Tuesday, April 29, 2014

Pakistan's Chaudhry Court Scared Investors Away

Organization of Pakistani-American Entrepreneurs (OPEN) Silicon Valley has just announced a panel discussion featuring Pakistan's former Chief Justice Iftikhar Chaudhry and former attorney general Munir Malik.

Pakistan's Ex-Chief Justice Iftikhar Chaudhry
This discussion is titled "The Pakistani Legal Code And How It Impacts Investors And Entrepreneurs". It is scheduled  for 10:15 AM at "OPEN Forum 2014", the organization's annual conference on Saturday, May 10, 2014, at the Santa Clara Marriott in Silicon Valley

If I were asked to moderate this panel, I would not treat it as an abstract discussion of how rule of law impacts investors and entrepreneurs anywhere in general. Instead, I would focus on how Justice Iftikhar Mohammad Chaudhry conducted himself and how his conduct affected the investment climate and the economy in Pakistan during his tenure as Chief Justice of Pakistan.

Foreign Direct Investment in Pakistan:

World Bank's data shows that foreign direct investment (FDI) in Pakistan reached a peak of over $5 billion (3.6% of GDP) in 2007 and then fell sharply in the wake of Justice Chaudhry's reversal of the privatization of Pakistan Steel Mills. FDI has essentially dried up and the Pakistan Steel Mills Corporation has accumulated losses over Rs. 100 billion in spite of multiple bailouts at taxpayers expense. It is currently operating at just 3% of capacity and its monthly payroll adds up to Rs. 500 million, according to Dawn.

FDI as % of GDP in Pakistan Source: World Bank

Canceled Privatization Deals:

Huge subsidies are being given at taxpayers' expense to Pakistan Steel Mills and several other state-owned enterprises which take resources away from more pressing needs for spending on education, health care and infrastructure. In fact, Pakistan Education Task Force Report 2011 reported that "under 1.5% of GDP [is] going to public schools that are on the front line of Pakistan's education emergency, or less than the subsidy for PIA, Pakistan Steel, and Pepco."

Speaking at a recent international judicial conference in Islamabad, Dr. Ishrat Hussain, current dean of the Institute of Business Administration and former governor of The State Bank of Pakistan, said there has not been a single privatization deal in Pakistan since the Supreme Court's 2006 decision voiding the steel mill transaction.

Dr Hussain said that despite fulfilling the legal requirements, the fear that the country’s courts may take suo motu notice of the transaction, and subsequently issue a stay order, deters businesses from investing in Pakistan, according to a report in The Express Tribune. “A large number of frivolous petitions are filed every year that have dire economic consequences. While the cost of such filings is insignificant the economy suffers enormously,” he added.

Crucial Projects Delayed:

Among other projects, Dr. Hussain particularly cited Reko Diq and LNG projects which could not proceed because of judicial activism of Pakistan Supreme Court judges.

The lack of progress on liquefied natural gas (LNG) deal has exacerbated Pakistan's energy crisis. It would have brought in 400 million cubic feet of gas per day to bridge the growing supply-demand gap now crippling Pakistan's economy.

The invalidation of Reko Diq license to  Tethyan, joint venture of Canada's Barrick and Chile's Antofagasta, has turned away Pakistan's single largest foreign investment deal to date. The deposit in Balochistan was expected to produce about 200,000 tons of copper and 250,000 ounces of gold annually. Under the deal Baluchistan province would hold a 25 percent stake in the project, with Tethyan holding the remaining 75 percent.

Militants Released:

In addition to activist judges intervention in economic matters, there have also been many instance in which known militants have been released by Pakistani courts. Those released have then committed acts of terror which have also scared away investors, both foreign and local.


Dr. Hussain closed his speech by pleading with Pakistan's judges "with all the humility and without sounding arrogant or offending anyone’s sensibilities, that economic decision are highly complex and its repercussions are interlinked both in time as well as space.”

I hope that this opportunity to question the former chief justice is not wasted by an adoring crowd asking him soft-ball questions at the OPEN conference on  May 10, 2014. It's important that we, including the honorable judge, do an honest assessment of our past mistakes to learn from them.

