approval a financial advisor (FA) was appointed on April 26, 2007. The FA carried out due diligence of UBL and together with the bank management held road shows in global financial centres including Hong Kong, Singapore, London, Dubai and New York from June 15, 2007 to June 22, 2007. During this period institutional offering was carried out through book building. The marketing effort succeeded in generating a demand of US$ 2.5 billion (at PKR180 per shares) and US$ 1.2 billion (at PKR195 per share). Price sensitivity was witnessed in the demand book, as 72.6% of the demand was at or below PKR 195 per share (5.3% discount to UBL’s June 22, 2007 closing price of PKR 206 per share on Karachi Stock Exchange). On the PC Board recommendation the CCOP approved the final offering size of 202,343,752 shares (25% of the share capital of UBL), which comprises 50,585,938 GDRs at four shares per GDR at Rs.195 i.e. US $ 12.8543 per GDR. The GDR was attractively priced at approximately five times to book value per share which was higher than the valuation of similar transactions elsewhere. Conditional trading of the UBL GDR on the London Stock Exchange began on June 25, 2007 and full trading commenced on June 29, 2007. The GDRs were sold in two parts. On June 29, 2007, 21.74% (175.95 million) shares of UBL were divested with total proceeds of $565.43 million. On July 13, 2007, another 3.26% (26.39 million) shares were divested pursuant to a stabilization agreement with the FA for total proceeds of $84.81 million. As the divested shares were owned by the State Bank of Pakistan (SBP), the net sales were remitted to SBP.

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Habib Bank Limited – Initial Public Offering (IPO) HBL established operations in Pakistan in 1947 and moved its head office to Karachi. With a domestic market share of over 40%, HBL was nationalized in 1974 and it continued to dominate the commercial banking sector with a major market share in inward foreign remittances (55%) and loans to small industries, traders and farmers. On June 13, 2002 Pakistan's Privatization Commission granted the Aga Khan Fund for Economic Development (AKFED) rights to 51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million). The HBL-IPO consisted of a 5% offer (34.5 m shares) with additional green shoe option of 2.5% (17.25 m shares). It was the largest offering ever in Pakistan in terms of both value and number of successful applicants. Total subscription of Rs. 18.94 billion has been received against the base offer of Rs.8.11 billion (excluding Greenshoe Option) resulting in an oversubscription of 2.33 times. In keeping with the objectives of the Government’s “Privatisation for the People” programme, for the first time ever shares were offered in lots of 100 and multiples of 100 up to 500 shares and thereafter multiples of 500 shares, in order to make the subscription affordable for the common man. The subscription of HBL shares commenced on July 16, 2007 and closed on July 31, 2007. The provisional trading commenced on July 6, 2007 with stock opened at Rs.375/- per shares. Balloting took place on August 11, 2007. The IPO has generated gross proceeds of 12.161 billion against the divestment of 51.75 million.

Hazara Phosphate Fertilizers Limited Hazara Phosphate Fertilizers (Pvt.) Ltd (HPFL) was incorporated as a private limited company in 1985 under National Fertilizer Corporation of Pakistan (Private) Limited (NFC). The authorized capital of the Company is 20 million shares. The issued, subscribed & paid up capital is 19,143,207 shares of Rs. 10/- each. The plant is located at Haripur (NWFP) – 75 KM from Islamabad. The company has 57 acres of developed land and includes factory, housing and other amenities. HPFL has installed capacity to produce 90,000 metric tons per annum of Granular Single Super Phosphate (GSSP) and 30,000 metric tons per annum of Sulphuric Acid required for the production of GSSP. The latest Expression of Interest (EOI) of HPFL was issued on November 13, 2007. Thirteen (13) parties submitted EOIs by the due date of December 08, 2007 namely (i) Afzal Motors (Private) Limited, Rawalpindi; (ii) Akbar Brothers, Multan; (iii) Grain Tech (Private) Limited, Lahore; (iv) ITHACA Capital (Private) Limited, Karachi; (v) Ittehad Steel Group, Islamabad; (vi) Khawaja Bashir Ahmad Group, Multan; (vii) Kissan Chemicals & Fertilizers (Private) Limited, Lahore; (viii) National Steel Re-rolling Mills (Private) Limited, Islamabad; (ix) NH Pesticides Group International, Multan; (x) Niagara Mills (Private) Limited, Faisalabad; (xi) Oil Industries Pakistan (Private) Limited, Karachi;

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(xii) Pak American Fertilizer Limited, Lahore and (xiii) Warble (Private) Limited, Lahore / Farm Fertilizers (Private) Limited, Lahore. All the thirteen (13) parties were provided Request for Statement of Qualification documents (RSOQs) dated November 13, 2007. In response to RSOQ, nine (9) parties filed Statement of Qualification documents (SOQs) by the due date of January 15, 2008. Seven (7) parties were pre-qualified namely (i) Afzal Motors (Private) Limited, Rawalpindi; (ii) Consortium of Akbar Brothers, Multan & Green Force (Private) Limited; (iii) Consortium of Khawaja Bashir Ahmad Group, Multan; (iv) Consortium of Kissan Chemicals & Fertilizers (Private) Limited, Lahore & Chaudhry Steel Re-rolling Mills (Private) Limited; (v) Niagara Mills (Private) Limited, Faisalabad; (vi) Pak American Fertilizer Limited, Lahore and (vii) Warble (Private) Limited, Lahore / Farm Fertilizers (Private) Limited, Lahore. Niagara Mill (Private) Limited, Faisalabad backed out from the transaction later. The Cabinet Committee on Privatisation (CCOP) approved the Reference Price as recommended by the PC Board in its meeting of September 24, 2008. Four (4) parties submitted the Earnest Money of Rs.40,000,000 by the due date of September 22, 2008 namely:

a. Consortium of Akbar Brothers, Multan & Green Force (Private) Limited; b. Consortium of Kissan Chemicals & Fertilizers (Private) Limited, Lahore &

Chaudhry Steel Re-rolling Mills (Private) Limited; c. Pak American Fertilizer Limited, Lahore; d. Warble (Private) Limited, Lahore.

All parties who had submitted Earnest Money participated in the bidding held on September 25, 2008. Pak American Fertilizers Limited exceeded the highest bid by Re.1 per share by increasing their bid to Rs.70 per share and total price for 100% shares came to Rs.1,340,024,490 (Rupees one billion three hundred forty million twenty four thousand four hundred ninety only). The Board of the Privatisation Commission in its meeting held on September 29, 2008 recommended for the approval of Cabinet Committee on Privatisation (CCOP) the Highest Bid offered by Pak American Fertilizers Limited and to declare them as the Successful Bidder for issuance of Letter of Acceptance (LoA). The Cabinet Committee on Privatisation (CCoP) in its meeting held on September 29, 2008 approved highest bid of Rs.70/- per share and Pak American Fertilizers Limited was declared as the Successful Bidder for issuance of Letter of Acceptance. Letter of Acceptance was issued to Pak American Fertilizers Limited on September 30, 2008. Besides above, PC also received third installment amounting to US$ 133.218 million from Etisalat against sale of PTCL shares. Therefore, total proceeds of Rs. 25.254 billion were realized. The third PTCL installment together with the second installment received earlier was utilized to pay PTCL employees VSS amounting to Rs. 15.265 billion in accordance with the directions of the Finance Division. During the year, the Commission has remitted an amount of Rs. 1.600 billion to GOP from profit earned from its interest bearing deposits and has also paid an amount of Rs. 1.769 billion in settlement of tax liabilities of Pak American Fertilizers Limited absorbed by the GOP.

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Workers’ Welfare In order to ensure smooth implementation of privatization program and to safeguard the interests of the employees working in State Owned Enterprises, an agreement was signed between Inter-Ministerial Committee appointed by the then Prime Minister and All Pakistan State Enterprises Workers Action Committee (APSEWAC) in 1991 whereby following benefits to the workers of the units to be privatized were recognized.

Protection of service for 12 months. Sale of 10 % shares to the employees at mutually agreed rate. Payment of Golden Hand Shake (GHS) to the employees who opt to retire. Employee’s right of negotiation on the highest bid to buy a unit.

Subsequently in 1992, the Cabinet Committee on Privatisation (CCOP) also approved Voluntary Separation Scheme (VSS) for the executives of the unit to be privatized. Privatisation Commission has been strictly following the spirit of APSEWAC Agreement in case of workers and CCOP approvals in case of executives. In pursuance of above mentioned policies, Privatisation Commission has so far paid Rs. 22.725 billion as GHS/VSS to 59,646 employees of different units since 1991. This includes dues of Rs. 15.2658 billion paid to 26,000 PTCL employees during the financial year 2007-08. According to APSEWAC Agreement, 10 % shares of privatized industrial units were reserved for the employees who did not opt for GHS. As per CCOP decision the shares retained for the employees can be given to them after allowing 10% discount on the Successful Bidder’s offered price. Antibiotics (Pvt.) Limited was privatized in October, 1992. 10% shares retained for employees could not be handed over/sold to the concerned due to non-settlement of the modalities. During the Year 2007-08 200,000 shares have been sold to 282 entitled employees of this unit at the nominal rate of Rs. 1.20 per share.

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Privatisation Policy Revamped The Government of Pakistan has reviewed the existing privatisation policy of strategic sale (51%-100% shares) in order to model it around the concept of Public Private Partnership (PPP) wherein the management may be transferred to investors through sale of 26% shares while ensuring transparency and all other aspects are safeguarded through comprehensive documentation. The main objective of Privatisation Policy through PPP model is to put national resources and assets to optimal use and in particular to unleash the productive potential inherent in Pakistan’s State Owned Enterprises (SoEs). The policy of Privatisation specifically aims at enhancing value of GoP shareholding value, maximization of profits, modernization and up-gradation of State Owned Enterprises; exploration and creation of new assets; management and technological transfer benefit, increasing investments in the SoEs by identifying business bench marks and outputs, remedial measures, and generation of employment. Government would continue to ensure that divestment does not result in alienation of national assets and reduction in quality of production and service to the detriment of its people. A sound contractual regime working under the enabling provisions of law would be put in place to accomplish cutting-edge innovative PPP structures reflecting best international industry practices in particular for utilities, tourism, retail, infrastructure, and services sectors. In order to achieve the most optimal results, in-house capacity will be made formidable through recruitment, capacity building and continued learning. The Privatisation Commission intends to engage advisors to assist in designing appropriate parameters, guidelines, procedures and mechanisms to implement and accelerate the privatisation program under the PPP model. The Project will include components that will identify the legislative, administrative and procedural measures that need to be put in place relating to the PPPs including:

o An appropriate legal framework o Sound financial infrastructure o Guidance from experienced advisors o Standardized contract documentation o Creating in-house expertise in government bodies undertaking projects o Identify and undertake pilot projects

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Upcoming Transactions A number of entities are on active privatization list and are likely to be taken for bidding in near future. Some of these entities are listed below:

S. No. Name of Transactions 1. SME Bank Limited 2. Peshawar Electric Supply Company (PESCO) 3. Quetta Electric Supply Company (QESCO) 4. Hyderabad Electric Supply Company (HESCO)

5. National Power Construction Company (NPCC) (51% divestment)

6. Faisalabad Electric Su. pply Company (FESCO) 7. Jamshoro Power Company Limited (JPCL) On Lease 8. Heavy Electrical Complex (HEC) 9. Pakistan Machine Tool Factory 10. Pakistan Mineral Development Corporation (PMDC) 11. Morafco Industries (Machinery as is where is basis) 12. Pakistan Railways 13. PTDC Motels and Restaurants 14. Utility Stores Corporation 15. Pakistan Post 16. Kot Addu Power Company (KAPCO) - GDR

17. National Insurance Company (ex - National Insurance Corporation)

18. Pakistan Reinsurance Company (ex - Pakistan Insurance Corporation)

19. State Life Insurance Corporation 20. Printing Corporation of Pakistan Limited 21. Services International Hotel 22. Sindh Engineering Limited 23. Republic Motors Limited

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Frequently Asked Questions

1. Of late PC’S procedures htave been described as opaque. What PC has to say on this? Suspicions often arise from the price received for the sale. Before a company or shares in a company are offered for sale, its value is estimated by independent valuators using different methodologies. This value is known as the reference price. Even when the valuators are competent, it is often difficult to arrive at an accurate valuation. The true value is dependent on many difficult to quantify variables such as country risk, corporate psychology and strategy, and perceptions of future macroeconomic performance. Only by offering the entities in an open and transparent manner to the public can the true market value of the company be determined. When companies were sold at prices that were substantially higher than the reference price, federal investigative agencies questioned the valuators’ motives. This, in turn, led to some valuators to overestimate the property value in subsequent exercise. When the reference price was higher than the market price, the investigative agencies have conducted investigations for alleged collaboration between PC officials and investors to sell the property for a low price. Fuelling the zeal for prosecution are political factors, inadequate public dissemination of the objectives and process of privatisation, and a general distrust of public officials. This zeal has delayed or stopped the sale of many companies, which has allowed for the continuation of widespread corruption via contract kickbacks and pilferage embezzlement, fraud, undue or misused perks for senior officials, coerced lending, and appointment of staff and managers on political or nepotistic grounds. While privatisation will not eliminate such corruption, the scale and opportunity for corruption are likely to be much lower. In any case, company shareholders rather than taxpayers will in general pick up the corruption costs. In spite of allegations of corruption in a few transactions, which have emanated largely from a lack of understanding of the process of privatisation, many units have been sold successfully. By making the process transparent and enshrined in law, and by having sufficient checks and balances, the ability of any individual or group to manipulate the system has been greatly reduced.

