K.E.S.C.

PRIVATIZATION AND ITS IMPACTPresented By:Rehan Raza-7707Ghazal Zehra-7962Sadaf Fatima-7785Zain Mundia-Faiq Ali-Privatization in PakistanIn recent years privatization has emerged as an economic process, which helps reduce the governments interference in commercial activity and allows the private sector to emerge as a powerful and less dependent financial entity.

In Pakistan privatization has been regarded as one of the main instruments to bring about a desired change in the economic power structure. How far this process has been successful is a matter of debate but one thing is surely settled that privatization alone as an economic policy measure cannot be regarded as a universal remedy for all the economic ills faced by Pakistan today.

However, it can play a supplementary and a very important role in our economic revival if pursued honestly, diligently and pragmatically.Our Focus:MUSHARRAF ERAAnalysis of KESCs Privatization

Analysis of PSOs Restructuring

Analysis of PTCLs Privatization

Impact of Privatization

Achievements and FailuresK.E.S.C.Karachi Electric Supply Corporation Limited is an integrated electric utility supplying power to the city of Karachi.

Pakistan's largest industrial and commercial centre. The company is engaged in generation, transmission and distribution of electricity in a service area that includes approximately 6,000 square kilometers and a population of between 12-14 million.

KESC was privatized in December 2005 when the Government of Pakistan, through a competitive bidding process, transferred 73% of its shares to a consortium of investors led by Al-Jomaih Group of Saudi Arabia and National Industries Holding of Kuwait.P.S.O. Pakistan State Oil Company Limited (PSO) is Pakistans largest company having an average turnover of around US$ 3.3 billion annually.

The company can be easily ranked some where between 400-450 in a typical Fortune 500 list of US Companies. It enjoys an overall market share of 65% with around 82% representation in black oils and 58% in white oil.

The well-established infrastructure, built at par with international standards, representing 82% of the countrys storage capacity, provides PSO an edge over its competitors.

PSO has been a winner of the Karachi Stock Exchange Top Companies Award for many years. It is the only Pakistani corporation to have become a member of the World Economic Forum. PSOs Turn-Around During, 2002-2003 PSO has undergone radical changes, both internal and external, and has emerged with a new outlook; it has developed a long-term vision.

The company is the only public sector entity in Pakistan that has been competing effectively with three multinational companies which are supported technically by their parent organizations.

Owing to its radical turnaround, the company has been a popular topic of case studies in Pakistan and abroad. The Need for PSOs Restructuring It was realized by the Government that there was a need to induct senior professional marketing experts in PSO. There being few professionally sound person available within the organization, it was considered necessary to recruit persons from outside. This resulted in the appointment of a new Deputy Managing Director (Marketing) from outside by the Government.

In line with the governments stress on good corporate governance, the Ministry of Petroleum and Natural Resources undertook a bold initiative in the oil and gas sector and a restructured Board of Management of PSO was nominated by the Government in February 2000, comprising professionals of good reputation.

The position of the CEO and non-executive Chairman of the Board were separated. The Board of Management is assisted by three sub-committeesthe Human Resource Committee, the Audit Committee and the Finance Committee. These committees, review both policy and implementation of Management initiative. Contd. This organizational restructuring made it possible to successfully undertake strategic initiatives in all spheres of operations while emphasizing high ethical values.

Prior to launching the new strategy, the newly inducted professional management scanned the environment to analyze the factors that had been affecting the organizations performance and its business.

The CEO shared his vision about the companys future direction, with key stakeholders. This was then translated into a Mission Statement and Shared Values followed by Corporate Objectives, both short- and long-term

PTCLOverviewPakistan Telecommunications Corporation to Pakistan Telecommunications Corporation Limited, in 1991.Under Pakistan Telecommunication Ordinance, PTCL was granted monopoly for basic telephony in the country.26% shares of Etisalat, 62% shares of Government of Pakistan and 12% shares of General public. Etisalat has full control over PTCL.

After Etisalat management; great technological changes have been seen:Rebranding of PTCLUfone, Subsidiary of PTCLJoint Ventures, e.g. Emaar Pakistan

Privatization of PTCL, resulting in laying off 40000+ employees.

Process of Privitization:The process of PTCL privatization was initiated in November 2004, when Privatization Commission invited Expressions of Interest through advertisements in local and international newspapers. Early in January 2005, 18 companies registered their EOI (Expressions of Interest)

Emirates Telecommunication Corporation (Etisalat) and Dubai Islamic Bank, Etisalat International Pakistan (EIP) gave the highest bid US $ 1.96 per share, equivalent to PKR 117.01 per share, which translates into US 2,598,960,000 (2.599 billion) or PKR 155,157,912,000.00.

26 percent shares of PTCL were sold in year 2005 for a value of 2.599 billion dollars, with administrative control, to Etisalat. Petitioner noted that PTCL earned net profit of Rs. 29.4 billion in year 2004, while company incorporated 75,000 employees then. After privatization, the profit has squeezed down to 9 Rs. Billion only.

Etisalat had to pay USD 2.599 billion in 30 days but in April 2006, agreement was re-settled and payment was scheduled in installments, which Etisalat is still paying.