Related Links:

Haq's Musings

Shaukat Aziz's Economic Legacy in Pakistan

Saving Pakistan's Education, Steel Mill, Railway and PIA

Politics of Patronage Trumps Public Policy 

Iftikhar Chaudhry is no Angel

Musharraf Earned Legitimacy by Good Governance

Vindictive Judges Pursue Musharraf

Rare Earths at Reko Diq?


MK Ashraf said...

Imran Khan is exploting the nexus between PML(N) and Chowdhry Iftikhar in his planned agitation to be commenced with effect from May-11, shortly.If these facts are made public especially with Tehreek-e-Insaf or through Mr.Asad Umer of PTI, it will certainly play a vital role in gaining the momentum of street protest to be lodged by PTI in collaboration with Pakistan Awami Tehreek.

Sajjad said...

in PSM deal, govt & the buying party were colluding to rob the country. court gave the right verdict.

facts & figures are wrong. steel mills privatization was cancelled in june 2006. FDI didn't fall for 2 fiscal years after that

Riaz Haq said...

Sajjad: "in PSM deal, govt & the buying party were colluding to rob the country. court gave the right verdict."

It was essentially a valuation dispute which are normal in such transactions. Court should not have intervened in it.

PSM priv cancellation happened late 2006. Only investment deals already in pipeline happened. No new investment came.

Chaudhry Court made a huge mistake in PSM. Already cost Pakistan taxpayers over Rs 100 billion direct losses. And FDI fell sharply.

Sajjad said...

If I issue an ad inviting bids for a table, but when highest bidder emerges, I also give them 4 chairs for free chairs which werent mentioned at the time of the bid, then it means either I'm stupid or I am favouring the buyer knowingly

Sajjad said...

If I issue an ad inviting bids for a table, but when highest bidder emerges, I also give them 4 chairs for free chairs which werent mentioned at the time of the bid, then it means either I'm stupid or I am favouring the buyer knowingly

Riaz Haq said...

Sajjad: "If I issue an ad inviting bids for a table, but when highest bidder emerges, I also give them 4 chairs for free chairs which werent mentioned at the time of the bid, then it means either I'm stupid or I am favouring the buyer knowingly"

Perfect transparent deals are rare in developing countries like #Pakistan. East Asian countries have prospered in spite of it.

Riaz Haq said...

I suggest you look at examples in East, South East Asia where countries have prospered in spite of corruption. Paralysis is worse

Moin said...

I. Choudhry has not impacted FDI as much as violence and unrest in the country.
Foreign investors look at the social and political unrest in the country and
get scared. Let's not blame I Choudhry entirely for this.

Riaz Haq said...

Moin: "I. Choudhry has not impacted FDI as much as violence and unrest in the country.
Foreign investors look at the social and political unrest in the country and
get scared. Let's not blame I Choudhry entirely for this. "

Reko Diq and LNG deals could have happened in spite of violence.

Besides, judges like Iftikhar Chaudhry have contributed to violence by releasing militants who have committed murders and other atrocities.

Anonymous said...


Anonymous said...

Who can blame Chaudary sir.... Had he not intervened our politicians would have sold a precious asset like Reko Dig for nothing...

Riaz Haq said...

Anon: "Had he not intervened our politicians would have sold a precious asset like Reko Dig for nothing.."

So how many mining investors have lined up to pay what you think Reko Diq is worth? The answer is none.

An asset is only worth what buyers are willing to pay for it. No more, no less.

Bilal Z said...

FDI fell across the developing world following the global financial crisis.

More to the point: legal decisions MUST not be made based on economic assumptions. Many above-board deals went thru

Riaz Haq said...

Bilal: "FDI fell across the developing world following the global financial crisis. More to the point: legal decisions MUST not be made based on economic assumptions. Many above-board deals went thru"

By 90%? No, it did not. Look at your neighbors where it stayed up, even increased. Reko Diq, if not blocked, would have helped.

NO new deals after steel mills. Only ones in pipeline did. No Reko Diq, no LNG, no 3G or 4G. Activist judges chilled it

Courts elsewhere do not use suo moto to make economic decisions. Such actions are very rare, rely on expert witnesses

Riaz Haq said...

Some of my friends can't see how Courts-GeoTV-PMLN cabal is working, I'm not sure how to help them see it. I suggest you look at the results of it. Since 2008, it's already contributed to release of large number of terrorists including the Taliban and Lal Masjid terrorist mullahs, increasing violence, declining economy, dismissal of a democratically elected PM, huge decline in investments, growing civil-military rift, etc. etc.

