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Privatisation


Privatisation the policy of handing over public ownership of an asset to private ownership or of permitting the performance of a certain activity hitherto carried out by a government department, by a private sector business. The shift in activity from the state to the private sector takes place in the belief that private ownership and control are more efficient in terms of resource utilisation than state ownership and control. The two methods of privatisation in Bangladesh are: sale of state-owned enterprises by tender in which local and foreign individual buyers, as well as association of workers, employees and officers may participate; and conversion of state-owned enterprises into public limited companies through sale of more than 50% of shares directly or through stock exchange.

At the time of partition of Bengal in 1947, there were 16,163 registered industrial enterprises in Pakistan. Of these, only 252 were located in East Pakistan. The government of Pakistan adopted a policy of promoting private initiatives in industrial development and making the state a catalytic agent in the process. The government also set up industrial units, which it intended to sell to private entrepreneurs under build and transfer, or build, operate and transfer policy. The government of Bangladesh inherited a private sector dominated industry sector, damaged heavily during the war of liberation. Private owners, however, were mostly non-locals and abandoned enterprises leaving them in an unprotected environment. The government of Bangladesh promulgated Abandoned Properties Ordinance and Nationalisation Order in 1972, took over all medium and large abandoned enterprises and had nationalised banks, insurance companies, big import houses and mills and factories in sectors such as chemical industries, sugar and food, shipbuilding and engineering, forest, jute and textile industries.

The nationalised industries were overmanned, performed poor in management and production. There were also stockpiled raw materials, maintenance materials, and finished goods. These industries required grants and subsidy to sustain in the face of incurring increasing amount of losses. The government formally adopted a policy shift towards privatisation in 1975 and started with denationalising public sector enterprises. Public sector, however, continued to dominate in the industry sector and a major portion of public investment was devoted to new capacity creation in chemical fertilisers and basic engineering while both private and public sectors invested in textiles and clothing. Significant promotional investments were made by the government by setting up of industrial estates for small and medium sized enterprise and the export processing zones to provide infrastructural facilities and other services for the entrepreneurs - both foreign and local. Public sector investment accounted for 35.6% of the total investment in manufacturing sector in 1990-91 and ever since, the share of public sector in new investments in manufacturing had been drastically reduced.

Initiatives in privatisation had not been very successful in Bangladesh. Disinvestment created an opportunity for the owners of black money to acquire industries at cheap price but a vast majority of these people did not have the experience and competence to run them. Many disinvested jute mills, textile mills and enterprises of other sectors became sick and demanded government subsidy, grants or low interest rehabilitation loans. To streamline privatisation processes and implement quicker disposal of the identified enterprises of public sector to private hands, the government established a Privatisation Board in 1993.

The main functions of the board include formulation and implementation of a privatisation policy, sale of identified state-owned enterprises with a view to reducing the burden and drainage of government resources and ensuring timely recovery of sale prices. For enterprises to be sold through tenders, the board invites bids which are evaluated by the board and placed before the ministerial council committees for final decision. The successful bidder is to pay 22.5% of the bid amount as down payment within 30 days. This is in addition to the 2.5% paid as earnest money. The balance of 75% is payable within five years in 6-monthly installments with a compound rate of interest of 9%. A rebate of 10% is allowed if the whole amount is paid at the first due date. In case of sale to association of employees, all claims and liabilities are adjustable with the bid amount and in case the successful bidder is a limited company, it is required to pay 20% as earnest money and the rest 80% within 60 days. Later in 2000, the government constituted the privatisation commission abolishing the Board with a view to fixing up the scope of the privatisation commission. The privatisation policy was finalized in 2001 and the privatization Act was enacted in 2007.

In 4 years between 1993 and 1997, the board identified 217 state-owned enterprises for sale/disinvestment and by 2010 it could transfer only 75 of them to the private owners. In a number of cases, the purchasers defaulted in payment of installments/dues. One of the major problems is the resistance from the employees of state-owned enterprises as curtailing the number of employees is often the first action taken by the purchaser of such enterprise. Buyers also hesitate to bid as they foresee that too often, under social or political pressure, they cannot fire employees of the purchased enterprises even if they are found inefficient or surplus. Buyers of divested units face difficulties in raising working capital from banks, as they cannot pledge assets as mortgages against loans until the purchase price is fully paid off. [M Habibullah]