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TMCNet:  The growth of the

[December 24, 2012]

The growth of the "billion dollar club" in Pakistan

(Express Tribune (Pakistan) Via Acquire Media NewsEdge) Corporate Pakistan seems on the verge of hitting some sort of tipping point: the number of companies reporting revenues of higher than $1 billion over the past two years has grown dramatically.



While there is currently no Pakistani corporate colossus that spans the globe, and certainly no Pakistani equivalent of Tata Sons, many Pakistani companies appear to be growing in size and are reaching the stage where they may begin to consider global expansion. The growth in size of some of these companies is also likely to have a significant impact on the economy as a whole.

In this special report, The Express Tribune takes a look at the 19 companies that are part of the “billion dollar club”, companies that have reported more than US$1 billion over a financial year. We have taken revenues net of any sales taxes or federal excise duty, unless such a number was not available, in which case we have simply taken the number reported by the company on its financial statements.

We recognise that revenues are by no means a perfect measure of looking at how big companies are. But given the relatively small size of Pakistan’s public equity markets, we felt that many other measures - such as profits or market capitalisation - would provide too narrow a picture of the economy since such information would not be available for a large number of companies.

For the exchange rate, we have used the average interbank exchange rate during the financial year ending June 30, 2012. We recognise that the dollar is currently trading significantly higher now than it did last year, but we decided to use the exchange rate that corresponds with the period under consideration.

For banks, we have used their net interest income - before taking into account any impact of loan write-offs and provisioning for bad debts - and added their non-interest-based income.

We have also not included any conglomerates that do not have a unified holding company that releases public data. So, for instance, the Nishat Group does not make the list because there is no single holding entity, but instead a series of interlocking ownership between the companies, owned ultimately by Mian Muhammad Masha and his family. Were it a single company, the Nishat Group would most certainly be part of the billion dollar club.

We have also excluded such conglomerates as the Atlas Group, which does have a unified holding company - Shirazi Investments - but does not report its consolidated financial information publically. Were that data available publicly, we estimate that it would easily qualify to be part of the list.

Nonetheless, the list we have compiled is a remarkable one and tells the tale of what has been going on in the Pakistani economy. The most noticeable element of the billion dollar club is just how many of them are state-owned, and how a disproportionately large number of them are in the energy sector. Indeed, all but three of them are energy companies and eleven of them (more than half of the list) have substantial shareholding - in most cases the majority - by the government of Pakistan.

And this list does not even take into account the many government entities that are part of the energy chain, but for which no reliable data is available. The best estimate we have been able to get is for the National Transmission and Dispatch Company, which reportedly had revenues of nearly $5.5 billion.

The picture painted by the billion dollar club is a decidedly unhappy one: where the largest companies in the country are mostly state-owned, and operating highly inefficiently, compared to their private sector counterparts. Many of these companies are, at least in theory, up for sale, though the current administration, led by the left-leaning Pakistan Peoples Party does not appear to be in the mood to revitalise the privatisation process.

The energy sector typically does have higher revenues than most other sectors, and similar lists compiled for developed economies also yield lopsided results favouring energy, particularly the oil and gas sector.

Yet the dominance of state-owned companies on this list represents the outsized role played by the state in creating large-scale industries in Pakistan. This is a pattern of development that has historically been adopted by other countries too. Some of the largest companies in Brazil and Mexico, for instance, are still state-owned.

But in most cases, governments have unlocked the massive untapped economic potential of these slumbering state-owned giants by eventually privatising them. Pakistan has certainly experimented with that technique, to a considerable degree of success. The banking sector went from being overwhelmingly state-owned to overwhelmingly private-owned and has gone from needing bailouts every year to being one of the biggest taxpayers in the entire economy.

The energy sector, however, appears to be one area where the government refuses to let go, retaining control over nearly all of the electricity supply and most of the oil and gas exploration and distribution systems in the country.

This is not to suggest that there is no private-sector presence in the energy sector. Three of the 19 “billion dollar” companies are part of the Attock Group, a private sector energy conglomerate owned by Saudi billionaire Ghaith Pharaon. The largest electricity companies - the Karachi Electric Supply Company and the Hub Power Company - are both mostly owned by private investors.

The only two private sector non-energy companies on the list are the Engro Corporation and Pakistan Mobile Communications. Engro is a large industrial conglomerate with interests in fertilisers, food, petrochemicals, energy, chemical storage, and commodity trading. PMCL operates under the brand name Mobilink, the largest mobile services provider in Pakistan.

Nonetheless, while the billion dollar club illustrates where this economy has been - a large dominance of the state in capital-intensive industries - our “near billion dollar club” list shows where this economy is going: a place where global and local companies compete for an every greater share of the rising middle class consumers’ pockets.