Javed E. said...

"Courts-GeoTV-PMLN cabal" list is too short; add a few more- blamed for "release of large number of terrorists including the Taliban and Lal Masjid terrorist mullahs, increasing violence, declining economy, dismissal of a democratically elected PM, huge decline in investments, growing civil-military rift, etc. etc." Now the "etc. etc." encompassess the entire Universe of all things gone awry - in other worlds the "Cabal" without the 'etc. etc." is to be blamed for all things gone awry wih the "etc. etc." - More than enough fodder to fulfill the appetite of all the Conspiracy theorists of the World etc. etc.

Riaz Haq said...

Javed:"Cabal" without the 'etc. etc." is to be blamed for all things gone awry wih the "etc. etc." - More than enough fodder to fulfill the appetite of all the Conspiracy theorists of the World etc. etc."

All FACTS, no theories. Release of terrorists is a FACT. Lal Masjid mulla Aziz who killed soldiers is now challenging the constitution again and building Bi Laden libraries in the heart of Islamabad. Unprecedented dismissal of a democratically elected PM is a FACT. Blocking of deals that would bring FDI is a FACT. Deals like Reko Diq and LNG. All of it had a disastrous effect on economy which helped get PPP out and PMLN in on May 11 2013. The list of Chaudhry court's sins in long....

Mani Devaj said...

The Court's are not day traders that must make decisions because it is convenient or better for that day; they are setting long time precedence, they are setting rules in place that in coming years the people of Pakistan can rely on. We seem to take for granted that corruption should be tolerated because it is expedient and perhaps even efficient for the corrupter and corruptee, but for the first time, Pakistan had a Court that looked for solutions that wil provide a long term benefit to Pakistan. The Civil Society of Pakistan understood what was at stake when the movement to restore the judiciary was launched, they sacrificed to do so as did the Judges of the Courts as they were maligned and placed under house arrest. These Judges are the real heroes of Pakistan, these Judges have laid a foundation that Pakistan can build on. If they are to be judged, it is best to leave the judging to the historians lest we end up like day traders tossing coins in the wishing well.

Riaz Haq said...

MD: "f they are to be judged, it is best to leave the judging to the historians lest we end up like day traders tossing coins in the wishing well."

No other country has the kind of activist courts like the Chaudhry court. Nowhere do courts use suo moto as librally as in Pakistan to interfere in economic decisons which are taken by technocrats in the executive branch. Abuse of power by Chaudhry and his cronies has seriously hurt people of Pakistan by denying them jobs and economic opportunities. These self-serving judges like Chaudhry are corrupt power abusers. History wil judge them very harshly

Javed E. said...

Exactly my point, the list is long enough to circle the world a few hundred times but when a ball is held right upon the eyes, it does look the whole world. A Step back may locate a speck or two of good on the ball, and identify the dirt that the ball picked up from where it was found. Stepping further back may actually make it clear that it is the ball that the list is going around and around and not the whole world., and step back some more

Riaz Haq said...

Javed: ".... A Step back may locate a speck or two of good on the ball, and identify the dirt that the ball picked up from where it was found. Stepping further back may actually make it clear that it is the ball that the list is going around and around and not the whole world., and step back some more"

A step back would reveal Chaudhry's sordid character and opportunism which took him from being a C student to Pakistan's chief justice. A step back would show his support of his son's admissions to colleges and civil service with rapid illegal promotions. A step back would show how Chaudhry protected his son who operated a "business" of collecting payments from Malik Riaz at Chaudhry's official residence. A step back would show Chaudhry's two PCOs that legitimized Pervez Musharraf coup in 1999 and gave him full authority to amend the constitution anyway he chose. A step back would show Pakistan's rising FDI and growing economy and accelerating HDI before CJ decided to become an activist judge.


Riaz Haq said...

I attended a session featuring Ex Chief Justice Iftikhar Mohammad Chaudhry at Pakistani-American entrepreneurs OPEN Forum 2014 at the Santa Clara Marriott in Silicon Valley on May 10, 2014.

It was moderated by Pakistani-American attorney Riaz Karamali, a partner at Pillsbury Winthrop Shaw Pittman LLP in the Corporate & Securities – Technology practice in Silicon Valley and San Francisco offices.

