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Corruption in Privatization

Monday 23 June 2008, by Anti-Privatization Alliance (Lahore)

There has been a massive corruption during the eight years of Musharaf Shoukat power period from 1999 until 2007. It will be very clear that privatization process has not been proved as a key to economic development as was claimed by the government, but a total disaster for the economy.

On 12 November 2007, the former Prime Minister Shoukat Aziz claimed that we have earned 417 billion Rupees ($6.41 billions) through privatization, a record amount according to him. While, only 57 Billion Rupees ($.870million) were fetched altogether from 1991 until 1999 by the civilian governments. He said the corner stone of our economic growth has been liberalization, deregulation and privatization.

Today, in June 2008, it is clear to every one in Pakistan that there has been massive economic decline during the period of military led civilian government of Shoukat Aziz. According to conservative estimate of Anti privatization Alliance Pakistan, a massive 1550 Billion Rupees ($23.84 billions) corruption has taken place during 8 years of Musharaf Shoukat Aziz privatization push. This is a record during any time of 61 years of independence of Pakistan by a government in loot and plunder of the state assets.

A record 700 billion Rupees ($10.76 billions) corruption has taken place during the privatization of financial institutions. When Habib Bank Limited (HBL) 51 percent shares were sold out to Agha Khan Fund For Economic Development in December 2004 for only 22 Billions Rupees, its total assets were more than 570 billion Rupees ($8.76 billions). While another large bank, United Bank Limited (UBL) was sold out only for 13 billion Rupees. HBL had 1437 branches and another 40 braches abroad in 26 countries with ownership of the buildings that the branches are functioning. The sale of these two banks on a very throw away prices is the largest financial scandal in Pakistan history.

The 26 percent shares privatization of Pakistan Tele Communication Limited (PTCL to Dubai based Aitsalat with management rights for only 157 Billions Rupees ($2.59 billion) is another gross violation of the rules set up even by Privatization Commission Pakistan. The Aitsalat bought PTCL after a 10 days strike against privatization by workers was crushed by the military regime in June 2005. The company then refused to take over and wanted more concessions. At the demand of the private company, it was agreed by the PC that another $370 million be reduced from the original price and the rest of the amount to be paid in installments.

Aitsalat announced at the time of privatization in 2005, that none of the 70,000 workers would loose their jobs. However, in 2007, the company has kicked out 30,000 workers on the name of so-called voluntary scheme.

Karachi Electrical Supply Corporation (KESC) was sold out for only 16 billion Rupees. It failed to improve any electricity supply, on the contrary, there has been regular load shedding and most of the political parties have demanded to renationalize the KESC.

There has been a sever crises of agriculture due to the privatization of fertilizer public companies. Pak Saudi Fertilizer in Mir Pur Mathelo wan handed of to Fauji (military) Foundation in 2002 for just 8 billion Rupees. At the time, it annual profit was more than 4 billion Rupees. At Multan, Pak Arab Fertilizer was handed over to Arif Habib Group for only 13 billion Rupees. The price of the land of this factory was over 40 billion Rupees at the time of sale in 2006. On 15 July 2006, the largest Public sector factory Pak American Fertilizer was handed over for just 16 billion Rupees.

After the privatization of these factories, the price of a pack of fertilizer has gone up from Rupees 1300 to 3700 Rupees. This has put a massive extra burden on the peasants and all agricultural inputs have gone up.

Lahore historic Fallaties hotel is sold out for only 1.21 billion Rupees. It is located in the heart of Lahore with over 50 canal of precious land.

A large-scale corruption is witnessed in almost every deal done by the PC. There has been improvement of the quality of the good produced by these companies according to one independent research. There has been a massive price hike of the product produced by these privatized companies. The economy is in consistence decline. As a result, the trends of monopolizations have increased and the multi national companies have further monopolized the economy. These all facts negate the very justification of privatization.