2. Why are we privatizing profitable companies such as OGDC and PTCL, thereby foregoing a positive revenue stream? Although the companies are profitable now, there is no guarantee that they will remain profitable after the telephone market opens up to competition, if oil prices were to go into a slump, or if future governments interfere in the operations of the companies. Many of today’s loss making public enterprises were once profitable. However, even if one could be assured that the companies would continue making profits, the Government is likely to receive more fiscal revenues if the companies

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were privatized, mainly because the private company is likely to make higher profits. Moreover, government policy makers would than be free to set policies and govern rather than be involved in management decisions of the companies. A simplistic, stylized example will explain how the fiscal flow would improve following privatisation. Suppose that a 100% publicly owned company is making $ 300 million in profits before taxes and that this company is valued at $ 3 billion. Revenues to the Government would therefore total $ 300 million (the sum of $ 100 in tax revenues at a 33% tax rate and after-tax profits of $ 200 million). Now suppose the Government decides to sell a 25% share, thereby receiving $ 750 million, while retaining a 75% share for sale at a later date. According to law, it would use 90% of the $ 750 million, or $ 675 million, to retire debt and $ 75 million for poverty alleviation programmes. Assuming that the debt it retires has an interest rate of 10% this would generate annual savings of $ 67.5 million. Now suppose the new management of the privatized company can enhance profits to say, $ 450 million before taxes, or $ 300 after taxes. The Government will gain in two additional ways. First, it will obtain 75% of this after-tax profit, or $ 225 million. Secondly it will collect taxes of 33% of $ 450 million, or $ 150 million. All in all, the Government will receive $ 67.5 million in lower interest payments, $ 225 million in after-tax profits, and $ 150 million in tax revenues, for a total of $ 442.5 million, as opposed to $ 300 million earlier, for a net gain of $ 142.5 million. In addition, it would have $ 75 million available for poverty reduction programmes.

3. Haven’t PC taken cognizance of the possibility that the sale of strategic assets such as oil and gas, telecommunications, and PIA to foreign parties will compromise our security and national interests?

Efficient enterprises providing enhanced quality and quantity of goods and services safeguard the security and national interests of the country more effectively than inefficient and loss-making public enterprises. The experience in many countries has shown that foreign know-how and capital can contribute to economic growth, higher tax revenues, and transfer of technology. The countries that have followed the privatisation route have not bargained away their national security. In fact, the countries that were more open to foreign investment and gave economic development prime importance have flourished and gained international influence. A nation that is made up of people who are economically better off is a better guarantee of national security than an impoverished nation that pays high taxes and receives poor services but takes pride in owning a poorly run company. Truly strategic assets are not included in the privatisation programme.

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4. What is the source of obtaining financial information of a company for valuation purposes of any unit under privatisation? The management of the organization in accordance with the generally accepted auditing principles prepares the accounts of the company. The company law requires that accounts are audited and certified by an independent firm of Chartered Accountants who conduct audit of the accounts in accordance with the international accounting standards and practices.

The audit of accounts is hence obligatory to protect the interest of its shareholders. Other interested groups like banks, creditors, investors etc. also use the audited financial statements. Full reliance is placed by the shareholders on the audited financial statements of a company under normal circumstances. However, in very rare circumstances or in case the shareholder has any doubts the management may appoint another independent firm of Chartered Accountants (Auditor) to probe the authenticity of the audited accounts. It is, therefore, not a standard practice to appoint another auditor under normal circumstances.

5. In some cases the valuation of the land alone may be more than the valuation of the company. Why this is so? This is a matter of perception only. It is not so. Any business has two kinds of assets – core assets that are part of the business and non-core assets that are not directly utilized as part of core operation and hence can be treated surplus assets. The asset valuation of core assets is reflected in the cash flow of the companies and is, therefore, not added separately to the value. The non-core assets are not reflected in the cash flows. Therefore, valuation of the non-core assets is done separately and added to the DCF method. This methodology of adding non-core assets value has been followed in some transactions. Further, it may be appreciated that the land is a provincial subject and it is not easy for any successful bidder to change the objective of land utilization for industrial purposes to the housing schemes.

Investors are not interested in high cost land for an industrial unit as it does not get them any financial returns. Normally the industries are set up in industrial zones or areas far away from the cities as the land under industrial use would not generate any revenues to the operating company. The industrial units being sold at present were all set up long time ago and did not have the market value when the units were set up as they were located away from city centres. Privatisation Commission carries out valuation under all the methodologies including Asset Valuation Method and compares it appropriately. It is only under special circumstances that the valuation under Asset Valuation Method is higher than the other methods used.

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6. One of the sections of PC Ordinance 2000 stipulates that 90% of privatisation proceeds will be used for debt retirement. How PC hopes to achieve that goal?

The residents of Pakistan are burdened with high debt. Over 60 percent of all revenues of the government go towards debt-service at the expense of financing social development activities in education, health, or water supply. Retiring the national debt is therefore one of the many objectives of privatisation. Much of the debt stems from financing losses of state-owned enterprises. Even where the enterprises are profitable, private ownership is likely to increase profits and associated tax revenues. Thus, public finances are strengthened from increased revenues from privatisation proceeds, higher tax receipts, and having funds released from not having to finance future losses of privatized entities. However, in many instances, the more important reason to privatise is to attract private management and capital that can improve the quality of goods and services for consumers, who are presently suffering from inefficiencies in the operation of public sector units. State-owned enterprises often lack funds to undertake fresh investments to improve services or to expand output. In addition, privatisation will provide an impetus to deregulation and competition, introduce new technology and management to these units, and broaden the base of the capital market in the country, which in turn will help boost fresh investments and create new jobs.

7. How PC will like to comment on a frequent experience witnessing higher prices of goods and services after privatisation?

The prices of goods and services have increased where they had been held down artificially through subsidies. Ostensibly, this was done to protect the people from higher prices. However, typically the government was then compelled to provide fiscal support to these units. Thus all taxpayers, rather than just the users, contributed towards providing these goods and services more cheaply. Often the benefit of subsidies went to middlemen and producers rather than to poor consumers. Artificial controls on prices also discourage fresh investment. As the privatisation experience of many countries shows, once prices are adjusted to reflect their true costs, substantial investments were made in modernization and capacity expansion by the new investors. This helped in meeting growing demand and ensuring better quality and services. The expanded services will mean that the poorer segments of society, which were typically excluded from the rationed service, will now be able to avail it. Even though prices may be higher for those who already received the service, those who did not receive the service often relied on costlier, less effective alternatives. For example, while gas prices for the 18 percent of households that presently receive gas will rise following privatisation, they will be less costly than the kerosene and other fuels used by large segments of the population. Market-based pricing and

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privatisation will increase gas production and the distribution network, thereby allowing many formerly excluded households and businesses to receive gas at lower cost than alternatives such as petroleum products or electricity. They will also allow foreign exchange savings from lower imports of petroleum products. The expansion of gas supplies for electricity would also mean that electricity prices would drop (or not rise as much) as they would have without the new gas supplies.

8. Usually privatisation leads to workers layoff. Won’t this aggravate the already existing unemployment in the country?

State owned enterprises often have many more employees than needed for efficient operation of the company. Many of the employees perform little or no work and/or have low productivity. In fact, taxpayers and consumers are paying their salaries through lowered profits or increased losses and/or lowered output or reduced quality. Although privatisation does lower employment in a particular enterprise, its overall impact on economy is an increase in employment rate through injection of new investment, introduction of better management and improvement in competiveness.

9. In today’s investment climate, who will be interested in buying the public entities?

Although today’s investment climate is not as good as a few years ago, there is no assurance that it will improve substantially in the future. Delaying privatisation in the hope of subsequent improvement risks having a continuation of: (a) losses or low profits, (b) failure to enhance the quality and quantity of goods and services, (c) failure to correct distorted price signals, and (d) failure to generate privatisation proceeds and additional tax revenues. Moreover, delaying privatisation may send a signal to potential investors that the Government is not serious about leaving the business of running business to the private sector, thereby keeping away investment resources that are necessary to jumpstart the economy and create new jobs. There is still sufficient investors interest to proceed with virtually all transactions. In any case, the Government always retains the option of declining any bid that it believes to be too low.

10. How do we know that the private sector will be any more efficient than the public sector? After all private companies go bankrupt and close down all the time.

Worldwide experience has shown private companies to be more efficient than public ones. The incentives work towards having greater efficiency in the private sector. However, even with improved efficiency some private companies will go bankrupt. The big difference is that the pain will be felt mainly by its private shareholders, rather than by taxpayers.

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11. Privatisation Commission should prefer sale of SOEs to the domestic investors instead of the foreign organizations. Pakistan needs foreign investment in order to improve its foreign currency reserves, improve management techniques and technology. By restricting sales to only domestic investors, PC will be limiting open participation. In addition imposition of such a restriction would harm the Foreign Direct Investment (FDI) interests of Pakistan. Most developed and developing countries encourage FDI in their countries and Pakistan ranks high among them. There is only a very limited list of specified industries which is not open for the private sector. These include arms & ammunition, high explosives, radioactive substances, security printing, currency and mint.

12. Why Privatisation Commission does not bind the successful bidders to modernize and expand the units they would own? The idea appears to be very attractive and beneficial. However, it is recognized that new investment in modernizing or expansion requires appropriate feasibility and study of related issues which can impact on the profitability of such investments like future tariff and taxation etc. However, such provisions can be included for transactions which involve sale of limited shares (say 26%) with management control.