After a brief intro by Karamali, the former chief justice rose to read from a sheet of paper reciting the Pakistani laws governing business. This continued for about 20-25 minutes until the moderator interrupted the chief justice asking him to defer more details to questions and answers.

The first question the moderator asked was regarding concerns about intellectual property protection in Pakistan.

Mr. Chaudhry said Pakistani laws protect intellectual property and if anyone had an issue they should go to court.

Former attorney general Munir Malik understood the crux of the question and agreed that there have been instances of lax enforcement but police has acted when asked to stop sales of pirated software and entertainment.

After asking some more general questions about rule of law, the moderator asked him why is it that Pakistan and most other countries in Asia have found that authoritarian governments, including military dictatorships, are seen as more business and investment friendly than democratic governments?

The chief justice was aided in his response by ex attorney general Munir Malik. Both contested the premise of question and said rule-of-law and democracy are more important in the long run. Malik added it was crony capitalism that thrived under dictators.

Then the moderator turned to the audience's questions, including my question about the impact of Mr. Chaudhry's decisions on the dramatic drop in privatization deals and fall of foreign direct investment from $5.2 billion in 2007 to less than a billion dollars in recent years.

Mr. Chaudhry responded that the steel mill decision was not his alone. It was a unanimous verdict by a 9-judge panel that rolled back the privatization deal for lack of transparency.

As expected, Mr. Malik chimed in to restate his position that the necessity for "rule-of-law" outweighs any short-term impact it may have on the economy and investment. Malik also mentioned Reko Diq as another deal that was a "give away" and set aside by Mr. Chaudhry's court.

After the session, Riaz Karamali, the moderator, told me that he had read my post on the subject as part of his preparation for the session.

Several attendees told me they were disappointed by Mr. Chaudhry's presentation which was a mere recitation of the applicable laws without connecting it directly to address the concerns of the Silicon Valley audience at the OPEN Forum 2014.


Riaz Haq said...

Here's an FT story on Pakistan plans to raise $2 billion through privatization:

Pakistan expects to raise at least $2bn by March next year through the international sale of shares in Pakistani energy and banking companies, according to the man spearheading the privatisation drive.
Muhammad Zubair, chairman of the privatisation commission, signalled the country’s return to global equity markets following what the government says is the end of a political crisis marked by weeks of demonstrations in the capital, Islamabad.

“There was uncertainty that the prime minister will be forced to resign, the parliament will be packed up,” he said, referring to the protests led by Imran Khan, the cricketer-turned-politician, and Tahirul Qadri, a moderate Islamic leader. “By mid-September, it was clear that the prime minister was staying and the parliament will remain intact.”
Demonstrators remain camped outside the parliament, but other political parties, including some opponents of Prime Minister Nawaz Sharif, have backed the government’s right to run the country until its five-year mandate expires in 2018.
Mr Zubair will share his message of returning political stability on Thursday when he meets potential investors at the start of a roadshow beginning in London to sell a 7.5 per cent stake in Oil and Gas Development Co. Analysts say the offer through global depositary receipts should raise more than $800m.
This will be followed by the offer of government shares in the privately run Habib Bank, which analysts said could fetch up to $1.2bn in the first quarter of next year. HBL was privatised in 2003 when 51 per cent was sold to the Aga Khan Fund for Economic Development.
Mr Zubair said a successful outcome of the two deals would build investor confidence and help pave the way for privatising other public sector companies. He said at least nine electricity distribution companies and six generating companies would be privatised.
Pakistan International Airlines, the lossmaking state-owned carrier would also be offered for sale. In the past week, Pakistani officials have said the government was planning to split PIA into two, offering its international operations to a Middle Eastern airline while selling ageing aircraft and domestic routes to a local investor.

