Challenging the status quo: Tough decisions need to be made

Published: March 28, 2011

We know what needs to be done, but who will swallow this bitter pill?. CREATIVE COMMON

There are two broad types of decisions – a decision that yields good results or a decision that goes bad. When a decision yields good results, the management reinforces it strategies to ensure continuation. In case of a decision that doesn’t yield the right results, corrective action is taken. There is, however, one more type of decision called ‘indecision’ or ‘status quo’, which is something worse. The task of the management of a company or the state is to take decisions that enhance the value of the organisation for its shareholders. In Pakistan, maintaining the status quo has become the order of the day.

A few days ago the matter of Pakistan International Airlines discussing an arrangement with Turkish Airlines created a storm. Though widely “condemned”, there were sound analyses made by Dr Meekal Aziz Ahmed and Farooq Tirmizi in this newspaper. This was yet another case of maintaining the status quo by all stakeholders without realising the implications on the airline. What followed was that the airline’s employees went on strike, this crippled its operations, and forced the managing director to resign and the proposed arrangement was sent to the trash bin. In the end the loser was the airline and its passengers while the Turks must be wondering why we even got into this discussion with the Pakistanis.

While PIA is an organisation suffering from complex financial and operational issues, two other star corporations whose majority shareholder is the Government of Pakistan, are both healthy and wealthy but unfortunately, their management is not wise. These are the Oil & Gas Development Corporation (OGDC) and Pakistan Petroleum Limited (PPL). The Government of Pakistan owns 74.82 per cent and 69.8 per cent of OGDC and PPL respectively. Both the companies announce excellent year on year growth in revenues and profitability on a consistent basis. OGDC’s revenues and net profits stood at Rs81.09 billion and Rs31.59 billion respectively for the six-month period ended December 2010. This was a growth of 11.6 per cent in revenues and 10.8 per cent in net profits compared to a year earlier. Similarly, PPL also gave out “stellar” results for the same period. PPL’s revenues and net profits were Rs37.42 billion and Rs16.61 billion respectively showing a growth of 47.9 per cent in revenues and 70.3 per cent in net profits compared to a year earlier. What better news for the shareholders and management of the companies!

The worrying aspect for me is the exploration plan for the future. With the global energy demand on the rise and prices of energy being subject to volatility, our star companies, OGDC and PPL should be aggressively exploring in the fields under their control and expanding the operations for newer exploration fields. Pakistan needs to shield itself of price shocks of international energy prices and the effects of the volatility on the state finances and inflation. The only way we can do that is by taking calculated risks and increasing our production of oil and natural gas. Though OGDC and PPL claim that their exploration plans are aggressive, surprisingly they are sitting on cash balances and other financial assets of Rs24.15 billion and Rs33.09 billion respectively. In my opinion, these are very high percentages: 9.15 per cent and 27.5 per cent of the total balance sheet size. With no debt on their books, OGDC and PPL should be willing to take on the exploration program aggressively whilst mitigating the risks. Who would understand and appreciate the Pakistani hydrocarbon potential better than these two companies and their respective managements?

The million dollar question is who will take the initiative? Getting licences for exploration is one thing, but utilising your resources to make discoveries aggressively is completely another. The way things are happening in Pakistan, everyone wants to maintain status quo. The state-owned enterprises’ managements are likely to be the last in taking any initiatives. The reason is very simple: everything looks like a scam in the public sector. Firstly the media hounds someone, followed by opposition joining the bandwagon and the courts taking suo motu action. When the managements at these organisations are getting their salaries, perks and privileges and their organisations are showing year on year growth in profitability while the shareholders are getting very decent payouts in the form of dividends, why should they take risks of doing something better than what they are doing already? Maintaining status quo has become a national trait. Our next brain drain is not going to be because of better opportunities elsewhere but because of the risk of being labelled a cheat whenever you think out of the box and subsequently pressurised into inaction by protesting masses.

The writer is an investment banker based in Sharjah

Published in The Express Tribune, March 28th, 2011.

Reader Comments (6)

  • Meekal Ahmed
    Mar 28, 2011 - 9:55PM

    You make some very good points. Winning back confidence can be an onerous task. The public sector is tainted by the broad-brush of corruption which is difficult to erase.

    Intriguingly, the private sector is considered more honest. They or the media never talk of their corruption. It takes many forms: from under-filing your tax obligations and money laundering to price and market manipulation. Recommend

  • Ali Wahab
    Mar 28, 2011 - 10:33PM

    @Meekal Ahmed:
    Thank you Meekal Sahab, I am honored by your comment. One has to begin taking tough decisions. Our lack of initiatives are most discouraging.Recommend

  • MK
    Mar 28, 2011 - 10:55PM

    “One has to begin taking tough decisions.” Can you tell us who is the “One”? Govt. appoints OGDCL Chairman and board of directors, if I am not wrong. Analysts say OGDCL have circular debt issue which is the reason for low exploration activity. Government fails to reduce circular debt issue. Was this issue in Musharraf or Nawaz’s time? WHy is it so much harming the economy? No electricity and gas due to circular debt meaning the country will keep on suffering. WIll the “One” take any action?Recommend

  • RN
    Mar 29, 2011 - 8:36PM

    This is a very relevant issue. In a nutshell I’d say Pakistan is completely resistant to change as the result of a number of complex factors. Without question the government has to take the lead in making change. But really no one wants to break the status quo. So we’re pretty much stuck.Recommend

  • Syed Khurram Mohiuddin
    Mar 29, 2011 - 10:52PM

    I read somewhere that OGDCL and PPl are unable to initiate exploration projects because of weak cash position caused by the inter corporate circular debt and non payments of dues by power producers.Recommend

  • a khan
    Apr 10, 2011 - 12:41PM

    Fear of getting labelled corrupt is becoming a more major issue then corruption itself. Media turns every thing in to scam because they profit from creating this sensationalism.

    Strong libel protection laws are required to ensure that an incorrect allegation of corruption back fires and destroys the yellow journalists.Recommend

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