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Privatised Transactions From 1991 to June 2007

Rs (in million) Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

Banking and Finance Bank 1 Allied Bank Limited (51%) 971.6 Feb-91 EMG 2 Muslim Commercial Bank (75%) 2,420.0 Apr-91 National Group 3 Bankers Equity Ltd. (51%) 618.7 Jun-96 LTV Group 4 Habib Credit & Exchange 70 %

(52,500,000) 1,633.9 Jul-97 Sh. Nahyan bin Mubarik Al-

Nahyan 5 United Bank Ltd. 51% (1,549,465,680

shares) 12,350.0 Oct-02 Consortium of Bestway & Abu

Dhabi Group 6 Bank Alfalah 30% (22,500,000

shares) 620.0 Dec-02 Abu Dhabi Group

7 Habib Bank (51%) 22,409.0 Dec-03 Agha Khan Fund for Economic Development

Total 41,023.2 Capital Market Transaction 8 Muslim Commercial Bank (6.8%) 563.2 Jan-01 MCB Employees-PF & Pension-

Fund 9 Muslim Commercial Bank (4.4%) 364.0 Nov-01 MCB Employees-PF & Pension-

Fund 10 NBP 10% shares IPO (37,300,000) 373.0 Feb-02 General Public Thru Stock

Exchange 11 Muslim Commercial Bank-CDC

(24,024,560 shares) 664.0 Oct-02 Sale thru CDC

12 Pakistan Oil Fields Limited -CDC (28,546,810 shares)

5,138.0 Oct-02 Sale thru CDC

13 Attock Refinery Limited -CDC (10,206,000 shares)

1,039.0 Jan-03 Sale thru CDC

14 ICP Lot – A 175.0 Sep-02 ABAMCO 15 ICP Lot – B 303.0 Oct-02 PICIC 16 ICP – SEMF 787.0 Apr-03 PICIC 17 NBP 10% SPO (37,303,932 shares) 782.0 Nov-02 Sale thru CDC 18 DG Khan Cement -CDC (3,601,126

shares) 63.0 Dec-02 General Public Thru Stock

Exchange 19 NBP 3.52% 3rd offer (13,131,000

shares) 604.0 Nov-03 General Public Thru Stock

Exchange 20 OGDCL 5% IPO (215,046,420

shares)

6,851.0 Nov-03 General Public Thru Stock Exchange

44

Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

21 SSGC10% -SPO (67,117,000 shares) 1,734.0 Feb-04 General Public Thru Stock Exchange

22 PIA 5.8% SPO (66,057,000 shares) 1,215.1 Jul-04 General Public Thru Stock Exchange

23 PPL15% IPO (102,875,000 shares) 5,632.6 Jul-04 General Public Thru Stock Exchange

24 KAPCO 20% IPO (160,798,500 shares)

4,814.8 Apr-05 General Public Thru Stock Exchange

25 UBL 4.2% IPO (21,867,400 shares) 1,087.2 Aug-05 General Public Thru Stock Exchange

26 OGDCL 9.5% GDR (408,588,000 shares)

46,963.0 Dec-06 GDR offering to international & domestic institutions

27 OGDCL 0.5% SPO (21,451,141 shares)

2,359.6 Apr-07 General Public Thru Stock Exchange

28 UBL 21.74% GDR (175,951,092 shares)

34,291.7 Jun-07 GDR offering to international & domestic institutions

Total 115,804.2 Total Banking & Finance 156,827.4 Energy Sector 29 Mari Gas (20%) 102.4 Apr-94 Mari Gas Company Ltd. 30 Kot Addu Power Company (26%) 7,105.0 Jun-96 National Power 31 Kot Addu Power Company (10%) 3,046.0 Nov-96 National Power 32 Kot Addu (Escrow A/c) 900.7 Apr-02 National Power 33 SSGC LPG business 369.0 Aug-00 Caltex Oil Pak.(Pvt) Ltd. 34 SNGPL LPG business 142.0 Oct-01 Shell Gas LPG Pakistan 35 Badin II (Revised) 503.2 Jun-02 BP Pakistan & Occidental

Pakistan 36 Adhi 618.9 May-02 Pakistan Oil Field 37 Dhurnal 161.0 May-02 Western Acquisition 38 Ratana 24.6 May-02 Western Acquisition 39 Badin I 6,433.0 Jun-02 BP Pakistan & Occidental

Pakistan 40 Turkwal 75.6 Jun-02 Attock Oil Company 41 NRL (51% shares) 16,415.0 May-05 Consortium of Attock Refinery

Ltd. 42 KESC (73% GOP shares)

15,859.7 Nov-05 Hassan Associates

Total 51,756.1 Telecommunications 43 PTCL (2%) 3,032.5 Aug-94 General Public Thru Stock

Exchange 44 PTCL (10%) 27,499.0 Sep-94 Through DR form 45 26% (1.326 billion) B class shares of

PTCL 156,328.4 Jul-05 Etiselat UAE

45

Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

46 Carrier Telephone Industries 500.0 Oct-05 Siemens Pakistan Engineering Co. Ltd.

Total 187,359.9 Industrial Units Automobile 47 Al-Ghazi Tractors Ltd. 105.6 Nov-91 Al-Futain Industries (Pvt) Ltd.

UAE 48 National Motors Ltd. 150.4 Jan-92 Biboo Jee Services 49 Millat Tractors Ltd. 306.0 Jan-92 EMG 50 Baluchistan Wheels Ltd. 276.4 May-92 A. Qadir & Saleem I. Kapoorwala51 Pak Suzuki Co. Ltd. 172.0 Sep-92 Suzuki Motors Co. Japan 52 Naya Daur Motors Ltd. 22.3 Jan-93 Farid Tawakkal & Saleem I.

Kapoorwala 53 Bolan Castings 69.2 Jun-93 EMG Total 1,101.9 Cement 54 Maple Leaf Cement 485.7 Jan-92 Nishat Mills Ltd. 55 Pak Cement 188.9 Jan-92 Mian Jehangir Ellahi &

Associates 56 White Cement 137.5 Jan-92 Mian Jehangir Ellahi &

Associates 57 D.G Khan Cement 1,960.8 May-92 Tariq Sehgal & Associates 58 Dandot Cement 636.7 May-92 EMG 59 Garibwal Cement 836.3 Sep-92 Haji Saifullah & Group 60 Zeal Pak Cement 239.9 Oct-92 Sardar M. Ashraf D. Baluch 61 Kohat Cement 527.9 Oct-92 Palace Enterprises 62 Dandot Works - National Cement 110.0 Jan-95 EMG 63 General Refractories Limited 18.9 Feb-96 Shah Rukh Engineering 64 Wah Cement 2,415.8 Feb-96 EMG 65 Associated Cement Rohri 255.0 Nov-03 National Transport Karachi 66 Thatta Cement 793.7 Jan-04 Al Abbass Group 67 10% additional shares – Dandot

Cement 8.3 Oct-04 EMG

68 10% additional shares – Kohat Cement

40.7 Oct-04 EMG

69 Mustehkam Cement Limited 3,204.9 Nov-05 Bestway Cement Limited 70 Javedan Cement Company Limited 4,315.9 Aug-06 Haji Ghani Usman & Group Total 16,176.9 Chemical 71 National Fibres Ltd 756.6 Feb-92 Schon Group 72 Kurram Chemicals 33.8 Feb-92 Upjohn Company USA 73 Pak PVC Ltd 63.6 Jun-92 Riaz Shaffi Reysheem 74 Sind Alkalis Ltd 152.3 Oct-92 EMG

46

Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

75 Antibiotics (Pvt) Ltd 24.0 Oct-92 Tesco Pvt) Ltd. 76 Swat Elutriation 16.7 Dec-94 Sahib Sultan Enterprises 77 Nowshera PVC Co. Limited 20.9 Feb-95 Al Syed Enterprises 78 Swat Ceramics (Pvt) Limited 38.6 May-95 Empeiral Group 79 Ittehad Chemicals 399.5 Jul-95 Chemi Group 80 Pak Hye Oils 53.6 Jul-95 Tariq Siddique Associates 81 Ravi Engineering Limited 5.4 Jan-96 Petrosin Products 82 Nowshera Chemicals 21.2 Apr-96 Mehboob Ali Manjee 83 National Petrocarbon 21.9 Jul-96 Happy Trading 84 National Petrocarbon (add’l 10%

shares) 2.3 Mar-02 Happy Trading

85 Khuram Chemicals (additional 10%) 6.0 Oct-03 Pfizer Pakistan 86 10% additional shares – Ittehad

Chemicals 26.1 Oct-04 EMG

Total 1,642.5 Engineering 87 Karachi Pipe Mills 18.9 Jan-92 Jamal Pipe Industries 88 Pioneer Steel 4.4 Feb-92 M. Usman 89 Metropolitan Steel Mills Limited 66.7 May-92 Sardar M. Ashraf D. Baluch 90 Pakistan Switchgear 8.9 Jun-92 EMG 91 Quality Steel 13.2 Apr-93 Marketing Enterprises 92 Textile Machinery Co 27.9 Oct-95 Mehran Industries 93 Indus Steel Pipe 42.5 Jul-97 Hussien Industries Total 182.5 Fertilizer 94 Pak China Fertilizers Company

Limited 435.4 May-92 Schon Group

95 Pak Saudi Fertilizers Ltd. (90%) 7,335.9 May & Sep-02

Fauji Fertilizers

96 Pak Saudi Fertilizers Ltd. (10%) 815.0 Sep-02 Fauji Fertilizers Ltd. 97 Pak Arab Fertilizers (Pvt) Ltd. (94.8%) 14,125.6 May-05 Export Reliance- Consortium 98 Pak Amercian Fertilizers (100%) 15,949.0 Jul-06 Azgard 9 99 Lyallpur Chemical & Fertilizers 280.2 Dec-06 Al Hamd Chemical (Pvt) Limited Total 38,941.1 Ghee 100 Fazal Vegetable Ghee 21.2 Sep-91 Mian Mohammad Shah 101 Associated Industries 152.0 Feb-92 Mehmoob Abu-er-Rub 102 Sh Fazal Rehman 64.3 Apr-92 Rose Ghee Mills 103 Sh Fazal Rehman (additional 10%

shares) 2.3 May-05 Rose Ghee Mills

104 Kakakhel Industries 55.3 May-92 Mehmoob Abu-er-Rub 105 United Industries 15.5 May-92 A. Akbar Muggo

47

Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

106 Haripur Vegetable Oil 30.1 Jul-92 Malik Naseer & Associates 107 Bara Ghee Mills 27.8 Jul-92 Dawood Khan 108 Hydari Industries - Aug-92 EMG 109 Chiltan Ghee Mills 42.5 Sep-92 Baluchistan Trading Co. 110 Wazir Ali Industries 31.9 Dec-92 Treat Corporation 111 Asaf Industries (Pvt) Limited 11.4 Jan-93 Muzafar Ali Isani 112 Khyber Vegetable 8.0 Jan-93 Haji A. Majid & Co. 113 Suraj Vegetable Ghee Industries 10.8 Jan-93 Trade Lines 114 Crescent Factories Vegetable Ghee

Mills 46.0 Jan-93 S. J. Industries

115 Bengal Vegetable 19.1 Mar-93 EMG 116 A & B Oil Industries Limited 28.5 Mar-93 Al-Hashmi Brothers 117 Dargai Vegetable Ghee Industries 26.2 Nov-97 Gul Cooking Oil Industries 118 Punjab Vegetable Ghee 18.7 May-99 Canal Associates 119 Burma Oil 20.1 Jan-00 Home Products International 120 E&M Oil Mills 94.0 Jul-02 Star Cotton Corp. Ltd. 121 Maqbool Oil Company Ltd. 27.6 Jul-02 Madina Enterprises 122 Kohinoor Oil Mills 80.7 May-04 Iqbal Khan 123 United Industries Limited 7.7 Sep-05 A. Akbar Muggoon Total 841.7 Mineral 124 Makerwal Collieries 6.1 Jul-95 Ghani Group of Industries Rice 125 Sheikhupura 28.0 May-92 Contrast Pvt Ld. 126 Faizabad 21.2 May-92 Packages Ltd. 127 Siranwali 16.2 Jul-92 Enkay Enterprises 128 Hafizabad 20.0 Sep-92 Pak Pearl Rice Mills 129 Eminabad 24.1 Nov-92 Pak Arab Food Industries 130 Dhaunkel 79.2 Jun-93 Dhonda Pakistan Pvt Ltd. 131 Mabarikpur 14.4 Nov-93 Maktex Pvt) Ltd. 132 Shikarpur 32.5 Mar-96 Afzaal Ahmad Total 235.6 Roti Plants 133 Gulberg, Lahore 8.7 Jan-92 Packages Ltd. 134 Peshawar 2.6 Jan-92 Saleem Group of Industries 135 Head Office, Lahore 10.2 Jan-92 Hajra Textile Mills 136 Hyderabad 2.6 Jan-92 Utility Stores Corp. 137 Faisalabad 11.5 Jan-92 Azad Ahmad 138 Bahawalpur 1.6 Feb-92 Utility Stores Corp. 139 Multan 2.5 Feb-92 Utility Stores Corp. 140 Quetta 4.8 Feb-92 Utility Stores Corp. 141 Islamabad 3.6 Mar-92 Utility Stores Corp.

