Blog Archives

Privatisation of public enterprises

A.B.M.S. Zahur

PUBLIC enterprises are created to achieve social goals (such as improved income distribution, job opportunities, development of depressed regions) to overcome market failures. Bangladesh public enterprises are categorised as “abandoned” (P.O 16), “nationalised” (P.O 27), “vested” (P.O 29) enterprises promoted by the then East Pakistan Industrial Development Corporation (EPIDC) and enterprises set up after liberation in 1971. These were created to break-even or to make profit. It was envisaged that they would operate along commercial lines with due weight given to other objectives.

The beginning of privatisation was informal in Bangladesh. The policy of divestiture was formally announced in 1975. Later, it was revised twice, in 1982 and 1986. As the public enterprises failed to fulfill the objectives behind their setting up, and as they could not play the proper role in economic development or ensure distributive justice, the government had no option but to allow private enterprises to participate more significantly in the national economic development.

A program of privatisation of public enterprises has been running for more than three decades and a Privatisation Board under a chairman with the status of state minister was set up in 1993, but privatisation could not gain momentum due to lack of a transparent, consistent and effective policy. Thus, heavy losses in public enterprises are still continuing and economic growth is being hampered.

The largest number of public enterprises is in the manufacturing sector. Energy and power, oil, gas, minerals and petroleum are control by the government. Due to resource constraints the government has to reduce its investment in the industrial sector. Self financed investments in the public sector should not be undertaken unless the enterprises are able to meet their debt servicing obligations on cash reserves and investments are viable without price control and subsidies.

Budgetary support is not provided to public sector projects. Instead, foreign and domestic sector investment is encouraged.

The government is in a dilemma because of the threat of global economic meltdown and its election commitment for reducing unemployment. It is striving hard to stay capable of facing any possible impact of the global economic crisis. Instead of total privatisation or no privatisation it may encourage public-private joint ventures. In choosing such a strategy it may go for agreement with foreign partners.

Due to less developed capital market, which plays a crucial role in fostering transfer of public enterprises, and low domestic saving a better option appears to be direct sale of public enterprises to overseas companies instead of gradual sale through domestic outlets. In case of strategic industries it is better to avoid foreign investment because such industries should not be controlled from abroad.

Bangladesh can never fulfill its vision 2021 unless there is substantial increase in investment. We need rapid development of infrastructure. Obsolete technology is to be replaced by modern technology to reduce cost and increase productivity and competitiveness of the industries.

It is reported that the government is considering announcement of a new industrial policy soon. The said policy should spell out its policy for privatisation clearly. There appears to be some difference of opinions between the finance minister and the minister for industries. While the finance minister needs reduction of budget deficits and less reliance on external borrowings, the minister for industries has to emphasise on increase of employment (an election pledge). Both the ministers have their points.

Partnership between government and foreign investors appears to be a good strategy under the circumstance. Simultaneously, the option of selling public enterprises directly to overseas companies to accelerate privatisation may also be considered seriously.

Our experience of privatisation is not so successful. Very few private enterprises have shown dynamism on transfer from public to private. Thus, a thorough analysis of the existing privatisation policy is needed to bring about a balance between growth and people’s interest.

 A.B.M.S. Zahur is a former Joint Secretary.

Source: The Daily Star, 03 June 2009

BNP govt sold out jute mills at throwaway prices

The BNP-led four-party alliance government had sold out a number of jute mills at throwaway prices at the fag end of its tenure in a bid to hand over them to the private sector.

The parliamentary standing committee on jute and textile ministry revealed this at a meeting held at the parliament building yesterday.

The committee also recommended scrapping the deals made by the previous BNP government to privatise three state-run cotton mills, as the buyers failed to comply with the terms and conditions.

The parliamentary body also asked the ministry to again invite tenders to privatise these mills.

Talking to reporters after the meeting, the standing committee Chairman Akhtaruzzaman Chowdhury said, “We have found out that a number of state-run jute mills were sold out at a very low price.”

For example, International Trading Company at Nikli, Kishorganj, has been sold at Tk 64 lakh, although the authorities estimated its price at Tk 2.59 crore, he added.

Even the market prices of these industries are several times higher than the prices estimated by the deputy commissioners, he said.

