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UNCLAS SECTION 01 OF 02 ISLAMABAD 000412 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV ECON ETRD ECON ENRG PK
SUBJECT: NEW PRIVATIZATION POLICY APPROVED; GAS FIELD PRIVATIZATION 
ON HOLD 
 
¶1. (SBU) Summary.  On February 19, the Cabinet Committee on 
Privatization (CCOP) approved a new privatization policy whereby 26 
percent and management control of a number of state owned 
enterprises would be sold.  While total privatization is the 
eventual goal, the GOP intends to proceed in steps to avoid 
monopolization and to maximize share value.  The privatization of 
Qadirpur gas fields in northeastern Sindh was taken off the table 
due to local union and political pressure; this highlights the 
difficulty of pursuing integrated policy measures at the federal 
level when control over resources is a provincial matter.  There are 
few expectations for a successful privatization program at the 
current time, however, given the dismal global economic climate and 
the continued outflow of foreign portfolio investment from Pakistan. 
 End Summary. 
 
¶2. (SBU) On February 17, the Cabinet Committee on Privatization 
(CCOP) approved a new privatization policy, as well as the partial 
privatization of 21 state owned enterprises (SOE).  The list 
includes most of the 17 SOE's already approved by the National 
Assembly this past November.  However, Qadirpur gas field was 
removed from the list.  Pakistan Post, Pakistan Railways, and the 
Utility Store Corporation (government subsidized food retail 
outlets) were added. 
 
----------------------------------- 
Public-Private Partnership Approach 
----------------------------------- 
 
¶3. (U) Syed Naveed Qamar, the Federal Minister for Privatization, 
said that the new policy was based on public-private partnerships. 
The GOP plans to sell 26 percent of each entity's shares along with 
management control.  By dividing up an SOE's equity into more 
manageable portions, the GOP is hoping to attract more potential 
investors.   The remaining equity would be sold in phases, once the 
private sector management had brought about an increase in share 
value.  Qamar said the GOP would insure that the divestment would 
not result in private monopolies and cartels (Comment: But did not 
specify how.  End Comment).  The new policy also envisages the 
transfer of 12 percent of the shares of all SOE's to their workers. 
Qamar emphasized that the IMF agreement did not require this 
privatization, but that it was a GOP initiative "in accordance with 
the country's needs." 
 
¶4. (SBU) Dr. Azmat Nawaz, Director at the Ministry of Privatization, 
told Emboff that the policy shift was to enhance the profitability 
of public sector "white elephants" to enable their eventual complete 
privatization.  He wants to introduce a private sector corporate 
culture into such poor performers as Pakistan Railways and Pakistan 
Post, although only the financial services arm of the Post, not its 
mailing services, would be privatized. 
 
------------------------------------- 
Qadirpur Gas Fields Removed from List 
------------------------------------- 
 
¶5. (SBU) After the November 2008 decision to privatize roughly one 
third of Qadirpur gas fields - located in Ghotki district in 
northeastern Sindh - there were widespread protests from workers and 
provincial politicians.  The Qadirpur Gas Field Union called the 
proposal a ruse to sell off a national asset at a deep discount. 
(Note:  The CCOP appraised the gas fields at $2 billion, while the 
union claimed the actual value was closer to $7 billion.  End Note) 
Union members in Ghotki picketed Naveed Qamar's home protesting the 
CCOP decision.  Sindh Minister of Commerce and Industry Rauf 
Siddiqui, a member of the Muttahida Quami Movement (MQM) political 
party, told Karachi EconOff that his party was concerned that 
federal sale of the rights to Sindh's gas reserves would impinge on 
the province's constitutional right to control its own resources. 
He added that union workers were concerned about their continued 
employment in the event of a privatization. 
 
¶6.  (SBU)  Asim Murtaza Khan [protect], Deputy Managing Director of 
Pakistan Petroleum, Ltd., an SOE that owns a minority share of 
Qadirpur, told Karachi EconOff that future privatization of Qadirpur 
 
ISLAMABAD 00000412  002 OF 002 
 
 
was unlikely due to the political pressure exerted on the GOP by the 
unions and the MQM. 
 
¶7.  (SBU)  Comment.  The climate for privatization is extremely 
unfavorable at the moment, given the global financial crisis and 
questions about the stability of the current government.  Last 
week's announcement of the new policy was greeted with corresponding 
skepticism in the press.  The removal of Qadirpur gas fields from 
the list of SOE's available for privatization highlights the 
ambiguity over provincial versus federal control of valuable 
resources, an issue that has impeded foreign investment in the 
energy sector for many years (septel reports on challenges facing 
the development of Thar Coal).  The Qadipur gas fields, a source of 
Sindhi pride, which were inaugurated by Benazir Bhutto and which 
provided the GOP $180 million in revenues last year, are a case in 
point.  We have maintained in the past that the privatization of 
Qadirpur was questionable, since in recent years the GOP has 
invested heavily to improve output and the results have been very 
promising.  In addition, since Qadirpur's parent company, the Oil 
and Gas Development Company, Ltd., has also been a candidate for 
privatization, it would make more sense to privatize them together. 
 
 
 
FEIERSTEIN