48

Sr. No

Unit Name

Sale Price

Date of Transfer

Buyer Name

142 Taimuria, Karachi 9.2 Jun-92 Spot Light Printers 143 SITE, Karachi 5.1 Sep-92 Specialty Printers 144 Multan Road, Lahore 3.5 Dec-92 Utility Stores Corp. 145 Korangi, Karachi 4.6 Apr-93 Utility Stores Corp. 146 Mughalpura, Lahore - Jun-96 Pakistan Railways 147 Gulshan-e-Iqbal, Karachi 20.2 Mar-98 Ambreen Industries Total 90.7 Textile 148 Quaidabad Woollen Mills 85.5 Jan-93 Jehangir Awan Associates 149 Cotton Ginning Factory 1.2 Jun-95 Hamid Mirza 150 Bolan Textile Mills 128.0 Oct-05 Sadaf Enterprises 151 Lasbella Textile Mills 156.0 Nov-06 Raees Ahmed Total 370.7 Total (all Industrial Units) 59,589.7 Miscellaneous 152 National Tubewell Const Corpn 18.6 Sep-99 Through Auction 153 Duty Free Shops 12.5 Sep-99 Weitnaur Holding Ltd. 154 Republic Motors (Plot) 6.3 Nov-99 Muhammad Mushtaq 155 Al Haroon Building Karachi 110.0 Sep-02 LG Group 156 International Advertising (Pvt) Ltd. 5.0 Apr-05 EMG Total 152.4 Newspapers 157 N.P.T Building 185.0 Oct-93 Army Welfare Trust 158 Mashriq – Peshawar 26.6 Jun-95 Syed Tajmir Shah 159 Mashriq – Quetta 6.2 Jan-96 EMG 160 Progressive Papers Ltd. 46.1 May-96 Mian Saifu-ur-Rahman 161 Mashriq – Karachi 6.7 Aug-96 EMG Total 270.6 Tourism 162 Cecil's Hotel 190.9 Jun-98 Imperial Builders 163 Federal Lodges - 1- 4 39.2 Jan-99 Hussain Global Assoc. 164 Dean's Hotel 364.0 Dec-99 Shahid Gul & Partners 165 Falleti's Hotel Lahore 1,211.0 Jul-04 4B Marketing Total 1,805.1 Total (Misc.) 2,228.1 165 Total (1991 to June 2007) 457,760.2

49

From July 2007 to December 2007 Rs (in million) Sr. No

Unit Name

Sale price

Date of Transfer

Buyer Name

Capital Market Transaction UBL 3.26% thru GDR (26,392,660

shares) 5,159.0 Jul-07 GDR offering to international &

domestic institutions 1 HBL 7.5% thru IPO (51,750,000

shares) 12,161.0 Oct-07 General Public Thru Stock

Exchange Total 17,320.0 Fertilizer

2 Hazara Phosphate Fertilizers Limited 1,340.0 Nov 08 Pak American Fertilizers Total Jul 2007 to December 2008 18,660.0

167 Main Total 1991 to December 2008 476,420.2

50

Financial Statements and

Auditor’s Report

51

52

Note 2008 2007Restated

(Rupees '000')NON-CURRENT ASSETS

Property, plant and equipment 4 10,167 8,190 Long term receivables 5 27,179,784 40,273,067 Long term investments 6 103,584 167,019

CURRENT ASSETS

Due from buyers of privatised entities 7 29,511,152 18,440,914 Due from privatised entities 8 286,139 286,139 Advances, deposits, prepayments and receivables 9 83,290 70,300 Cash and cash equivalents 10 2,377,777 12,416,520

32,258,358 31,213,873 TOTAL ASSETS 59,551,893 71,662,149

NON-CURRENT LIABILITIES

DEFERRED INCOME

BALANCE SHEETAS AT JUNE 30, 2008

Grants from Government of Pakistan 11 25,841 7,246 Grant from World Bank 12 303 355

26,144 7,601

CURRENT LIABILITIES

Liabilities assumed of privatised entities 13 142,896 142,896 Other payables 14 234,299 446,730

377,195 589,626 CONTINGENCIES AND COMMITMENTS 15

TOTAL LIABILITIES 403,339 597,227

NET FUNDS EMPLOYED 59,148,554 71,064,922

REPRESENTED BY:

PAYABLE TO GOVERNMENT OF PAKISTAN 16 59,148,554 71,064,922

Chairman Member/Secretary

The annexed notes from 1 to 22 form an integral part of these financial statements.

Note 2008 2007

(Rupees '000')

INCOME

Grant from World Bank 12 52 67 Grants from Government of Pakistan 17 45,469 39,514 Fees, charges and other receipts 18 1,068,708 626,801

1,114,229 666,382

EXPENDITURE

Salaries, allowances and benefits 53,928 48,611 Advertisement 1,436 1,749 Rent and utilities 10,208 7,804 Traveling 3,671 6,212 Printing and stationery 1,408 1,499 Depreciation 4 2,112 1,368 Telephone and communication 2,592 2,623 Repairs and maintenance 1,974 960

INCOME AND EXPENDITURE ACCOUNTFOR THE YEAR ENDED JUNE 30, 2008

p ,Fuel and lubricants 2,373 2,284 Audit fee 120 120 Others 1,962 4,038

81,784 77,268

Net income transferred to Payable to Government of Pakistan 1,032,445 589,114

Chairman Member/Secretary

The annexed notes from 1 to 22 form an integral part of these financial statements.

Note 2008 2007Restated

Cash flows from operating activities

Net income transferred to Payable to Government of Pakistan 1,032,445 589,114

Adjustments for:Amortisation of grant from World Bank (52) (67) Depreciation 2,112 1,368 Gain on disposal of property, plant and equipment (559) (523) Amortisation of grants from Government of Pakistan-related to income 18,595 1,676

20,096 2,454 1,052,541 591,568

(Increase) in due from buyers of privatised entities (11,070,238) (69,541) (Increase) / decrease in advances, deposits, prepayments and receivables (12,990) 31,952 (Decrease) in advances against sale - (9,797,952) (Decrease) in other payables (212,431) (249,789) (Decrease) in Payable to Government of Pakistan (12,948,813) (7,677,538)

(24,244,472) (17,762,868)

CASH FLOW STATEMENTFOR THE YEAR ENDED JUNE 30, 2008

(Rupees '000')

( , , ) ( , , )Net cash (used in) operating activities (23,191,931) (17,171,300)

Cash flows from investing activities

Investment available for sale 63,435 (167,019) Purchase of property, plant and equipment (4,133) (2,836) Proceeds from sale of property, plant and equipment 603 571 Decrease in long term receivables 13,093,283 15,865,838 Net cash from investing activities 13,153,188 15,696,554

Net ( decrease) in cash and cash equivalents (10,038,743) (1,474,746)

Cash and cash equivalent at beginning of year 12,416,520 13,891,266

Cash and cash equivalent at end of year 10 2,377,777 12,416,520

The annexed notes from 1 to 22 form an integral part of these financial statements.

Chairman Member/Secretary

1. LEGAL STATUS AND OPERATIONS

2. STATEMENT OF COMPLIANCE AND SIGNIFICANT ESTIMATES

2.1 Statement of compliance

2.2 Significant estimates

2.2.1 Provisions

2.2.2 Property, plant and equipment

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Accounting Convention

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2008

The Commission reviews the useful lives of property, plant and equipment on regular basis. Any change in the estimates in future yearsmight affect the carrying amounts of the respective items of property, plant and equipment with a corresponding affect on thedepreciation charge and impairment, if any.

The preparation of financial statements in conformity with International Accounting Standards (IASs) as applicable in Pakistan requiresmanagement to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets andliabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various otherfactors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgment aboutcarrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in theperiod in which estimates are revised if the revision affects only that period, or in the period of the revision and future periods if therevision affects both current and future periods.

Judgments made by management in the application of IASs that have significant effect on the financial statements and estimates with asignificant risk of material adjustments in the next year are discussed in the ensuing paragraphs.

These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan.Approved accounting standards comprise of such International Accounting Standards (IASs) as notified under the provisions of theCompanies Ordinance, 1984. These also comply, as far as practicable, with the requirements of the Privatisation CommissionOrdinance, 2000.

The Privatisation Commission ("the Commission") was established under the Federal Government of Pakistan Notification No. F.5 (1)Adm-I/91, dated January 22, 1991 to process the privatisation of public sector industries and enterprises, to recommend rehabilitation ofeffected employees, to prepare public sector units for privatisation and to implement policies of Government of Pakistan ("GoP") onderegulation and privatisation.

The above said Notification was rescinded by the Privatisation Commission Ordinance, 2000 ("the Ordinance"). promulgated onSeptember 28, 2000 and the existing Commission stood dissolved on the commencement of this Ordinance. Under the new Ordinance,the Commission is declared a body corporate having perpetual succession and a common seal, with power, subject to the provisions ofthe Ordinance, to enter into agreements, contracts, acquire and hold property, both moveable and immovable, and to sue and be suedin its own name.

These financial statements have been prepared under the historical cost convention and accrual basis of accounting except for cashflow statement.

Provisions are recognised in respect of due from buyers of privatised entities, advances to privatised entities and loans due to GoP. Thetiming of recognition requires the application of judgment to existing facts and circumstances, which can be subject to changes.Estimates of the amounts of provisions and liabilities recognised are based on current legal and constructive requirements. Becauseactual outflows can differ from estimates due to changes in laws, regulations, public expectations, prices and conditions, and can takeplace many years in the future, the carrying amounts of provisions and liabilities are regularly reviewed and adjusted to take account ofsuch changes.

The Commission has disclosed significant contingent liabilities for the pending litigation and claims against the Commission based on itsjudgment and the advice of the legal advisors for the estimated financial outcome. The actual outcome of these litigations and claimscan have an effect on the carrying amounts of the liabilities recognised at the balance sheet date. However, based on the bestjudgment of the Commission and its legal advisors, the likely outcome of these litigations and claims is remote and there is no need torecognise any liability at the balance sheet date.

3.2 Property, plant and equipment

3.3 Investments available for sale

3.4

3.5

3.6

3.7

3.8

3.9

3.10 Liabilites assumed of Privatised Entities

Provision for taxation on income has not been made in these financial statements as Commission is exempt from tax under section 44of the Privatisation Commission Ordinance, 2000.

Funds transferred for payments to employees of entities privatised and selected for privatisation under the approved golden handshakeand voluntary separation schemes, payments to financial advisors, valuers, legal advisors, consultants and other payments directlyconnected with the entities privatised or selected for privatisation are charged to the Payable to Government of Pakistan.

Bad and doubtful debts

Taxation

Bad debts and provision for doubtful debts pertaining to the transactions forming part of the privatisation are charged to the Payable toGovernment of Pakistan. Other bad debts and provision for doubtful debts are taken to income and expenditure account.

Loans liabilities to GoP and government owned corporations assumed by the buyers under the sale agreement of privatised entities arenot recognised in the financial statements of the Commission as due from them. The recovery of such loans remains the responsibilityof the GoP and the concerned government owned corporations.

These are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Depreciation is charged on reducingbalance method at the rates as referred in note 4 to these financial statements so as to write off the cost over expected useful lives.

Privatisation proceeds

Privatisation proceeds comprising sale price of the assets or shares of the privatised entities are taken to the Payable to Government ofPakistan.

Mark-up on unpaid privatisation proceeds, loans and other liabilities of the privatised entities assumed or paid by the PrivatisationCommission are taken to Payable to Government of Pakistan.

Income from investments, including bank deposits is recognised as income on time proportion basis.

Foreign currency translation

Income from fees and charges is recognised on actual receipt basis.

Transactions pertaining to privatisation

Transactions in foreign currencies are recorded using the rates of exchange applicable on the transaction date while assets andliabilities in foreign currencies are converted into Pak rupees at the rates prevailing at the balance sheet date. Exchange differences aretaken to Payable to Government of Pakistan.

Supplementary contribution from the Privatisation Fund is recognised as income in the year in which it is received/transferred.

Full month depreciation is charged on additions in the month of addition and no depreciation is charged on assets retired/deleted duringthe month.

Subsequent costs are included in the assets carrying amount when it is probable that future economic benefits associated with the itemwill flow to the Commission and the cost of the item can be measured reliably, and the carrying amounts of the part of asset so replacedif any, are retired. All other repair and maintenance are charged to income during the year. Gains and losses on disposal of property,plant and equipment are credited or charged to income in the year of disposal.

Grants from Government of Pakistan for operational expenditure are recognised as income to the extent these are used for thatpurpose. Grants related to depreciable assets, including the non-monetary grants at fair value, are recognised as income over theperiods and in the proportions in which depreciation on those assets is charged.

Revenue recognition

These are initially recognised at cost and at subsequent reporting dates measured at fair values. Gains or losses from changes in fair

values are taken to Payable to Government of Pakistan.

Management has determined fair value of investments by using quotations from active market (Karachi Stock Exchange) and

conditions and information about the financial instruments.