“We have asked the ministry to submit a detailed report on such irregularities at the next meeting of the committee,” Akhtaruzzaman said, adding that the committee will place its recommendations for action against the persons responsible on the basis of the report.

He also said, “The committee has recommended cancelling the privatisation deals for Olympia Textile Mills, Monno Textile Mills and National Cotton Mills as they did not pay money as per terms and conditions.”

Source: The Daily Star, 27 May 2009

Govt stand not against privatisation: Muhith clears Barua’s earlier remarks

Differing with a recent statement of the industries minister that the government will no more go for any privatisation, the finance minister told donors yesterday at a meeting that the government has not taken such a stand, according to the officials who attended the meeting.

Finance Minister AMA Muhith was speaking at the meeting with Local Consultative Group (LCG) comprising representatives of the multilateral and bilateral donors at the National Economic Council (NEC) auditorium at the planning ministry.

Towards the end of April, Industries Minister Dilip Barua at a workshop on the draft industrial policy had said the government would no longer take up any privatisation plan. The draft industrial policy also mentioned that no more state-owned enterprises would be handed over to the private sector.

In his first meeting with the donors, the finance minister asserted that it was the industries ministry’s own opinion, not the government’s, the officials said.

The government will make an industrial policy on consultations, Muhith was quoted as saying.

World Bank Country Director Xian Zhu and Economic Relations Division Secretary M Musharraf Hossain Bhuiyan co-chaired the meeting.

In the LCG meeting, the finance minister and Planning Minister AK Khandker put forward the government’s priorities and policies, and sought more donors’ supports to implement the government programmes.

The donors suggested Bangladesh Development Forum convene a meeting, which was not held after 2004.

The meeting is now expected to take place in early next year.

The LCG meeting agreed on holding sector-based specific discussion with the donors and the ministers concerned would be present in the meeting.

The donors will discuss soon with the government about civil service reform, energy sector, digital Bangladesh, climate change issue and transport and communications.

Officials said the donors stressed that the government’s concerns should come to the donors from a single high level of the government. Normally the government priorities are conveyed to the donors through the finance ministry.

A minister sent a letter to the prime minister of a country regarding a project keeping the finance minister in the dark, which embarrassed both the finance minister and the country concerned. More similar incidents occurred recently, donors indirectly raised the issue.

When the donors raised question about what the government would do about corruption, the finance minister said, they would show zero tolerance to corruption and take action against graft.

The finance minister also said the government is going to bring more changes in the public procurement regulations.

The donors expressed frustration over implementation of ADP and said if the government fails to implement ADP, disbursement of foreign aid will be difficult.

The planning minister said the government is working on developing a ‘Perspective Plan’ for the period of 2010-2021. He said: “I assure you that the reintroduction of the five-year plan is not going to dislodge our development strategies.”

After the meeting Xian Zhu told reporters that the government has projected its vision, priorities and strategies and sought assistance from the development partners in light of those.

Source: The Daily Star, 15 May 2009

Workers want Qaumi Jute Mills’ revival

Sultana Yesmin Mili . Sirajganj

Qaumi Jute Mills, Sirgajganj

Qaumi Jute Mills, Sirgajganj

Jobless employees and workers of the state-owned Sirajganj Qaumi Jute Mills have urged the government to reopen the mills.
   The military-backed interim government closed the mill on July 31, 2007 as it had been losing for years due to mismanagement. But the closure of the mill left around 5,000 workers and 400 employees jobless.
   Md Abdul Khalek, president, Sirajganj Qaumi Jute Mills Workers’ Union, said the production at the mills suddenly decreased due to lack of supply of spare-parts and quality raw-materials in time by the authorities concerned. Moreover, power disruption and some ‘un-productive workers and employees’ contributed to the loss of the mills. ‘If the Bangladesh Jute Mills Corporation monitored the mill properly and took action against the employees and workers who were not working, the mill would make profit,’ he said.
   Md Rawshan Ali, a jobless worker, said the money he got after the closure of the mill had already finished. ‘I am now struggling to survive.’
   Like Rawshan, many workers spoke about their endless struggle to earn living for their family.
   The project chief of the mill, Saydur Rahman, said the mill would be made viable should the government allocate about Tk 25 crore and write off the interest on loans. He was optimistic that the mill would repay the outstanding loans on instalments if it would run under an efficient management.
   The Qaumi Jute Mills was established at Raipur near the Sirajganj municipal area in 1961 on about 75.21 acres of land. The mill started productions in 1963 with 532 weaving looms.
   According to the mills sources, about 2,000 workers and employees used to produce 40 tonnes of jute goods in every sixteen hours. The products included carpets, jute-bags and sacks. After inauguration, the mills made profit from 1980 to 1982, but it incurred about Tk 250 crore loss for the rest of the time.