Beyond brics
Emerging markets: News and comment from more than 40 emerging economies
Mr Zubair said the privatisation programme had the support of every mainstream political party. “We have met with 60 international equity funds. At least 90 per cent are convinced that political stability will remain in Pakistan . . . We now have to demonstrate we are back at work.”
Mr Sharif was elected prime minister for the third time in May 2013 and is seeking to revive confidence in an economy ravaged by corruption, poor management and attacks on official and civilian targets by Taliban Islamist extremists.
As the scion of a prominent business family in the populous Punjab province, Mr Sharif has advertised himself as a business-friendly leader eager to privatise lossmaking state groups.
But some analysts are sceptical about the likely extent of privatisation, warning that even a successful sale of OGDCL and HBL shares will not necessarily lead to the sale of struggling electricity groups.
“Getting credible foreign investors has historically proven difficult, especially when it comes to taking charge of public sector companies,” said Sakib Sherani, a former adviser to the finance ministry.
“These assets include those that are heavily overstaffed and have run in loss for a long time. The real test will come when these assets are put up for strategic sales along with transfer of management.”
Nor is political stability guaranteed, with Mr Khan and Mr Qadri repeating their demands for Mr Sharif to resign and trade unions likely to flex their muscles.


Riaz Haq said...

A stock market that has about tripled in value in the last four years is not usually the first thing that comes to mind when global investors and business people think of Pakistan. The stock market has made great strides and some still consider it significantly cheaper value than its peer markets. Meanwhile, outsiders looking for signs that Pakistan is politically stabilizing will find mixed messages at the surface of the news.


Mr. Mohammed Sohail, CEO of Topline Securities Pakistan, says:

The sit-in [that began in Islamabad on August 15] is gradually diluting because the two parties which started the gathering [the PTI and PAT] are there more than six weeks. The media coverage is declining. Investor focus has also shifted away and returned to business as usual. There was an initial correction of 8% to 9%, but now the market has recovered, and is where it was when these protests started. This shows the market is resilient.

The market stabilized in part because the military clarified they don’t intend to intervene or engage in any unconstitutional matter. These protests are democratic, as everyone in a democracy has a right to protest.

The government is now more transparent and more careful as a result of the protests. This is the beauty of democracy: the opposition criticizes the government in power and the government in power improves themselves. For example, the PTI has criticized Prime Minister Nawaz Sharif for having too many family members in important posts and I think this has been accepted as an issue the government will try to improve. Effective opposition criticism is a side of politics we expect to see more of in the future.

Frankly speaking, I see these protests as a major development. In 60 to 70 years, Pakistan has not seen pure proper democracy. If you look at other democracies, these type of protests and political exchange is normal. It is only six or seven years now that we have this proper democracy. This is really the first time in Pakistan’s history that we can have this kind of democratic interaction. When the opposition protests, it provides a lesson for the rulers to be more active, to think about all people.

Mr. Faisal Shaji, a research analyst at Standard Capital Securities in Pakistan, offers a different view:

The protests are in a way positive for real democracy in the country since it has created lot of awareness among the masses. The incidence of rigging is on a wide scale and accepted by all political groups. These protests were previously unthinkable. People think that the overall system is rotten and hence protestors are gaining strength.

The military handled the protests very wisely as the current chief of the army staff [COAS] is pro-democracy. The military wants political parties to resolve the issues politically. But we think the situation is going towards new elections that will use a biometric system of thumb impression which is the ultimate solution to the problem.

Mr. Sohail of Topline Securities maintains confidence in Pakistan’s capital markets moving forward:

Things that were held up due to the protests – IPOs, privatizations, reforms, the $800 million share sell of our largest oil and gas company OGDC – have now resumed. When the OGDC deal is executed, I think that will give a very clear signal to the international business community that the protests may still be going on, but investment and business already are operating as usual.

Pakistan is an unexplored market by most outside investors that is not marketed properly. Compared to peers, the market is very cheap. Pakistan’s markets trades at a price/earning multiple of 7.5 times; a 30% to 40% discount to Sri Lanka, Bangladesh, Nigeria and Vietnam. For me, from an investor’s point of view, the next 24 months look very positive for the equity markets.


Riaz Haq said...

ISLAMABAD, Pakistan - Pakistan plans to split ailing national flag carrier Pakistan International Airlines (PIA) into two companies and sell control of the core business to a global airline over the next 18 months, but political opposition to the sell-off will be intense, the country’s privatization czar said.

Financial advisers are now in talks with several airlines about taking over cash-strapped PIA, which has some 17,000 employees but just 36 aircraft — and 10 of them are grounded due to a lack of spare parts.

Mohammad Zubair told Reuters in an interview during a visit to New Delhi that no decision had been taken on the buyer, but he mentioned Emirates airline, Etihad and Qatar Airways — the Gulf giants that dominate the regional sector — as possibilities.