3.11

3.12

3.13

3.14

3.15

3.16

3.17 Recognition of sales

3.18

3.19

IAS 1 - Presentation of Financial Statements (as revised); July 1, 2009IAS 16 - Property Plant and Equipment (as revised) ; July 1, 2009IAS 32 - Financial Instruments:Presentation (as revised); July 1, 2009IAS 36 - Impairment of Assets (as revised); July 1, 2009IAS 39 - Financial Instruments:Recoginition and Measurement (as revised); July 1, 2009IFRS 7 - Financial Instrument: Disclosure July 1, 2008

Grants related to assets

Grant related to assets are taken as deferred income in the balance sheet and systematically amortised through income statement inproportion to the depreciation expense relating to assets acquired under the grant.

Expenses incurred on completing disinvestments or sale of shares on behalf of investor organizations, other than payments madeunder golden handshake or voluntary separation schemes to the employees, are charged to Payable to Government of Pakistan.

Sale of shares on behalf of investor organizations

Government of Pakistan approved payments

Adoption of the above amendments would result in an impact to the extent of disclosures presented in the future financial statements of the Commission.

Amendments to the following standards have been published that are applicable to the Commission’s financial statements covering annual periods beginning on or after the following dates:

The agreed sale price of units privatised is recognised in the books of account at the time of signing of sale agreement or receipt of fullsale price whichever is earlier. While the sale of shares through Initial Public Offering (IPO) and Secondary Public Offering (SPO) arerecognised when cash is received.

Impairment of property, plant and equipment

The carrying amounts are reviewed at each balance sheet date to determine whether there is any indication of impairment of any assetor a group of assets. If any such indication exists, the recoverable amount of that asset or group of assets is estimated and impairmentlosses are charged to income.

When impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount butlimited to the extent of initial cost of the asset.

Beginning date ofannual period

The payments made for golden handshake, salaries and legal dues to employees and for liquidating loans of entities privatised orselected for privatisation specifically sanctioned by the GoP are charged to the Payable to Government of Pakistan.

New International Accounting Standards, International Financial reporting Standards and International Financial ReportingInterpretation Committee (IFRIC) interpretations that are not yet effective:

Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalent consist of cash in hand, balances withbanks and Special Notice Deposit Receipts (SNDRs) and Term Deopsit Receipt (TDR) which are subject to insignificant risk of changein value.

Cash and cash equivalents

Financial instruments

Financial assets and financial liabilities are recognised when the Commission becomes a party to the contractual provisions of theinstruments. These are de-recognised when the Commission ceases to be a party to the contractual provisions of the instrument. Anygain or loss on de-recognition of the financial assets and financial liabilities is taken to the Payable to Government of Pakistan.

Offsetting of financial assets and financial liabilities

A financial assets and a financial liability is set-off and the net amount is reported in the balance sheet if the Commission has a legallyenforceable right to set-off the recognised amounts and intends either to settle on net basis or to realize the assets and settle theliabilities simultaneously. The particular recognition methods adopted by the Commission are disclosed in the respective policystatements associated with each item of financial instruments.

4. PROPERTY, PLANT AND EQUIPMENT

Furniture & Fixtures

Office equipment Computers Motor

vehicles Sub Total

Furniture & Fixtures

Office equipment Computers Motor

vehicles Sub Total Furniture & Fixtures

Office equipment Computers Sub

Total

CostBalance as at July 01, 2006 931 993 1,504 2,066 5,494 1,379 5,007 792 3,314 10,492 53 847 2,098 2,998 18,984 Additions - - - - - 361 654 - 1,821 2,836 - - - - 2,836 Deletions - - - - - - - - (558) (558) - - - - (558) Balance as at June 30, 2007 931 993 1,504 2,066 5,494 1,740 5,661 792 4,577 12,770 53 847 2,098 2,998 21,262

Balance as at July 01, 2007 931 993 1,504 2,066 5,494 1,740 5,661 792 4,577 12,770 53 847 2,098 2,998 21,262 Additions - - - - - 786 549 1,404 1,394 4,133 - - - - 4,133 Deletions - - - - - - - - (725) (725) - - - - (725) Balance as at June 30, 2008 931 993 1,504 2,066 5,494 2,526 6,210 2,196 5,246 16,178 53 847 2,098 2,998 24,670

DepreciationBalance as at July 01, 2006 651 659 1,472 1,888 4,670 700 2,973 599 696 4,968 34 549 1,993 2,576 12,214 Charge for the year 28 33 11 36 108 82 229 64 818 1,193 2 30 35 67 1,368 On deletions - - - - - - - - (510) (510) - - - - (510) Balance as at June 30, 2007 679 692 1,483 1,924 4,778 782 3,202 663 1,004 5,651 36 579 2,028 2,643 13,072

Balance as at July 01, 2007 679 692 1,483 1,924 4,778 782 3,202 663 1,004 5,651 36 579 2,028 2,643 13,072 Charge for the year 25 30 7 28 90 174 301 510 985 1,970 2 27 23 52 2,112 On deletions - - - - - - - - (681) (681) - (681) Balance as at June 30, 2008 704 722 1,490 1,952 4,868 956 3,503 1,173 1,308 6,940 38 606 2,051 2,695 14,503

Carrying value as at June 30, 2007 252 301 21 142 716 958 2,459 129 3,573 7,119 17 268 70 355 8,190

Carrying value as at June 30, 2008 227 271 14 114 626 1,570 2,707 1,023 3,938 9,238 15 241 47 303 10,167

Rate of depreciation % 10 10 33 20 10 10 33 20 10 10 33

Description

------------------------------------------------------------------------------( Rupees '000')--------------------------------------------------------------------------

GRANT FROM WORLD BANKPRIVATISATION FUND GRANTS FROM GOVERNMENT OF PAKISTAN GRAND TOTAL

Note 2008 2007(Rupees '000')

5 LONG TERM RECEIVABLES

Due from buyers of privatised entities

M/s. Etisalat International Pakistan LLC 5.1 54,359,249 56,382,294 Current portion 7.1 (27,179,465) (16,109,227)

27,179,784 40,273,067

5.1 M/s. Etisalat International Pakistan LLC

Note 2008 2007Restated

(Rupees '000')6 LONG TERM INVESTMENTS

Available for sale:Balance at the beginning of the year 6.1 167,019 126,451 Fair value Adjustment 6.2 37 40,568 Impairment 6.3 (63,472) -

103,584 167,019

6.1 Investment in shares of listed companies

Shares in National Bank of Pakistan 6.1.1 103,031 166,374 Shares in Habib Bank Limited 6.1.2 433 395 Shares in United Bank Limited 6.1.3 121 250

103,585 167,019

6.1.1

6.1.2

6.1.3

6.1.4

26% shares (1,326 million B class shares) of Pakistan Telecommunication Company Limited (PTCL) have been sold to M/s. EtisalatInternational Pakistan LLC for US$ 2,598.96 million through sale agreement dated March 12, 2006. Out of total sales consideration aninitial payment of US$ 1,400 million and three installments of US$ 133.217 million each has been received and the balance of US$799.307 million is receivable in six semi-annual installments upto September, 2010.Out of which the semi-annual installment forMarch, 2008 is overdue as the transfer of title of PTCL properties appearing in the name of provincial and local government to PTCLas per sale purchase agreement (SPA) is in process.The March, 2008 installment will be paid by the buyer on transfer of title to PTCL .

Investment in National Bank of Pakistan (NBP) comprises of 698,516 shares (2007: 635,015 shares) having market value of Rs.147.50 per share (2007 : Rs.262 per share). Bank has issued 63,501 bonus shares in current year.

Investment in Habib Bank Limited (HBL) comprises of 2,074 shares (2007: 1,886 shares) having market value of Rs. 208.63 per share(2007 : Rs.209.5 per share). Bank has issued 188 bonus shares in current year.

Investment in United Bank Limited (UBL) comprises of 1,418 shares (2007: 1,135 shares) having market value of Rs. 85.09 per share(2007 : Rs.219.95 per share). Bank has issued 283 bonus shares in current year.

For valuation of shares of Habib Bank Limited (HBL) in 2007, 80% of share price of National Bank of Pakistan (NBP) share value hasbeen used because of the non listing of Habib Bank Limited (HBL) on the stock exchange.

The Commission has acquired investment as stated in Note 6.1.1, 6.1.2 and 6.1.3 on privitisation of Karachi Pipe Mills. However, thedividend on such investment was booked . The investment has now been incorporated in the financial statements in accordance withthe requirements of IAS-8 "Accounting Policies, Changes in Accounting Estimates and Errors".

Had this error not been corrected the balance of Payable to Government of Pakistan would have been lower by Rs. 103.585 million(2007 : Rs. 167.02 million) and investment would have been lower by the same amount accordingly. Further an amount of Rs. 126.451 million included in Rs. 167.02 million relates to the period prior to year 2007.

Note 2008 2007Restated

(Rupees '000')6.2 Fair value adjustment

Shares in HBL 6.2.1 37 40,568 37 40,568

6.2.1

Note 2008 2007Restated

(Rupees '000')6.3 Impairment

Shares in NBP 6.3.1 63,343 - Shares in UBL 6.3.2 129 -

63,472 -

6.3.1

6.3.2

Note 2008 2007

7 DUE FROM BUYERS OF PRIVATISED ENTITIES

Privatisation proceeds

Unpaid sale price 7.1 27,548,394 16,478,156 Mark-up on unpaid sale price 7.1 4,878,456 4,188,303

32,426,850 20,666,459 Provision for doubtful proceeds (2,947,569) (2,257,416)

29,479,281 18,409,043 Advances to privatised entities-unsecured

Golden Handshake Scheme (GHS) and Voluntary Separation Scheme (VSS) 7.2 18,049 18,049 Mark-up on advances for GHS/VSS 7.2 68,678 59,140

86,727 77,189 Provision for doubtful advances (54,856) (45,318)

31,871 31,871

29,511,152 18,440,914

(Rupees '000')

Investment in HBL comprises of 1,886 shares in 2007 which were not listed on stock exchange they were shown at a price of 80% ofthe value( 2007 : Rs. 209.6 Per share) of share of NBP. In December 2007 bank obtained listing on stock exchange, so they arevalued at market value of Rs. 208.63 per share in 2008. Due to bonus issue of 188 shares there has been appreciation in the value ofshares.

There has been decrease in market value per share of NBP from Rs. 262 ( 2007 ) to Rs 147.50, resulting in impairment of theinvestment in 2008.

There has been decrease in market value per share of UBL from Rs. 219.95 ( 2007 ) to Rs 85.09, resulting in impairment ofinvestment in 2008.

7.1 Privatisation proceedsNote Unpaid sale price Mark-up Total Unpaid sale price Mark-up Total

Names of Privatised Entities Names of Buyers ------------------ (Rupees '000") -------------------- ------------------- (Rupees '000') --------------------

National Fibres Limited M/s. Schon Group 7.1.1 - 847,595 847,595 - 763,599 763,599

Pak PVC Limited M/s. Reyaz Shaffi (Reysheen) (Private) Limited 7.1.2 38,142 165,285 203,427 38,142 145,126 183,268

Sind Alkalis Limited M/s. Sind Alkalis Employees Management Group 7.1.3 32,493 109,284 141,777 32,493 91,873 124,366

Pak China Fertilizers Limited M/s. Schon Group 7.1.4 - 919,604 919,604 - 763,722 763,722

Metropolitan Steel Corporation Limited M/s. Metro Management (Private) Limited 7.1.5 - 46,143 46,143 - 40,476 40,476

National Motors Limited M/s. Bibojee (Private) Limited 7.1.6 8,702 24,546 33,248 8,702 21,251 29,953

Balochistan Wheels Limited M/s. Abdul Qadir and Saleem .I. Kapoorwala 7.1.7 - 399,620 399,620 - 350,544 350,544

Dandot Works of National Cement (Private) Limited M/s. Awan National Cement Limited 7.1.8 - 223,854 223,854 - 196,363 196,363

Wah Cement Company Limited M/s. Employees Management Group,Askari Cement Limited 7.1.9 234,543 1,732,128 1,966,671 234,543 1,460,863 1,695,406

Haripur Vegetable Oil Processing Industries M/s. Malik Naseer and Associates 7.1.10 12,040 73,627 85,667 12,040 63,107 75,147

Crescent Factories Vegetable Ghee Mills M/s. S . J Industries / Sh. Javed Rafi 7.1.11 20,783 136,731 157,514 20,783 117,387 138,170

A and B Oil Industries Limited M/s. Al-Hashmi Brothers 7.1.12 14,135 90,931 105,066 14,135 78,028 92,163

Siranwali Rice Mills M/s. Enkay Enterprise (Private) Limited 7.1.13 1,127 5,786 6,913 1,127 4,937 6,064