The Billion Dollar Club 1. Pakistan State Oil Company Revenues: $11.57 billion Joined club: Before 1986 Pakistan State Oil is the largest oil marketing company in the country, with a 67% share in the retail fuel market. It is owned by the government of Pakistan and was established in 1976.

2. Pak-Arab Refinery Revenues: $3.00 billion Joined club: 2000 Pak-Arab Refinery (PARCO) is the largest oil refining company in the country. It was set up in 1974 as a joint venture between the governments of Pakistan and Abu Dhabi.

3. Sui Northern Gas Pipelines Revenues: $2.52 billion Joined club: 2004 Sui Northern Gas Pipelines is one of three gas distribution companies in Pakistan, with mandate to supply gas to Punjab and Khyber-Pakhtunkhwa. It is owned by the government of Pakistan.

4. Shell Pakistan Revenues: $2.38 billion Joined club: 2000 Established in 1928 as Burmah Shell, this company is the oldest oil marketing company in Pakistan and the second largest. It is the Pakistani subsidiary of global oil giant Royal Dutch Shell.

5. Oil & Gas Development Company Revenues: $2.23 billion Joined club: 2005 OGDC is the largest company in the country by market capitalisation as well as being the largest domestic oil producer. It is owned by the government of Pakistan.

6. National Refinery Revenues: $1.97 billion Joined club: 2005 The second largest oil refinery in the country by revenues, National Refinery is one of two refineries owned by the Attock Group, the largest private sector oil conglomerate in Pakistan.

7. Hub Power Company Revenues: $1.97 billion Joined club: 2009 Hubco is the largest private sector power generation company in Pakistan and originally established by French power companies. It is now owned in part by the Dawood Hercules Corporation.

8. Karachi Electric Supply Company Revenues: $1.84 billion Joined club: 2008 Established in 1912, the Karachi Electric Supply Company is the oldest utility company in Pakistan and the oldest company still listed on the Karachi Stock Exchange. It is owned in part by Abraaj Capital.

9. Attock Refinery Revenues: $1.74 billion Joined club: 2008 The third largest oil refinery in the country by revenues, Attock Refinery is one of two refineries owned by the Attock Group, the largest private sector oil conglomerate in Pakistan.

10. Attock Petroleum Revenues: $1.72 billion Joined club: 2010 APL is the second-largest private sector oil marketing company, with more than 350 retail outlets across the country. It is owned by the Attock Group, the largest private oil conglomerate in Pakistan.

11. Lahore Electric Supply Company Revenues: $1.49 billion Joined club: 2006 Lesco came into existence in its current form in 1994, when the government of Pakistan split up the state-owned power distribution company into regional groups. Lesco remains state-owned.

12. Pakistan Refinery Revenues: $1.44 billion Joined club: 2011 The oldest oil refining company in Pakistan, PRL is one of only two refineries that is still at least partially state-owned. It is set to become the smallest after Byco’s new refinery comes online in 2013.

13. Sui Southern Gas Company Revenues: $1.38 billion Joined club: 2005 SSGC is the second largest gas distribution company in the country, serving the populations of Sindh and Balochistan. It has remained state-owned since it was created in its current form in 1989.

14. Pakistan International Airlines Revenues: $1.36 billion Joined club: 2005 Founded in 1956, Pakistan International Airlines is Pakistan’s national flag carrier. This company is begrudgingly included in the billion dollar list, since its expenses vastly exceed its revenues.

15. Engro Corporation Revenues: $1.29 billion Joined club: 2011 It is one of the largest private sector industrial conglomerates in the country with interests in fertiliser manufacturing, food, energy and others. Its largest shareholder is the Dawood Hercules Corporation.

16. Pakistan Telecommunications Company Revenues: $1.25 billion Joined club: 2000 PTCL was once a monopoly provider of telecommunications services in Pakistan and is still the largest player by revenues. It is jointly owned by the government of Pakistan and Etisalat of the UAE.

17. Kot Addu Power Company Revenues: $1.14 billion Joined club: 2012 Kapco is the second largest power generation company in the country. It is partially owned by the government of Pakistan and supplies power to southern Punjab.

18. Mobilink Revenues: $1.11 billion Joined club: 2006 Formally known as Pakistan Mobile Communications Ltd, Mobilink is the largest telecommunication provider in Pakistan and is owned by Egypt-based Orascom Telecom.

19. Pakistan Petroleum Revenues: $1.09 billion Joined club: 2012 PPL is the second largest oil exploration and development company in the country and is majority-owned by the government of Pakistan. It was founded in 1950 as the subsidiary of a British oil firm.

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