Unfortunately, the present Pakistan Peoples Party government has continued the policies of the former Musharaf Shoukat regime. The former government proudly declared that three main pillars of the Pakistan so called economic growth rest on liberalization, deregulation and privatization. The PPP government has no different options than these three.

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

The issue is not of clean or corrupt privatization. The process it self is anti worker and anti people as has the experience shown in Pakistan and internationally. The result has been that it has promoted unemployment, price hike, monopolization, low quality, inefficiency and huge profits for the rich.

Under Nawaz Sharif power period from 1990-1993, it was declared that proceeds of privatization will be distributed equally for defense, repayment of the foreign loans and social welfare. The Nawaz Sharif government did not practice this formula but at least that was the declared purpose. Under Musharaf Shoukat Aziz, this formula was changed and it was made clear that 90 percent of the income will go for the repayments of the foreign debts. The rest of 10 percent would be used for expenditures Privatization Commission and social welfare.

The Musharaf Shaukat regime earned 2.5 billion Dollars during 2006-2007. The target for the next year was around 3.5 billion Dollars. If the chief justice of Supreme Court of Pakistan had not stopped the privatization of Pakistan Steel Mills Karachi in 2006, the former regime would have sold most of the public institutions on throwaway prices. This would have been like selling Pakistan.

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

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

Here are some facts

According to the Privatisation Ordinenece 2000, the purpose of privatization is Pakistan poverty alleviation and repayments of foreign debts. During 15 years of privatization in Pakistan, these two purposes have not been accomplished. When privatization started in 1991, the foreign debt was 23.323 billion Dollars. Now, in 2008, it has gone up to 45 billion Dollars. While internal debts are on ever increase. Poverty has increased according to all the surveys by government and independent organizations. It is estimated that over 45 percent of Pakistan population lives under poverty line. The national growth of economy during the previous decade (1981-1991) has been on everage 6.7 perecent. However, during the decade of privatization (1991-2001), it has been reduced to 4.4 percent.

The direct negative impact of privatization has been seen on working class. 600.000 workers has lost their jobs during the 15 years of privatization from the institutions that has been privatized. Most of privatized factories work on contract system. There are no permanent jobs in these factories. Labour patron have been changed the privatization has pushed flood of informal sector. A swear exploitation of workers particularly women workers is taking place in informal sector. No labour laws has been imposed in informal sector. According to the report of Public Inquiry Committee of National parliament 2002, there is no clue of 80 billion Rupees earned by Privatization Commission.

The Privatization process help create cartels. 5 large cartels has been established during the last 10 years which has looted the masses on unprecedented level. They are

* Oil cartel based on 10 oil companies,

* Brokerage cartel based on 4 groups,

* Auto mobile cartel based on 3 companies,

* Sugar cartel based on 24 companies,

* Cement cartel based on 10 companies.

The creation and effective functioning of these cartel has resulted an unprecedented price hike and an incredible profits of the companies associated with these cartel. The privatization process in Pakistan has weakened the trade union movement as well. The membership is on ever decline. The membership of the registered trade unions was 870000 in the early eighties, now in 2007, it has declined to 296250.

Privatization is a political weapon in the hands of the capitalists. It is not just an economic attack but a political attack as well. It stop the growth of social, political and class based consciousness. It reduces the social capital and increase the private capital. Instead of social need, it creats and increase the private greed.

The World Bank, Transparency International and other international institution talks of state corruption but never speak about the corruption involved in privatization process. The stories of corruption during the privatization process are in abundance in every country. But are ignored for political reasons. We are happy to hear the stories of re-nationalization of privatization companies in several Latin American countries. That is the only answer to be followed by all countries.

Privatization in Pakistan must stop otherwise the PPP government will also see the same results of price hike, unemployment and monopolization of economy in Pakistan thus loosing its remaining social basis among the working class of Pakistan. The Anti Privatization Alliance will do its best to stop the path of privatization by launching the movement and exposing the corruption and other irregularities in the process.