Dhaunkal Rice Mills M/s. Dhonda Pakistan (Private) Limited 7.1.14 - 43,028 43,028 - 37,744 37,744

Mubarakpur Rice Mills Limited M/s. Continental Rice Mills (Private) Limited 7.1.15 - 20,159 20,159 - 17,683 17,683

Quaidabad Woolen Mills M/s. Jehangir Anwar and Associates 7.1.16 6,964 40,135 47,099 6,964 35,600 42,564

PTCL - Current portion M/s. Etisalat International Pakistan LLC 5 27,179,465 - 27,179,465 16,109,227 - 16,109,227 27,548,394 4,878,456 32,426,850 16,478,156 4,188,303 20,666,459

7.2 Advances to privatised entities - unsecuredNote Principal Mark-up Total Principal Mark-up Total

Names of Privatised Entities Names of Buyers ------------------ (Rupees '000') ----------------------- -------------------- (Rupees '000') --------------------

National Motors Limited M/s. Bibojee (Private) Limited 7,796 - 7,796 7,796 - 7,796 Pak PVC Limited M/s. Reyaz Shaffi (Reysheen) (Private) Limited 253 - 253 253 - 253 Bangal Vegetable M/s. Employees Management Group 10,000 53,863 63,863 10,000 46,020 56,020 Dhaunkal Rice Mills M/s. Dhonda Pakistan (Private) Limited - 13,803 13,803 - 12,108 12,108 Mubarakpur Rice Mills Limited M/s. Continental Rice Mills (Private) Limited - 1,012 1,012 - 1,012 1,012

18,049 68,678 86,727 18,049 59,140 77,189

8 DUE FROM PRIVATISED ENTITIESNote 2008 2007

Loans due to Government of Pakistan-unsecured (Rupees '000')

Principal amount 8.1 109,528 109,528 Mark-up on loans due to Government of Pakistan 8.1 830,293 714,876

939,821 824,404 Provision for doubtful loans (653,682) (538,265)

286,139 286,139

8.1 Loans due to Government of Pakistan - unsecuredNote Principal Mark-up Total Principal Mark-up Total

Names of Privatised Entities Names of Buyers ----------------- (Rupees '000') ------------------- --------------------- (Rupees '000') ------------------

Pak PVC Limited M/s. Reyaz Shaffi (Reysheen) (Private) Limited 32,991 250,094 283,085 32,991 215,329 248,320 Pioneer Steel M/s. Mr. M. Usman 55,415 419,897 475,312 55,415 361,525 416,940 National Motors Limited M/s. Bibojee (Private) Limited 2,000 23,823 25,823 2,000 20,652 22,652 Haripur Vegetable Oil Processing Industries M/s. Malik Naseer and Associates 19,122 136,479 155,601 19,122 117,370 136,492

109,528 830,293 939,821 109,528 714,876 824,404

-------------------------- 2008 ----------------------- ----------------------- 2007 --------------------------

------------------------- 2008 --------------------------- ------------------------- 2007 -------------------------

------------------------ 2007 --------------------------------------------------- 2008 ---------------------------

7.1.1 National Fibres Limited

a. variation in net worth;

b. increase in income tax liabilities; and

c. payment of dividend by the seller after bidding date, but before the signing of the sale agreement.

7.1.2 Pak PVC Limited

7.1.3 Sindh Alkalis Limited

7.1.4 Pak China Fertilizers Limited

This entity was sold to M/s. Schon Group through sale agreement dated May 26, 1992 for a price of Rs. 456.84 million with mark-up@14% per annum on the outstanding balance. Later, a reduction in sale price was allowed through audit adjustment of Rs. 21.45million. The buyer made claims for Rs. 183.19 million on account of decrease in the value of stores and spares, adjustment of taxliabilities and operational losses etc. Matter was taken to the Arbitrator, who decided the case on July 09, 2001 in favour of theCommission. The buyer filed objections against the award in the Court of Senior Civil Judge Islamabad. The buyer has, however,withdrawn the suit and the Commission has invoked the bank guarantee was invoked. As a result National Bank of Pakisatn (NBP)has paid Rs. 138.07 million on July 15, 2004 on account of principal amount of balance sale price and the case of the recovery of theguaranteed mark-up is under negotiation with NBP. Suit for execution of the decree against the buyers has been filed in Lahore HighCourt, Rawalpindi Bench in November 2006.

This entity was sold to M/s. Schon Group through sale agreement dated February 02, 1992 for a price of Rs. 756.64 million with amark-up @11% per annum on the outstanding balance. No joint audit was required as per sale agreement. However, the buyerraised claims against the Commission for an amount of Rs. 209.60 million based on three issues:

The buyer invoked arbitration clause. The Arbitrator announced the award on January 27, 1997 in favor of the Commission and theCommission filed the same with the Civil Court, Islamabad for making it the rule of Court. The buyer obtained stay from the Court ofSenior Civil Judge, Islamabad. With the promulgation of the Privatisation Ordinance 2000, the case was transferred to Lahore HighCourt, Rawalpindi Bench in November 2000. In the last hearing in December 2003, the Lahore High Court Rawalpindi Bench madethe arbitration award rule of the court and decree was drawn in favor of the Commission. The Commission invoked the bankguarantee and Habib Bank Limited (HBL) has paid Rs. 335.35 million including mark-up on simple basis upto the validity of the bankguarantee. Suit for the recovery of the balance mark-up through execution of the decree has been filed in the Sindh High Court,Karachi.

This entity was sold to M/s. Reyaz Shaffi (Reeyshen) (Private) Limited through sale agreement dated January 23, 1992 for a price ofRs. 63.57 million with mark-up @11% per annum on the outstanding balance. The buyer has purchased only 51% shares. TheCommission agreed to allow Rs. 13.45 million as audit adjustment being 51% of the variation reported by the seller’s auditor. Thebuyer is, however, insisting for 100% variation of Rs. 64.70 million reported by the buyer’s auditor. The buyer has filed a suit in theCourt of Senior Civil Judge Lahore to get stay against encashment of bank guarantee. In view of PC Ordinance 2000 the case wastransferred to Lahore High Court Lahore on March 17, 2003 which was dismissed vide court order June 16, 2003.The bank guaranteewas invoked but the guarantor bank (Faysal Bank Limited) did not encash the guarantee on the ground that a certificate regardinghanding/ taking over possession signed by the buyer and the seller has not been provided to the bank.

This entity was sold to Sindh Alkalis Employees Management Group (SAEMG) through sale agreement dated October 01, 1993 for aprice of Rs.152.39 million with mark-up @14% per annum on the outstanding balance. No bank guarantee was provided to securethe outstanding sale price, although required under the sale agreement. There was no provision of joint audit in the sale agreement.The buyer has raised claim of Rs. 80.00 million on account of unfair deal of land. Further the buyer is also requesting for grant ofGHS/VSS as granted in other cases of employees buyout. Matter was referred to the Negotiation Committee. On therecommendations of the Negotiation Committee, a revival plan prepared by the Employees Management Group was referred toCorporate and Industrial Restructuring Corporation ("CIRC") who recommended that in case SAEMG have a good bankable proposalthey should approach the Committee for Revival of Sick Industrial Units through the Federation of Chamber of Commerce andIndustries.The position has been conveyed to SAEMG and Ministry of Labour, Manpower and Overseas Pakistanis. Recovey suit wasfiled agianst the buyer in the Sindh High Court Karachi, which has decided the case in favour of the Commission. Execution petitionagaisnt decree dated November 24, 2004 was filed in Lahore High Court Rawalpindi Bench on January 5, 2006 which is pending.

The matter was referred to the Negotiation Committee of the Commission and the buyer and the seller has agreed that the joint auditshall be conducted from the third auditor. A firm of Chartered Accountants was appointed for third audit who have reported reductionof Rs. 39.16 million in the net worth. The matter was placed before Negotiation Committee, however, the buyer has not agreed to paythe outstanding dues as determined by the third audit. A recovery suit has also been filed against the buyer and the bank in theLahore High Court, Rawalpindi Bench.

7.1.5 Metropolitan Steel Corporation Limited

7.1.6 National Motors Limited

7.1.7 Balochistan Wheels Limited

7.1.8 Dandot Works of National Cement (Private) Limited

This entity was sold to M/s. Awan National Cement Limited through sale agreement dated January 13, 1993 for a price of Rs.110million with mark-up @14% per annum on the outstanding balance. NBP did not encash the bank guarantee on the plea thatcondition regarding creation of first charge of the bank on the assets of the entity was not fulfilled by the buyer/Commission. The titledocuments are with NBP as security against the bank guarantee. The matter was taken up by Army Monitoring Team who hassubmitted its report to the Chief Executive Secretariat.

This entity was initially sold to M/s. Sardar M. Ashraf D. Balouch through sale agreement dated May 09, 1992 for a price of Rs.168.68 million with mark-up @ 14% per annum on the outstanding balance. Later, a reduction in sale price was allowed through auditadjustment of Rs. 102.01 million. After payment of the principal amount of Rs. 54.70 million and mark-up of Rs. 8.38 million thebuyer defaulted and the entity was resold to M/s. Metro Management (Private.) Limited through Novation agreement dated June 08,1994 for a balance sale price of Rs.11.97 million with mark-up @14% per annum on the outstanding balance.

This entity was sold to M/s. Bibojee Services (Private) Limited through sale agreement dated January 09, 1992 for a price ofRs.150.44 million with mark-up @11% per annum on the outstanding balance. On the basis of 51% shares purchased by the buyer,audit adjustment for Rs. 11.40 million was allowed by the Commission against golden handshake advance. The buyer is insisting onobtaining adjustment of total variation of Rs. 22.36 million. The matter has been referred to the Arbitrator (Secretary Finance).Arbitration proceedings were held on January 23, 2007. The buyer requested for adjournment which the Arbitrator has allowed. ThePC has requested the Secretary Finance to fix the next date for hearing.

On demand of the employees, Commission has paid its share of GHS / VSS and final dues on behalf of the buyer. The Commissionhas lodged the claim in the Lahore High Court for the payment made on behalf of buyer. As there was no stay, the matter waspursued with NBP who has paid Rs. 93.72 million for the principal amount and simple Mark-up upto the date of the validity of thebank guarantee. Suit for the recovery of Rs. 132.59 million on account of outstanding mark-up has been filed in Lahore High Court,Rawalpindi Bench.

The new buyer defaulted the payment of balance sale price and obtained stay against encashment of the bank guarantee. Uponresumption of management of Metropolitan Steel Corporation by consortium of the banks and National Development FinanceCorporation (NDFC), the Commission informed it that the shares sold are in the custody of the Commission and can only be releasedon settlement of the Commission/State Engineering Corporation's liabilities. On withdrawal of the court case by Metropolitan SteelCorporation Limited, an amount of Rs.13.80 million was realised through encashment of the bank guarantee. Mark-up of Rs. 40.476million is outstanding. The M/s. Metro Management has filed a case in the Supreme Court stating that the shares have not beenhanded over to the buyer and the Commission is defending its claim of outstanding mark-up. The Supreme Court referred the suit toSindh High Court, Karachi.The buyer has agreed to pay Rs. 11.622 million simple markup basis provided the markup on markup iswaived off and the shares are released to Metro Management. The matter was referred to Negotiation Committee whoserecommendations were discussed in PC Board meeting on June 26, 2008. The board recommended the submission of Summary toCCOP which is under process.

This entity was sold to M/s. Abdul Qadir and Saleem .I. Kapoorwala through sale agreement dated May 26, 1992 for a price of Rs.270.68 million with mark-up @14% per annum on the outstanding balance. Later, an increase in sale price was allowed throughadjustment of share of profit of Rs. 5.76 million and a reduction of Rs. 23.31 million was made from receivable balance as the amountrepresented the excess receipt against sale of M/s. Naya Daur Motors, sold to the same buyer. The balance sale price was securedby the guarantees provided by the defunct Mehran Bank Limited, NBP, which is the successor Bank. A suit was filed in the LahoreHigh Court, Lahore by the Commission against NBP and the buyer, which was dismissed by the Court in September 2000. Afternegotiation the NBP has paid Rs. 91.25 million including markup on simple basis upto the validity of the guarantee. The recovery ofthe balance mark-up is being pursued in the Islamabad High Court, Islamabad.