“It’s going to be the most difficult sale,” said Zubair, who is aiming to raise around $4bn this fiscal year from the sale of stakes in several companies, anticipating demands that the government hold onto PIA and nurse it back to health itself. “If we are saying that for 25 years PIA has been going from bad to worse, we can’t claim that we are business-savvy and we can turn it around. Anyone who thinks that the government can fund it is living in a fool’s paradise.”

Zubair, a former IBM chief financial officer for the Middle East and Africa, was tapped by Prime Minister Nawaz Sharif to take charge of a central plank of economic reforms promised by Islamabad in return for an International Monetary Fund bailout. Pakistan announced this week that it will seek to raise about $815mn through a sale of shares in Oil and Gas Development Co (OGDC), its largest offering in eight years.

Zubair said investors are returning to Pakistan after weeks of anti-government protests in Islamabad that have now fizzled out, and the OGDC deal representing 7.5% of the company’s share capital would be a test of their confidence. The OGDC sale is part of a sell-off drive to raise capital for an economy that has been crippled for years by power shortages, corruption and militant violence, and to staunch huge losses from dysfunctional companies. Zubair said the losses of power distribution companies alone are equivalent to one-sixth of the government’s fiscal revenues.

Next on the block will be the government’s 40% stake in Habib Bank Ltd, which will be sold in two stages between November and next March, for around $1.2bn. Also ahead is the sale, targeted at domestic investors, of the state’s 7.5% stake in Allied Bank Ltd, for around $150mn, Zubair said.

Over the years, critics say, governments have manipulated state Corps like PIA for political and financial gain, giving jobs to so many supporters that the size of the workforce has become unsustainable in the face of mounting losses.

Zubair said that PIA’s employee-to-aircraft ratio, at around 600, is one of the worst in the world and keeps going up as more planes are grounded. Under his plan, the airline will be spun off as a separate entity and PIA’s other interests — such as ground-handling, catering, hotels and even a poultry business — would go into a holding company that would be retained by the state.

To avoid mass layoffs that would run into political opposition the holding company would absorb all the employees, keep a share in the airline to earn dividend income and then sell off each of its interests individually over time.

Zubair said he could not proceed with the sale of PIA as quickly as other companies, partly because parliament may have to approve legislation allowing it to pass into private hands. “It’s more politically sensitive,” he said. “PIA is not going to be sold just like that.”


Riaz Haq said...

Uncertainty surrounds the future of a world-class gold mine in Pakistan due to poor handling of the project by regional authorities.

Reko Diq is a copper and gold mine in Chagai district of Balochistan province with a value up to $500bn. It holds about 5.9 billion tonnes of ore, making it the world’s fifth largest deposit of gold and copper.

But the huge project has ground to a halt over a dispute between the provincial government and the miners.

Tethyan Copper Company (TCC) – a joint venture of Barrick Gold of Canada and Antofagasta of Chile – had been awarded a licence for exploration in the Reko Diq area in 2006. In 2011, TCC’s application for a mining lease for the project was rejected by the Balochistan government of then-chief minister Aslam Raisani, which decided to run the project on its own.

TCC took the case to the international arbitration court claiming damages because it had invested more than $500 million in exploration and feasibility studies.

“There is potential … for multiple mine developments over the next few decades. By refusing a mining licence without good grounds, it’s sending quite a negative signal to the exploration/mining community,” said Tim Livesey, the chief executive of TCC, in 2012.

The rejection of a mining licence to the company after an exploration permit had been granted was an unusual decision by the government. Mr Raisani abruptly closed off communication with the company and even refused to meet its executives.

Mr Raisani rejected the TCC bid in the name of protecting the legitimate interest of Balochistan, but did his decision really help the least developed province and its people?
Metallurgical Corporation of China (MCC) came with a counter proposal for a mining lease for Reko Diq and offered Balochistan a larger share in income and royalty.

In 2002, MCC had acquired a lease the Saindak copper and gold project in the same district as Chagai, which expired in 2012. If the Raisani government was serious in its desire to develop deposits using local firms, why did it not oppose the five-year extension in the lease period of the Saindak project?

The Reko Diq project became controversial after news stories alleged that the Reko Diq gold mines were being secretly sold to foreign firms for peanuts.

