Auction of luxury cars by the PM’s Office

The recent announcement by the government regarding the sale of the luxury cars owned by the federal government has been lauded as an important step in their austerity drive. Yet, it also raises a lot of questions as to its effectiveness

The government has planned to auction off the luxury cars owned by the Federal Government. In this regard, the Prime Minister’s Office has issued a publication in print media to inform the general public that the auction will take place on September 17, 2018. These are as many as 102 cars, and the aim is to sell them above their present market value.

The conditions to participate in the bidding are mentioned in the advertisements, which ironically refer to the Procurement Rules, 2004, for the acceptance or rejection of the bids to be offered by the potential bidders. In fact, the auction has no nexus with Procurement Rules, as the same is being conducted for sale of vehicles and not for procuring goods, services or works from the public. The Procurement Rules are made pursuant to the Pakistan Procurement Regulatory Authority Ordinance, 2000, which defines Public Procurement as a means of acquisition of goods, services or construction of any works financed wholly or partly out of the Public Fund, unless excluded otherwise by the Federal Government.

In the current case, the relevant legal framework is provided under the Privatization Ordinance, 2000 (“the Ordinance”). The Ordinance requires that moveable properties owned by Federal Government can only be sold through the Privatization Commission of Pakistan, upon reference by the Federal Cabinet, after determination of a fair valuation of assets for the purpose of fixing a reserve price.

The relevant legal framework is provided under the Privatisation Ordinance, 2000. The Ordinance requires that moveable properties owned by Federal Government can only be sold through the Privatisation Commission of Pakistan, upon reference by the Federal Cabinet, after determination of a fair valuation of assets

In this regard, Section 2 (i and l) of the Ordinance states that (i) “privatization means and includes a transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person from the Federal Government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the Federal Government’. Similarly, section 2 (l) of the Ordinance defines property, and states that ‘property includes any right, title or interest in property, moveable or immovable and in whole or in part, and any means and instruments of production owned or controlled directly or indirectly by the Federal Government or any enterprise owned or controlled by the Federal Government whether in or outside Pakistan’.

A challenge that the government is likely to face on the day of the auction would primarily be the market value of cars, a bench mark that may be given to bidders as a base price. It appears from the terms of reference given in the advertisements that the market value of cars has been fixed by the government officials themselves. Considering that these cars are being sold to promote austerity within the government institutions, an attempt would be made to sell the cars on a maximum possible high price. The market value fixed by the government would thus be ambitious and may not reflect the actual market value of the cars.

In this case, the market values given to the public on the auction day will lessen the likelihood of the success of the sale of cars, as investors would make all possible efforts to buy cars for relatively less price.

Another aspect of the matter is that when the market values were assessed by the government, the officers entrusted to perform this duty are bound to fix a higher value on the cars in order to avoid the subsequent scandal of selling these cars at a throw away prices. Post audit of the transactions would also check whether the cars were sold at a reasonably prudent cost, so possibility of relevant officers facing audit objections or allegation to sell cars at a low price cannot be ruled out.

The fact remains that, for a successful auction, it was imperative that an independent analysis be made for the determination of market values and to give confidence to potential bidders. Before embarking down this route, the government should consider evaluating the base price of these cars objectively to ensure fairness of the process, and to fix a realistic market price

When considering this entire episode, one cannot forget the government’s move to promote austerity and to collect revenue for the treasury from the proceeds of the sale of these cars. The general public has applauded the measures being taken by the government and their promise to benefit the masses at the grass root level. So, there is a possibility that the government may use its goodwill among the business class to be successful in selling the cars at a price that exceeds their actual value. Some potential bidders may come forward to encourage the austerity campaign of the government, and purchase the cars at a higher value beyond market price. However, the chances of such an event are minimal, but cannot be totally ignored.

However, the fact remains that, for a successful auction, it was imperative that an independent analysis should have been made for the determination of market values, to give confidence to potential bidders. Before embarking down this route, the government should consider evaluating the base price of these cars objectively to ensure fairness of the process, and to fix a realistic market price. An independent and capable evaluation expert/firm should be engaged so that the cars in question are not sold at a throw away price. Having an accurate market value is not only mandatory for the purpose of an auction, it will also rule out possibility of collusion by bidders.

The writer is a graduate of University of London. He is an Advocate, High Court and is a Senior Partner at SaqlainArshad and Co.

Published in Daily Times, September 10th 2018.