7.1.9 Wah Cement Limited

7.1.10 Haripur Vegetable Oil Processing Industries

7.1.11 Crescent Factories Vegetable Ghee Mills

7.1.12 A and B Oil Industries Limited

This entity was sold to M/s. Employees Management Group Wah Cement/Askari Cement Limited through sale agreement datedFebruary 15, 1996 for a price of Rs. 2,752.09 million with mark-up @16% per annum on the outstanding balance. Later, a reductionin sale price was allowed through audit adjustment of Rs.116.55 million. The buyer was demanding audit adjustment of Rs.633.00million as variation in the net worth. The buyer filed a suit to press his demand. The Lahore High Court, Rawalpindi Bench wasrequested by the both parties to refer the matter to the Arbitrator, Secretary General Finance. The Arbitration Award was passed onAugust 22, 2002 wherein audit adjustment of Rs. 336.35 million was allowed and was referred to Lahore High Court for making rule of the court. The buyer has filed objection to the award. Various hearings were held and in March 2004, the court made the award therule of the court and bank guarantee was invoked. However, the buyer managed to obtain a fresh stay order. The matter is subjudice.The buyer has now agreed to pay outstanding principal amount with simple markup.

The matter was discussed in PC Board meeting on June 26, 2008 which has recommended to put up the matter in next CCOPmeeting. The matter is under process.

This entity was sold to M/s. Al-Hashmi Brothers through sale agreement dated February 11, 1993 for a price of Rs.36 million withmark-up @14% per annum on the outstanding balance. Later, a reduction in sale price of Rs.7.47 million was made on account ofaudit adjustment. The buyer filed a suit in the Sindh High Court and obtained stay against encashment of bank guarantee. The buyerin his plaint stated that, basement covering whole area of the factory, a plot adjacent to factory and two storage tanks are still in thecustody of the ex-owner who has denied to hand over the physical possession. The Court referred the case for arbitration. Date fixedfor hearing was postponed at the request of the buyer and matter is pending before the Arbitrator. The matter was also referred toNegotiation Committee which decided conduct of third audit. M/s Muniff Ziauddin & Co., Chartered Accountants appointed as thirdauditor have reported negative movement of Rs. 18.907 million.

The buyer did not pay the oustanding amount as per the finding the third auditor and has not agreed to handover the land to the GCP(Ghee Corporation of Pakistan) which he has illegally occupied. The matter is pending in Sindh High Court.

After adjustment of 5%, the buyer was allowed a decrease in the price for an amount of Rs. 17.02 million. The buyer did not acceptaudit adjustment of Rs 19.05 million and filed a suit seeking temporary injunction against demanding / claiming balance sale pricefrom him. On the directions of Cabinet Committee on Privatisation, the matter was reported to the National Accountability Bureau(NAB) in July 1998. However, it was decided to refer the matter to the Negotiation Committee and the buyer consent was sought,which remained awaited. The case was also referred to National Accountability Bureau. A suit for recovery of the outstanding amountwas filed by the Commission in Lahore High Court, Rawalpindi Bench in July 2003 which is subjudice.

This entity was sold to M/s. Malik Naseer and Associates through sale agreement dated June 30, 1992 for a price of Rs. 30.10million with mark-up @14% per annum on the outstanding balance. The buyer has filed a suit and obtained stay order againstencashment of the bank guarantee. The buyer has asked for the transfer of title deeds in his favour and finalization of joint audit. TheCivil Court Abbotabad decided the case against the Commission and passed a decree in favour of the buyer. As required by PCOrdinance, the case been transferred to High Court. On the request of the buyer, the case was also referred to the NegotiationCommittee which advised conduct of third Audit. M/s Khalid Majeed Rehman Hussain, Chartered Accountants provided their findingsto which the buyer did not agree. The case is now being pursued in court of law.

This entity was sold to Mr. Sh. Javed Rafi of M/s S. J. Industries through sale agreement dated January 05, 1993 for a price of Rs.63million with mark-up @14% per annum on the outstanding balance. The buyer paid 40% sale price and provided bank drafts forbalance 60% to be kept by the Commission till the settlement of joint audit. Later the bank drafts were returned against theundertaking from the buyer to provide bank guarantee on settlement of audit adjustment. The buyer’s auditor reported negativemovement in the net worth of Rs.41.40 million, whereas the seller’s auditor indicated negative movement of Rs.19.05 million.

7.1.13 Siranwali Rice Mills

7.1.14 Dhaunkal Rice Mills

7.1.15 Mubarakpur Rice Mills

7.1.16 Quaidabad Woolen Mills

This entity was sold to M/s. Jehangir Anwar and Associates through sale agreement dated January 21, 1993 for a price of Rs. 86.76million with mark-up @14% per annum on the outstanding balance. An audit adjustment of Rs. 1.24 million was allowed which wasnot accepted by the buyer. The buyer referred the case to the Arbitrator who decided the case in favour of the Commission with theinstructions that mark-up be charged on the principal amount and outstanding mark-up @ 14% and 10% per annum respectively. Apart of third annual installment is outstanding. During a meeting with the representatives of NAB, Soneri Bank proposed to pay Rs.3.00 million in final settlement of the guaranteed amount. The offer was not accepted and the Commission has filed a recovery suitagainst the buyer and the bank in the Lahore High Court, Rawalpindi Bench.

This entity was sold to M/s. Enkay Enterprises (Private) Limited through sale agreement dated June 07,1992 for a price of Rs.16.20million with mark-up @14% per annum on the outstanding balance. The buyer has claimed Rs.1.22 million on account of shortage ofstores and stocks at the time of taking over possession. The Arbitrator admitted the claim for an amount of Rs.0.09 million. Thebalance amount is payable by the buyer. HBL has obtained the decree against the buyer from Lahore High Court for recovery. TheCommission has filed objection petition requesting to satisfy the Commission's claim prior to settlement of HBL claim.

This entity was sold to M/s. Dhonda Pakistan (Private) Limited through sale agreement dated June 28, 1993 for a price of Rs.79.20million with mark-up @14% per annum on the outstanding balance. The buyer filed a suit and obtained stay order. On vacation of thestay by the Court, bank guarantee was invoked on July 27, 1998 and Union Bank paid Rs.81.06 million including mark-up of Rs.33.54million determined by the bank on simple interest method. The case for the waiver of outstanding mark-up is under process.

This entity was sold to M/s. Continental Rice Mills (Private) Limited through sale agreement dated November 14, 1993 for a price ofRs. 16.20 million with mark-up @14% per annum on the outstanding balance. On the default of the buyer, the bank guarantee wasinvoked, HBL paid full principal amount on the plea that the guarantee did not secure mark-up. The buyer had made a claim of Rs.4.49 million on account of shortage of stores and stocks at the time of taking over possession of the entity. The matter was referred tothe Negotiation Committee and on its recommendations, the Board of the Commission had accepted the shortage of Rs. 1.86 millionand charging of the simple interest on the balance sale price. The buyer has signed the agreement but has not paid the agreedamount. The recovery suit was filed in Lahore High Court, Rawalpindi Bench which has decided in favour of the Commission. Suit forexecution of decree has been filed.

Note 2008 2007

9 ADVANCES, DEPOSITS, PREPAYMENTS AND RECEIVABLES Advances to employees- against expenses 9.1 206 349 Security deposits 260 260 Prepaid rent 9,315 580 Receivable from Citibank (Escrow account) 9.2 6,461 5,744 Accrued interest on bank accounts 67,048 63,367

83,290 70,300

9.1 Advances to employees

Advances to employees- against expenses 349 349 Provision for doubtful advances (143) -

206 349

9.2

Note 2008 2007

10 CASH AND CASH EQUIVALENTS

Cash in hand 45 42 Cash at bank on :

- Current accounts 10.1 17,893 9,299 - Saving accounts 10.2 237,839 3,670,505

255,732 3,679,804

Term Deposit Receipt (TDR) with NBP, UBL and HBL 10.3 2,122,000 8,736,674 2,377,777 12,416,520

10.1 Current accounts

Pak Rupee accounts

World Bank loan - IDA 3808 with NBP 378 378 State Bank of Pakistan 1,897 1,836 Commission's account with NBP 10.1.1 15,618 7,085

17,893 9,299

10.1.1

Note 2008 2007

10.2 Saving accounts

Pak Rupee accountsNBP Account 47,775 1,927 National Investment Daily Account (NIDA) with NBP 63,321 154,021 Bank Alfalah 42 1,789,933 Bank of Punjab 98 1,342,125 Habib Bank 2,952 - United Bank 2,511 -

116,699 3,288,006 Foreign currency accountsNBP US$ 1,781,180 (2007: US$ 6,326,366) 121,140 382,499

10.2.1 237,839 3,670,505

10.2.1

(Rupees '000')

These accounts are established under section 14 of the Privatisation Commission Ordinance, 2000. The account is used for grants from FederalGovernment, supplementary contributions from the Privatisation Fund, receipts of fees and charges, grants of money and sums borrowed and formeeting operations of the Commission.

Finance Division vide U.O. No. F.7(10)-INV.(IV)/2001 dated October 09, 2001 has allowed the Commission to maintain interest / profit bearing USDollars and Pak Rupees accounts with National Bank of Pakistan, Main Branch, Islamabad to deposit the amounts received from the potential bidders /successfull bidders as earnest money or sale proceeds (in part or total) till such time either the possession of the entities or shares / assets are handedover to the buyers. Moreover, Finance Division (Budget Wing) vide their OM F.4(1)/2000-BRII dated November 12, 2002, as part of their programmefor further development of the financial sector have allowed public sector enterprises and local / autonomous bodies to deposit their working balancesrequired for their operations with any public or private bank having minimum 'A' rating. Accordingly, the funds have been deposited with National Bank ofPakistan, Habib Bank Limited and United Bank Limited.

(Rupees '000')

(Rupees '000')

An interest bearing foreign currency account was opened jointly by Privatisation Commission and the prospective buyers National Power Plc UK withCitibank. Citibank claimed losses of US$ 95,000. The Commission denied claim and recognised the charge as receivable from Citibank, acting as anagent.

Note 2008 2007

10.3 PLS Special Notice Deposit Receipts (SNDRs) 10.3.1 2,122,000 8,736,674

10.3.1

Note 2008 2007Restated

11 GRANTS FROM GOVERNMENT OF PAKISTAN

Grant related to income 11.1 16,603 127 Grant related to assets 11.2 9,238 7,119

25,841 7,246

11.1 Grant related to income

Balance at beginning of year 127 46 Grant received related to income during the year 17 59,931 38,354 Amortisation for the year (43,455) (38,273) Balance at end of year 16,603 127

11.2 Grant related to assets

Balance at beginning of year 7,119 5,524 Assets acquired during year 4 4,133 2,836

11,252 8,360

Book value of the assets disposed off (44) (48) Amortisation for the year 4 (1,970) (1,193)

(2,014) (1,241) Balance of grant at end of year 9,238 7,119

12 GRANT FROM WORLD BANK

Total grant for acquisition of assets 2,998 2,998

Opening amortised balance 4 2,643 2,576 Amortisation for year 4 52 67

(2,695) (2,643) Balance of grant at end of year 303 355

13 LIABILITIES ASSUMED OF PRIVATISED ENTITIES

Note 2008 2007

Description

Share deposit money (Swat Ceramics) 31-05-95 1,424 1,424 MCB Bank Limited (Swat Ceramics) 31-05-95 1,960 1,960 Industrial Development Bank of Pakistan (General Refractoriness Ltd.) 14-02-96 5,947 5,947 State Engineering Corporation Limited (Textile Machinery) 05-10-95 49 49 Sales tax and Income tax (Kohinoor Oil Mills) 11-06-03 50,639 50,639 Nowshera PVC (Private) Limited 01-02-95 862 - Swat Ceramics Company (Private) Limited 31-05-95 6,349 7,211 Creditors, accruals and other liabilities 13.1 75,666 75,666

142,896 142,896

(Rupees '000')

(Rupees '000')

This represents Term Deposit Receipts (TDR) for Rs. 1,700 million ( 2007 : Nil ) with NBP, Rs. 300 million with UBL and Rs. 122 million with HBL(2007: Rs. 8,736.634 million) carrying effective interest rate of 10.30%, 9.50% and 8.15% per annum respectively.