The dispute between TCC and Balochistan began after the resignation of Mr Musharraf in 2008. Under his administration, TCC was awarded the project with mining rights and it signed a joint-venture agreement with Balochistan holding 25 per cent interest in the project. But in December 2009, Balochistan said it was cancelling the TCC deal.

That triggered a blame game, with each side accusing the other of violating mineral rules. In January 2013, former chief justice of the supreme court Iftikhar Chaudhry declared the Reko Diq contract between the Balochistan and TCC void.

Arbitration proceedings have further delayed the mine’s development, which has not been worked since 1993 when BHP Billiton signed a deal with Balochistan. While BHP had an exploration deal, it did no practical work and sold its 75 per cent interest to TCC in 2000. In 2006, TCC was taken over by Antofagasta and Barrick Gold.

TCC deserves credit for the discovery of the huge Reko Diq deposits. The company was willing to make an investment of $5bn over five years. It could have been the biggest foreign-financed project in the country’s history. But the short-sighted policy of the government meant this potential game changer never got off the ground.

What has been the outcome of the dispute so far? The country has missed a huge foreign investment. It has closed the door on technology transfer in mining into Pakistan and discouraged foreign firms eyeing up its mineral deposits.


Riaz Haq said...

Next Up for Bid: This Shuttered Pakistan Firm, Pakistan Steel Mills Corp, Is Hard to Sell "Nightmare" http://bloom.bg/1TPJJse via @business

Investors see about two-thirds of the company’s 16,000 workers as unnecessary and most others as incompetent, Zubair, who heads Pakistan’s privatization program, said in an interview. Losses are running at roughly $20 million a month after the firm stopped operating in June because it couldn’t pay its gas bill.
“Finding a potential buyer for Pakistan Steel will be a nightmare because the company is a nightmare," said Zubair, 59, a former IBM executive. “I’ve always sold IBM products which is the easiest -- you’re always going with the best products or services. Now you’re going with one of the worst."
Time is running out for Pakistan to sell stakes in about 40 state-run companies to meet conditions for a $6.6 billion loan package it received from the International Monetary Fund in 2013. Progress is crucial for Prime Minister Nawaz Sharif to show the world that Pakistan is changing as it seeks to attract foreign capital to its financial markets.
Behind Schedule
Asked about Zubair’s “nightmare" comment, Pakistan Steel spokesman Syed Abdul Hafiz Shah said the losses began piling up after the 2008 financial crisis.
“Production is zero and liabilities can’t be paid, so obviously it’s difficult to run," Shah said. “It’s up to the government what it decides. We will have to follow it."
The privatization program is already behind schedule and facing resistance among unions and opposition political parties. Five transactions yielding $1.7 billion have been completed so far, and deadlines are being pushed back.
Zubair emphasized that the privatization push is still on track. He said that legal and political hurdles have delayed the timeline for asset sales by only about three months.
“This is a very critical stage," Zubair said at his office on Dec. 4. “This is just the stage where the next momentum will be seen by the people of Pakistan."
Strategic sales are more complicated and time consuming than capital market transactions, according to Mohammed Sohail, chief executive Topline Securities Ltd.
“The challenge is not the opposition parties or people opposing privatization," Sohail said by phone from Karachi. “The situation of these companies is so bad that it will be difficult to find a buyer."
Airline Bids
The three companies seen as benchmarks for success are Pakistan Steel, national carrier Pakistan International Airlines Co. and Faisalabad Electricity Supply Co., known as Fesco. All have been earmarked for privatization for more than two decades.
A presidential decree issued last week repealed the 1956 law setting up Pakistan Airlines, removing a hurdle to selling a 26 percent stake in the national carrier by August. China’s Hainan Airlines Co. is among companies that have expressed interest, Zubair said, adding that he’ll also seek bids from Emirates, Etihad Airways PJSC and Qatar Airways Ltd.
Fesco is profitable and will be the easiest of the three to sell despite having 9,000 outstanding legal cases and spotty financial documentation, Zubair said. He plans to unload a 74 percent stake by May, a sale he hopes will generate momentum for other power producers that are in much worse shape.
Political Decisions
Pakistan Steel is more complicated. Established in 1973 to supply a nascent manufacturing sector, the company stopped operating in June after gas supplies were cut off due to mounting debts, according to Shah, the company’s spokesman. Its workforce has shrunk to 14,000 as those who hit retirement age aren’t replaced, he said.
The cabinet decided to allow the government of Sindh province -- where Pakistan Steel is based -- to have the first shot at the 74 percent stake up for sale. If Sindh doesn’t express interest by Dec. 15, Zubair said he would write to the cabinet and look for other buyers.

