The Impact of Privatization on Financial Performance of Public Organizations in the Energy Sector of Pakistan

Abstract

Pakistan, ever since independence has been surrounded by social and economic problems. Also our leader who made it possible for us to achieve independence, Quaid-e- Azam, passed away very soon after our independence. The conditions of Pakistan were such that at that time the people in Pakistan were not strong financially, many being the ones who had left their belongings and migrated from the Indian part of subcontinent. Hence, the government had to take control. This is why the public sector had to be very strong, and still is today even. Although the trend of privatization is getting more common presently, there still is a long way to go. The main purpose of the research is to get an idea of the level of significance of the impact of a public company being privatized on the overall financial performance of that company, and to see whether that impact is positive or negative. The various aspects of the financial performance that will be focused upon are its profitability, liquidity, share value and debt to asset situation. Research will be conducted as such that a comparison can be made between the pre and post privatization period. The sector being focused upon in this research is the “Energy Sector” of Pakistan. Within this sector, convenience sampling method is used, where companies are chosen according to the ease of availability of information. The sample size is of three companies that have been privatized, in this case they are namely KESC, NRL, & SNGPL. The research is based completely on secondary research only. Financial reports, as is, are of no use unless the financial data available is analyzed properly. With the data available, various ratios will be calculated: profitability ratios, liquidity ratios, debt ratios, and ratios related to share value. For each company, these will be calculated for the pre privatization as well as the post privatization period and then the trend of these ratios is analyzed. After looking at the overall trend of all three companies, an overall conclusion is made. The main conclusions made from this research are that privatization does not effect the liquidity position of a company, but, however, does have a good impact on the stock prices, profitability and capital structure of the business. This however will vary from company to company and may be different for a different industry.