Source: http://propakistani.pk

Financial Performance2009-2010: Growth momentum of company remained strong in emerging segments of broadband and corporate services172% increase in revenue from newly introduced marketsPtcl earned profit after tax of Rs. 9.294 bn 16% higher than net profit of last yearEPS have grown to Rs. 1.82 as compared to Rs. 1.79 last year.Because of inflation , increased and high fuel and power prices, PKR continued to depreciate, total operating expenses of PTCL decreased by 1.8% - effective cost conrtolCost of services increased by 1.4% compared to last yearTrade debts reduced by 5.5% compared to last yearOther operating income for company is at Rs. 5.135 bn increased by 20.3% as compared to last year

Source: www.ptcl.com.pk

Source: www.ptcl.com.pk

Pre and Post Privatization of PTCLs FinancialsPre Privatization Financial PerformancePakistan Telecommunication Company Limited (PTCL) was, before its privatization, one of the strongest telecom players in South Asia. It had a large no of expert techniciansMade Pakistan the first country in South Asia to switch to Dense Wavelength Division Multiplexing technology,extensive copper and fibre-optic network. it had an array of schools that trained fresh recruits and existing employees.Every year it contributed tens of billions of rupees to the national treasury.At the time of its privatization in 2005, PTCL had posted revenues of 84 billion rupees, with earnings before interest, tax and depreciation of 54 billion rupees and net profit of 27 billion rupees.Undoubtedly there was corruption, much of it carried out by the government itself. Legislators and government officials influenced postings and hiring in the companyPre Privatization Mistakesthe government was forcing PTCL to funnel cash its way in the form of shareholder dividends. In 2004, for example, the company paid out over 25 billion rupees out of a net profit of about 30 billion rupees, with most of this money going to the government, the largest shareholder. So while the sector boomed worldwide and companies in other countries bought licenses in foreign markets and acquired newer technologies to retain and gain subscribers, PTCL was not able to use these earnings to make strategic investments.There is reason to believe that, if PTCL had taken a route similar to other state-owned corporations such as SingTel, Etisalat or Telekom Malaysia, it could have become a regional giant by acquiring licenses in South Asian, African and Middle Eastern countries. But instead of building on the companys strengths and turning it into Pakistans first multinational corporation, the government sold it off to an inexperienced operator Post Privatizationsince it has been under Etisalats control, PTCLs fortunes have declined. In the four years prior to privatization, profits after tax grew from about 18 billion to over 27 billion rupees, a rate equivalent to 11 per cent per annum.In the four years post-privatization, earnings fell to almost 11 billion rupees, a rate equivalent to a negative growth of 21 per cent per annum. Similarly, the profit margin (based on EBITDA or earnings before interest, taxes, depreciation and amortization) declined from an average of 71 per cent over the four years prior to privatization to 50 per cent over the four years since (based on an average EBITDA of 50 billion versus 43 billion) and continues to fall. This magnitude of change is recorded in the telecom sector, whether in Pakistan or internationally.From 2005 to 2009, the post-privatization period, comparable regional telecom companies revenue grew at a combined rate equivalent to six per cent per year versus PTCLs two per cent.Post Privatization Stock Value four years after privatization, the market value of PTCL shares has declined from 358 billion rupees in June 2005 to 88 billion rupees in June 2009. Although the KSE-100 Index as a whole began to plummet after April 2008, it was on a solidly upward trajectory until that point.PTCL shares, however, started to lose value much earlier after peaking in 2005. This massive reduction has resulted in a 200-billion-rupee loss to the government of Pakistan and the minority investors of PTCL, who together still own 74 percent of the shares.Post Privatization HR & Work Force ConcernsAfter taking over, Etisalat was keen to shed excess labor. Almost 32,000 employees reportedly left under the voluntary separation programme (VSS), and the government has beared 256 million dollars of the cost of payouts to those choosing to leave. Additionally, it seems that VSS led to many of the best employees exiting the company, which created a veritable human resource crisis at PTCL.

Network maintenance and operation, as well as customer care, seem to have suffered. A PTCL official, who does not want to be named, claims that many of the best linesmen and other technical hands have left and that hundreds of thousands of connections have been lost as a result.What should be done?Government of Pakistan should also consider introducing such a law here, especially to protect state-owned corporations which are to be privatized, the government has suffered a loss of over 2 billion dollars due to the decline in market value of its PTCL shares (it still owns 62 per cent of the company) and 0.7 billion dollars due to concessions negotiated after the auction.This cost does not even include the value of PTCLs real estate, which Etisalat appears to be trying to appropriate for commercial purposes.PTCL Privatization Deal Unfair, Contrary to Rules: The Federal Minister for Privatisation Senator Waqar Ahmed Khan Wednesday revealed before the National Assembly that the privatization deal of PTCL with Etisalat was not transparent and made in violation of rules and procedures. it was finalized and transaction was made without taking the Privatization Commission Board into confidence, adding that Etisalat has withheld $800 million over the transformation of land issue to be transferred to the UAE-based company.3,500 properties were to be transferred to Etisalat which also comprise lands not even owned by federal or any provincial government rather either those are private properties are under legal action.government has received an amount of US$ 1.79 billion from the Etisalat out of that an amount of US$ 1.5 billion has been remitted to federal government for debt retirement and poverty alleviation.an amount of US$ 251 million has been utilized for payment of 50 percent share of government on account of PTCL employees VSS dues. The remaining amount of proceeds has been utilized for payment of the transaction cost on account of financial advisory and legal experts.40,000 people will quit the job through Voluntary Separation Scheme (VSS) offered by the PTCL management.