The Pakistani government and bureaucracy is once again attempting to assert control over the Pakistan Engineering Company (PECO) by invoking the Nationalisation and Economic Reforms Order of 1972, reigniting debates over state intervention in the private sector. This development has raised concerns among shareholders and industry experts, highlighting the enduring tension between bureaucratic authority and private enterprise in Pakistan.
The Ghost of 1972: Bhutto’s Nationalisation Policy Returns
For many proponents of a free market, the mention of the 1972 order brings back horrors. The Nationalisation and Economic Reforms Order, promulgated by then-Prime Minister Zulfikar Ali Bhutto in 1972, led to the nationalisation of 31 key industrial units, including PECO.
The policy which was initially aimed at redistributing wealth and consolidating state control over critical industries, has long been criticised for crippling private sector growth and stalling economic development.
For many, the nationalisation era marked the beginning of an economic downturn, characterised by mismanagement, declining productivity, and bureaucratic inefficiency. It was not until the early 1990s, under Prime Minister Nawaz Sharif, that Pakistan took significant steps toward economic liberalisation, reversing many of the policies introduced by Bhutto. PECO, along with several other state-owned enterprises (SOEs), was placed on the privatisation list, yet it wasn’t privatised.
More than three decades later, the company remains stuck in limbo—a half-state-owned, half-private entity suffering from political interference, mismanagement, and policy uncertainty, mainly because of change in a small percentage of ownership in 2003.
Now, with the government’s latest move, the specter of 1972 has returned, raising alarms among investors and the business community.
PECO’s Struggles Under State Control
Established in 1950, PECO was once a cornerstone of Pakistan’s engineering sector, manufacturing critical industrial and electrical products. During its heyday in the 1960s, the company employed thousands of workers, and even attracted a visit from the Chinese Prime Minister in 1964. However, the nationalisation policy of 1972 changed its trajectory.
Under state ownership, PECO struggled with inefficiencies, financial mismanagement, and a lack of innovation. By the late 1990s, the company was in financial distress. Recognising these issues, successive governments placed PECO on the privatisation list, hoping that private sector management would restore its competitiveness.
With the company accumulating losses of Rs2.12 billion by 2002. With no real trading activity and mounting liabilities, PECO became a financial burden on the state. The military-led government of General Pervez Musharraf and his finance minister, former Citibanker Shaukat Aziz, sought to finally privatise the company to stem further losses.
Placed on the Privatisation Commission’s “active list” in 2002, PECO was authorised to liquidate some of its prime land assets to pay off Rs1.8 billion in government-guaranteed liabilities.
In August 2003, PECO’s board secured the necessary approvals to sell the land, a decision that set off a rapid and controversial chain of events. This would mean that the company’s share was going to have much higher value than it was at the time of approval.
Within days, NIT—holding 21.24% of PECO—sold all its shares in what was described as a trading frenzy. PECO’s average daily trade volume surged from 48,727 shares to over 900,000 in the following month, sparking allegations of insider trading. It was also alleged that NIT’s sale of the shares prior to the land sale meant that the private industry buyers could get undue benefit from this deal, at the expense of NIT, a public entity.
A 2018 forensic audit by Javed Hasnain Rashid & Co. alleged that veteran investment banker Arif Habib and his associates, including Masood Ahmad Khan Soodi, orchestrated the share purchase through intermediaries.
While Habib denied any wrongdoing, arguing that he purchased his shares a year after NIT’s exit, the matter was investigated by the Public Accounts Committee (PAC), the Securities and Exchange Commission of Pakistan (SECP), and the National Accountability Bureau (NAB). Despite reports highlighting irregularities, no action was taken against the private investors.
In 2003, the National Investment Trust (NIT), which held close to 23% stake in PECO, sold its shares on the stock market. Prominent investor Arif Habib acquired a significant portion of these shares later, eventually increasing his stake to 25%. This shift in ownership dynamics sparked tensions between private shareholders and government-appointed management, as both parties sought control over the company’s future.
A Renewed Attempt to Reassert Bureaucratic Control
Despite being a publicly listed company, PECO remains partially under government control. This was made revealed on 26th February after the proceedings of a parliamentary committee meeting. Reportedly, the federal government is citing the 1972 Nationalisation Order to justify its decision to appoint a managing director, bypassing private shareholders.
This move has triggered backlash from investors, with Arif Habib taking the matter directly to Prime Minister Shehbaz Sharif and the Special Investment Facilitation Council (SIFC). Speaking to the National Assembly Standing Committee on Privatisation, Habib criticised the bureaucracy’s interference, arguing that PECO should be governed under the Companies Act 2017, not a relic of the past.
He highlighted the broader implications of such intervention, stating, “People say Pakistan is not progressing. Can it progress when small issues like the sale of shares remain unresolved for decades?”
Privatisation Delays and Bureaucratic Roadblocks
PECO’s privatisation has been stalled for years, with various government bodies failing to resolve ownership disputes. In 2023, the Cabinet Committee on Privatisation formed a three-member committee to settle the 23% share sale issue. However, no progress has been made, leaving PECO stuck in an uncertain state.
The Privatisation Commission has made it clear that PECO’s privatisation cannot proceed until the matter is resolved. Secretary Usman Bajwa stated that the Ministry of Industries continues to term the 2003 sale as illegal, even though the National Accountability Bureau (NAB) conducted two inquiries and found no wrongdoing.
Meanwhile, the company continues to suffer financially. Poor management, political appointments, and lack of strategic direction have led to massive losses. One former managing director appointed by the Ministry of Industries reportedly sold electric towers below production cost, highlighting the incompetence that has plagued PECO’s leadership.
The Special Investment Facilitation Council (SIFC), has been drawn into the PECO dispute. The government initially established the SIFC to counter bureaucratic inefficiencies and facilitate business-friendly policies.
The fact that investors like Arif Habib have sought the SIFC’s intervention underscores the persistent hurdles faced by private businesses in dealing with government entities. In a similar case last month, the SIFC removed a federal secretary who had delayed an export-related decision. It remains to be seen whether the council will take a firm stance against bureaucratic interference in PECO’s affairs.
Economic Consequences: Investor Confidence at Stake
The PECO case serves as a warning sign for Pakistan’s investment climate. The government’s attempt to assert control over a publicly listed company using an outdated law sends a negative signal to both domestic and foreign investors.
Such interventions undermine confidence in Pakistan’s regulatory framework, raising fears that bureaucratic overreach could deter future investments. At a time when the country is struggling with economic instability and a reliance on international lenders like the International Monetary Fund (IMF), policies that discourage private sector participation could further weaken Pakistan’s economic recovery.
As the dispute continues, a critical decision looms: should the government privatise PECO or attempt to revive it under state control?
Arif Habib, a key stake holder, has proposed a practical solution—selling a prime piece of land in Lahore to settle PECO’s outstanding liabilities. He has also suggested converting the site into a garments city, which could generate revenue and create jobs.
Alternatively, if the government insists on retaining PECO, it must undertake significant reforms, including appointing qualified management, restructuring its operations, and eliminating bureaucratic inefficiencies. Without these measures, PECO risks becoming another failed state-owned enterprise burdening taxpayers.
The PECO controversy is more than just a corporate power struggle—it is a litmus test for Pakistan’s economic governance. Will the government uphold investor rights and promote a free-market economy, or will it revert to policies that have historically stifled growth and created room for inefficiency in other SOEs like PIA?