(Rupees '000')

These represent liabilities of privatised entities which are assumed by the Commission on behalf of Government of Pakistan at the time of privatisation.These comprise the following:

Assumption date

2008 2007

13.1 Creditors, accruals and other liabilities

Khyber Vegetable Ghee Mills Limited 05-01-93 101 101 Ravi Engineering Limited 07-01-96 39,386 39,386 Nowshera Chemical 22-04-96 2,285 2,285 Burma Oil Mills Limited 18-01-00 1,560 1,560 Swat Ceramics Company (Private) Limited 31-05-95 15,238 15,238 General Refractoriness Limited 14-02-96 4,376 4,376 Textile Machinery Company (Private) Limited 05-10-95 2,365 2,365 Makarwal Collieries 13-06-95 6,955 6,955 E and M Oils Limited 31-07-02 3,400 3,400

75,666 75,666

13.2

2008 2007

14 OTHER PAYABLES

M/s Merrill Lynch and KASB 25,095 148,131 M/s Pricewaterhouse Coopers 3,332 2,963 M/s Citigroup Global Market 75,693 130,960 Legal advocates - 2,905 Advances against NBP (IPO) 1,225 1,225 Advances against OGDCL (IPO) 13,414 13,414 Advances against SSGCL (IPO) 4,924 4,924 Hayat Regency Project's liabilities 42,490 42,490 Income tax refund in case of Pak American payable to IPIC 45,620 45,620 Withholding tax liability- Citigroup - 32,164 Audit Fee 120 120 Dividend payable to SBP for shares in UBL 1,935 - Others 6,951 5,314

220,799 430,230

Earnest money payable

Sadiq, Riaz and Hussain-Lasbella Textile Mills - 3,000 Bagh Construction-Republic Motors 1,000 1,000 Bin Ham Group-First Women Bank Limited 10,000 10,000 Citi School-Chamba House 2,500 2,500

13,500 16,500 234,299 446,730

15 CONTINGENCIES AND COMMITMENTS

15.1 Contingencies

There were about 162 (2007: 155) cases under litigation, arbitration and negotiation. These include the following major cases:

2008 2007

Claims under litigation -19 (2007: 11) cases 1,065,980 445,026 Claims under negotiation -1 (2007:1) case 10,953 10,953

1,076,933 455,979

15.2 Commitments

Commitments under contracts signed with financial advisors 193,415 176,428 1,270,348 632,407

(Rupees '000')

(Rupees '000')

(Rupees '000')

The Committee set up by the Commission, for the adjustment/settlement of liabilities absorbed on behalf of Government of Pakistan, concluded the taskassigned to it and based on its report the Board of the Commission approved the adjustment/settlement of liabilities, which were accepted by the banks,corporations and others. Liabilities included in the financial statements were adjusted in accordance with the aforestated decision.

The financial impact of the remaining cases could not be quantified.

Note 2008 2007Restated

16 PAYABLE TO GOVERNMENT OF PAKISTAN

Balance at beginning of year 6.1.4 71,064,922 78,279,797 Additions during the year 16.1 25,035,702 106,085,297 Deletions during the year 16.2 (36,952,070) (113,300,172) Balance at the end of year 59,148,554 71,064,922

16.1 Additions during the year

Sales proceeds of privatised entities 16.1.1 17,204,922 104,315,018 Fee on sales transferred to other income (20,000) (20,000) Mark-up on unpaid privatisation proceeds 690,153 561,037 Mark-up on loans due to Government of Pakistan by privatised entities 124,955 109,610 Mark-up on late payment of sale price by Azgard Nine - 153,975 Available for sale investment 6 (63,435) 40,568 Recovery of repair cost from EDB 5,653 - Exchange gain on receivables 6,061,009 335,975 Transferred from income and expenditure account 1,032,445 589,114

25,035,702 106,085,297

16.1.1 Sales proceeds of privatised entities

These represents sales against privatisation of the following entities-

7.5% shares of HBL through IPO 12,042,124 - 3.26% shares of UBL through GDR 5,128,072 34,322,855 Balance proceeds of OGDCL SPO 34,759 10% shares of Antibiotics (Pvt) Ltd. 240 Balance proceeds of UBL - IPO 130 Refund of proceeds of 10% shares of Gharibwal Cement (403) 100% shares of Pak American Fertilizers Limited - 15,948,900 10% shares of OGDCL through GDR & SPO - 49,291,116 96.32% shares of Javedan Cement - 4,315,947 Lasbella Textile Mills - 156,000 100% shares of Lyallpur Chemicals - 280,200

17,204,922 104,315,018

16.2 Deletions during the year

Payment of GHS/VSS 16.2.1 15,265,197 531,479 Professional charges to financial advisors, valuers, legaland professional consultants 38,906 899,017 Advertisements 16,690 12,785 Remittances to Government of Pakistan 1,649,947 71,464,011 CBR dues in case of Pak American Fertilizers Limited 1,769,503 4,961,782 EAD loan in case of Thatta Cement - 200,000 Payments to enterprises owned / controlled by Federal Government 16.2.2 17,240,720 34,476,185 Provision increase:

Provision for doubtful proceeds 7 690,153 561,037 Provision for doubtful advances 7 9,538 8,492 Provision for doubtful loans 8 115,417 101,243

815,108 670,772 Others 155,999 84,141

36,952,070 113,300,172

16.2.1 Payment of GHS/VSS

Pakistan Telecommunication Corporation Limited 15,264,928 - Pak American Fertilizers Limited 175 267,989 Javedan Cement Limited - 165,557 Pak Saudi Fertilizers Limited - 90,687 Lyallpur Chemicals Limited 94 6,947 National Press Trust - 171 Pak Hy Oil - (11) Suraj Ghee Mills - 139

15,265,197 531,479

(Rupees '000')

2008 2007

16.2.2 Payments to enterprises owned / controlled by Federal Government

State Bank of Pakistan for shares in HBL 11,854,219 - State Bank of Pakistan for shares in UBL GDR 5,089,838 33,976,185 Pakistan Telecommunication Company Limited (PTCL) - CTI 152,391 500,000 International Petroleum Investment Company (IPIC) 65,262 - Investment Corporation of Pakistan (ICP) 79,010 -

17,240,720 34,476,185

17 GRANTS FROM GOVERNMENT OF PAKISTAN

Note 2008 2007

Federal budgetary grant received during the year 64,064 41,190 Grant allocated for assets (4,133) (2,836) Balance related to income 11.1 59,931 38,354

17.1 Amortisation of grant

Related to income 43,455 38,273 Related to assets 11.2 2,014 1,241

45,469 39,514

18 FEES, CHARGES AND OTHER RECEIPTS

Fee on sales 20,000 20,000 Mark-up on interest bearing bank accounts 998,908 548,690 Gain on disposal of property, plant and equipment 559 523 Other receipts 49,241 57,588

1,068,708 626,801

(Rupees '000')

(Rupees '000')

The above payments are made under the provision of section 16 of the Privatisation Commission Ordinance, 2000.

These represent the amounts utilised out of annual federal budget allocation for the Commission. These are utilised for the acquisition of fixed assetsand for payment of the operational expenditure of the Commission.

19 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

Maturity Maturity

Less than or equal to one

year

More than one year but less than or equal to two years

More than two years but less than or equal to three years

More than three years but

less than or equal to four

years

Sub Total Less than or equal to one

year

More than one year but less than

or equal to two years

More than two years but less than or equal to three years

More than three years but

less than or equal to four

years

Sub Total

Financial Assets Long term receivables - - - - - - 18,119,747 9,060,037 27,179,784 27,179,784 Due from buyers of privatised entities 2,331,687 - - - 2,331,687 27,179,465 - - - 27,179,465 29,511,152 Due from privatised entities 286,139 - - 286,139 - - - - - 286,139 Advances, deposits, prepayments and receivable 73,769 - - 73,769 - - - - - 73,769 Cash and cash equivalents 2,359,839 - - - 2,359,839 17,938 - - - 17,938 2,377,777

5,051,434 - - - 5,051,434 27,197,403 18,119,747 9,060,037 - 54,377,187 59,428,621

Financial Liabilities

Liabilities assumed of privatised entities - - - - - - 142,896 - - 142,896 142,896 Other payables - - - - - 234,299 - - - 234,299 234,299

- - - - - 234,299 142,896 - - 377,195 377,195

On Balance Sheet Gap 5,051,434 - - - 5,051,434 26,963,104 17,976,851 9,060,037 - 53,999,992 59,051,426

Off Balance Sheet items

Contingencies - - - - - 1,076,933 - - - 1,076,933 1,076,933 Commitments - - - - - 193,415 - - - 193,415 193,415

Non - Interest bearing / Mark-up bearing

2008

Interest bearing / Mark-up bearing

…....………………………………………..………………………………………………………...(Rupees '000')…………………...………………..…………………………………………………………

Commitments 193,415 193,415 193,415

- - - - - 1,270,348 - - - 1,270,348 1,270,348

Off Balance Sheet Gap 5,051,434 - - - 5,051,434 25,692,756 17,976,851 9,060,037 - 52,729,644 57,781,078

Maturity Maturity

Less than or equal to one

year

More than one year but less than or equal to two years

More than two years but less than or equal to three years

More than three years but

less than or equal to four

years

Sub Total Less than or equal to one

year

More than one year but less than

or equal to two years

More than two years but less than or equal to three years

More than three years but

less than or equal to four

years

Sub Total

Financial Assets Long term receivables - - - - - - 16,109,224 16,109,224 8,054,619 40,273,067 40,273,067 Due from buyers of privatised entities 2,331,687 - - - 2,331,687 16,109,227 - - - 16,109,227 18,440,914 Due from privatised entities 286,139 - - 286,139 - - - - - 286,139 Advances, deposits, prepayments and receivable 69,371 - - 69,371 - - - - - 69,371 Cash and cash equivalents 12,407,179 - - - 12,407,179 9,341 - - - 9,341 12,416,520

15,094,376 - - - 15,094,376 16,118,568 16,109,224 16,109,224 8,054,619 56,391,635 71,486,011

Financial Liabilities

Liabilities assumed of privatised entities - - - - - - 142,896 - - 142,896 142,896 Other payables - - - - - 446,730 - - - 446,730 446,730

- - - - - 446,730 142,896 - - 589,626 589,626 On Balance Sheet Gap 15,094,376 - - - 15,094,376 15,671,838 15,966,328 16,109,224 8,054,619 55,802,009 70,896,385

Off Balance Sheet items

Contingencies - - - - - 455,979 - - - 455,979 455,979 Commitments - - - - - 176,428 - - - 176,428 176,428

- - - - - 632,407 - - - 632,407 632,407 Off Balance Sheet Gap 15,094,376 - - - 15,094,376 15,039,431 15,966,328 16,109,224 8,054,619 55,169,602 70,263,978

…....………………………………………..………………………………………………………...(Rupees '000')…………………...………………..…………………………………………………………

Interest bearing / Mark-up bearing Non - Interest bearing / Mark-up bearing

2007

19.1Risk management

a) Concentration of credit risk

b) Interest rate risk

c) Currency risk

d) Liquidity risk

19.2 Fair value of financial assets and liabilities

20 CORRESPONDING FIGURES

The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values.

Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed completely to performas contracted. All financial assets except cash and bank balances, are subject to credit risk. As part of the Commission credit riskmanagement policy, the Commission obtains bank guarantees for the balance price from the contractual parties.

Interest rate risk arises from the possibility that the changes in the interest rates will affect the values of financial instruments. Theeffective interest rates for the monetary financial assets and liabilities are mentioned in the respective notes to the financial statements.

Currency risk is the risk of loss through changes in foreign currency exchange rates. Foreign currency risk arises where receivables andpayables exist due to transactions with foreign undertakings. Financial assets and liabilities includes Rs 54,365.71 million (2007: Rs56,388.03 million) and Rs 104.12 million (2007: Rs 282.05 million) respectively which are subject to credit risk.

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount ofgrants received from Government of Pakistan. Due to effective cash management, planning policy and supervision of Government ofPakistan, there is no significant liquidity risk.

20 CORRESPONDING FIGURES

21 GENERAL

Figures have been rounded off to the nearest thousand Rupee.

22 DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue on________________ by the Board of Privatisation Commission.

Member/Secretary

The comparative figures have been rearranged/reclassified, wherever necessary, for the purpose of comparison in these financialstatements. Financial statements for the year ended June 30, 2007 has been restated subject to the adjustment of note 6 of thefinancial statements.

Chairman

53

MINISTRY OF PRIVATISATION PRIVATISATION COMMISSION

5-A, EDB Building, Constitution Avenue, Islamabad Phones: +92-51-9205146-7, Fax: +92-51-9203076