Riaz Haq said...

#Pakistan Steel Privatization Stalled. No production. $3.5 billion debt. $5 million weekly loss http://reut.rs/1Q0axpZ via @Reuters

Once the producer of almost half the country's steel needs, state-owned Pakistan Steel Mills' (PSM) cavernous factory buildings on the outskirts of Karachi stand eerily still.

A 4.5 km-long (2.8 mile) conveyor belt that once carried coal from the nearby port is idle and blast furnaces rest silent. Birds build nests in Soviet-era equipment and stray dogs nap outside abandoned plants.

The company is for sale, but the government cannot find a buyer as it struggles to get privatizations back on track after a series of setbacks. A glance at PSM's finances may explain why.

The company has $3.5 billion in debt and accumulated losses, loses $5 million a week and has not produced steel at its 19,000-acre facility since June last year. That was when the national gas company cut power supplies, demanding payment of bills of over $340 million.

Like many Pakistani industrial firms, political meddling and competition from cheaper Chinese imports left PSM vulnerable.

They also undermine Prime Minister Nawaz Sharif's promise to the International Monetary Fund to privatize PSM by March, in return for a $6.7 billion national bailout loan agreed in 2013.

More than 14,000 jobs are at risk, while the Pakistani economy needs industrial growth to provide employment for a growing population.

"Nine billion rupees ($86 million) are immediately needed to see the company through to June," company CEO Zaheer Ahmed Khan told Reuters at its sprawling premises.

"It's really sad, it's a national asset. We are a nuclear power but what does it say that we can't operate a small steel mill?"


The government has injected $2 billion into PSM since a failed selloff in 2006, but cannot invest more capital, Privatization Commission Chairman Mohammad Zubair said.

"The best option is to privatize so that private sector buyers inject capital to upgrade the plant and machinery, buy raw material and so on," he said.

PSM is one of several firms Pakistan wants to sell to revive loss-making entities that cost the government $5 billion a year.

But it has struggled to restructure bleeding companies, including PSM and Pakistan International Airlines (PIA), and get them in shape for potential buyers.

This month, Pakistan shelved plans to privatize power supply companies, and officials said Islamabad told the IMF it would not meet deadlines to sell PIA or PSM.

While the loss-making firms are a drain on Pakistan's resources - around an eighth of the government's fiscal revenues last year - few fear Pakistan will slide into economic crisis.

The IMF has continued to release installments of its 2013 bailout package despite missed targets, and Pakistan is exploring other sources of support, like ally China which plans to invest $46 billion in a new economic corridor.


Designed and funded by the Soviet Union in the 1970s, PSM was once the pride of the nation, showcasing a rapidly industrializing Pakistan with the means to produce a basic building block for the future.

Across the site, signs implore workers to believe steel will make Pakistan stronger. The firm's motto is "Yes, I can."

The facility has the capacity to expand to produce 3 million tonnes of cold and hot-rolled steel annually, against today's 1.1 million tonnes, CEO Khan said. At 3 million tonnes, PSM would become "very profitable".

Riaz Haq said...

A significant rise in infrastructure projects in the wake of China-Pakistan Economic Corridor (CPEC) is also expected to accelerate demand for iron, steel and cement.
“Imports of both steel scrap and steel products increased by 27.3 per cent and 30.1 per cent, respectively, during July-March FY16,” said the SBP report.
“The imports posted extraordinary growth despite imposition of anti-dumping duties for four months on import of cold-rolled coils and sheets from China and Ukraine,” said the report.


The country produces six million metric tons of steel per year, as per a report published by the State Bank of Pakistan (SBP).

This includes raw products, iron ore and scrap flat products, sheets and plates used in the automotive sector, and long products (steel bars, wire rods, rails, and structures used in infrastructure development, and tubes and pipes).

However, per capita steel consumption in Pakistan is very low at 23.5 kilograms against 58.6 kilograms in India, as well as the Asian average of 261.3 kilograms and the global average of 216.9 kilograms, the report added.