Source: The Daily New Age, 04 May 2009 

Privatisation is not solution: Prothom Alo should re-assess the issues to generate public opinion

The most popular national daily, The Prothom Alo publishes a editorial today captioned `Principle to stop privatisation of State Owned Enterprises is a impossible recommendation of Government’. The editorial says,  `inclusion of the principle in draft Industrial policy to not privatised any more state owned enterprises (SOEs) is a sudden decision of government and the government says that it will serve the interest of the nation. But how much it is real and true, will it serve the interest of nation or destroy; it demands more assessment’. The editorial also suggests that we should avoid any kinds of dramatic changes during the time of global financial crisises. The whole editorial tries to generate a public opinion for privatisation of the state owned enterprises.

As an ordinary people, I feel to ask the editor of this daily, what are the real scenerio’s of privatisaiton of state owned enterprises? Earlier a number of enterprises is privatised, what are the results? This is the time to assess. We should do it. Throught he newspaper, we read that the privatised enterprises are not activated; the owners of these enterprises have tried to sell the lands which are illegal according to privatisation laws. It is the real scenerio of Privatisation.

If the state owned enterprises make loss, it is the management problem. So, it is not solution to privatise these without thinking to improve the management of the enterprises. In the free market system, the financial institutions, most of the time to serve the interest of multi-national and transnational companies, prescribes and makes illegal pressure to government to privatise the state owned enterprises. Not only that, they are creating an environment of corruption, facilatating mal-practices within the enterprises, so that the enterprises make loss and they can show this proof for privatisation. It is the free-market corruption.

What are the impacts of privatisation? Job lossess! Inspire the bussiness people in politics to serve the vested interest of business which weaken the state! Generate Corruption! Low Wages for workers! Slavery in the workplaces! 

Before generating public opinion, we should think about the reality of our country. As a popular daily like The Prothom Alo, we demands more responsibility from them.

Half of the 74 privatised SoEs closed down

Almost half of the 74 state-owned enterprises divested in the past were closed down that raised question about the quality of ‘so called privatisation’.
    A total of 74 state-owned enterprises belong to textiles, jute, manufacturing, chemicals, food, leather and banking sector were sold out since the establishment of the Privatisation Board in 1993 and thereafter the Privatization Commission in 2000.
   Of them, 54 were divested through outright sale and 20 through off-loading of shares by suggestion of the lending agencies especially the World Bank.
   Among the privatised enterprises, which are still in business limp badly, they said.
   Serious questions can be raised about the privatisation process itself, said Bangladesh Enterprise Institute president Farooq Sobhan. He suggested changes to the existing privatisation process.
   Industries minister Dilip Barua, has, however, favoured a provision to halt privatisation of the state-run entities.
   He made his intention clear while unveiling the draft of the new industrial policy on Saturday at local hotel.
   ’Many privatised factories remain inoperative or non-functional under new ownership. In some cases, land is sold off after take-over,’ he said.
   Apart from 74 SOEs, some 24 SoEs have already been listed by the commissions to get them disposed off under a World Bank’s multi million ‘bank modernisation and enterprise growth’ project.
   Tenders have already been called for three SoEs.
   Around 305 state owned enterprises comprising industrial, commercial and financial institutions were put under public ownership in 1974-75.
   The size of the public sector enterprises have reduced considerably after the paradigm shift in the government’s economic policy towards privatisation.
   However, in name of privatisation successive governments sold out many viable SoEs at very cheap rate, said an official of the Bangladesh Forest Industries and Development Corporation.
   He said Wood Treating Plant at Daulatpur in Khulna was divested to private entrepreneur although the organisation was running on break event and employed more than 200 workers.
   A relative of the than privatisation commission chairman purchase the plant and curtailed more than 150 workers.
   The abortive attempt to privatise Rupali Bank, country’s fourth largest commercial bank, has added further burden on the government exchequer, said the finance ministry officials.
   The three-year long unsuccessful bargaining with A Saudi prince deteriorated the financial position of the loss making bank that was put on sale in 2005.

Source: The Daily New Age, 26 April 2009

No more privatisation of SoEs: Consultation meeting for industrial policy told

The government will no more privatise state owned enterprises (SoE), as successful bidders have not been using the divested SoEs for purposes they had promised, said Industries Minister Dilip Barua yesterday.

Barua also suggested bringing down interest rates to single digits, as according to him, high interest rates are a major obstacle to the country’s industrialisation.

He announced that the government has no plan to allow more Export Processing Zones (EPZs) in the near future, rather it is interested in setting up Special Economic Zones (SEZs).

Barua said the government will also review whether some closed SoEs could be reopened for generating employment.

It will not allow SoE buyers to use divested land for real estate purposes, as many of them have been doing, violating privatisation policies, the minister added.

“We have no plan to privatise any more state owned enterprises for the time being,” Barua said while seeking opinions from entrepreneurs, government high-ups, industrialists, chamber leaders, and other stakeholders concerned at a consultation meeting for formulation of the industrial policy 2009.

Seventy six SoEs have been privatised so far since 1994, and most of the divested entities are being used for purposes other than the promised ones said officials of the Privatisation Commission (PC).

According to the privatisation policy, buyers of divested SoEs must commit to continue the operations of the enterprises and rejuvenate them, but in most cases they actually change the nature of the divested SoEs and start completely different businesses on purchased properties including lands.

At the meeting held in Sonargaon Hotel of the capital, Barua said the new industrial policy 2009 will be prepared on the basis of the industrial policy for 1996-2000.

Chairman of the Parliamentary Standing Committee on Industries Ministry Tofail Ahmed attended the meeting as chief guest.

Barua said the government will identify some sectors on priority basis to provide bank loans. “Interest rates of those loans will be at single digits.”

In the proposed policy the minister identified agro-based and agro-product processing industries, ship building, renewable energy, tourism, basic chemicals, dyeing, chemical products, computer software and ICT products, and highly value adding readymade garment (RMG) industry as thrust sectors.

The other industries identified as thrust sectors are active pharmaceutical ingredients, herbal medicine, polymer, plastic, jute, leather, hospitals and clinics, light engineering, cosmetics and toiletries, furniture, diamond cutting and polishing, and handicraft.

The proposed new industrial policy also identified 17 sectors as controlled industries, and four as preserved.

The preserved industrial sectors are arms and other military equipment, atomic power, security printing, and technology adoption for forests and protected forestlands.

Barua announced that the government will also formulate a policy for making sick industries profitable, but noted that ‘the government will not allow anyone to do business in the name of sick industries’.

“We may make it mandatory to buy local products for government procurement, for the betterment of local industries,” he added.

Tofail Ahmed emphasised on establishing more backward linkage industries for sustainable industrialisation and for employment generation.

He suggested fixing industry friendly duties on imports, and incorporating the opinions of many more stakeholders in formulating the final industrial policy.

He also urged the government to impose protectionist measures to save local industries. “Many developed countries in the world are practicing protectionism to save their products, and we also have to do so to save ours,” he said.

He also requested the government to formulate an industrial policy that will increasingly attract foreign investment.

Economists and chamber leaders in their instant reactions urged the government to be more cautious in selecting bidders for divestible SoEs, so that public entities are not misused.

Dr MK Mujeri, director general of Bangladesh Institute of Development Studies (BIDS), said the government should be more cautious in selecting bidders for divestible SoEs.

“If the government could run the industries efficiently, we would be able to generate more employment. We should select good entrepreneurs for selling the SoEs,” Mujeri said.

Syed Nasim Manzur, managing director of Apex-Adelchi Footwear Limited, urged the government to modernise the processes of privatisation.

The authorities sell the SoEs to highest bidders, but the government does not notice whether the buyers have the ability or the mentality to continue and rejuvenate the operations of the divested public entities, Manzur, who is also a vice-president of the Metropolitan Chamber of Commerce and Industries (MCCI), said.

“The criteria for selecting the bidders should be modernised,” he said.

Source: The Daily Star, 26 April 2009

Oh! Privatisation

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