State-owned enterprises caused loss of Rs692 billion two years ago

PTI govt sets up committee to check SOE losses

ISLAMABAD: State-owned enterprises (SOEs) caused a colossal loss of Rs692 billion two years ago - a figure that was believed to rise further - but the government on Wednesday set up yet another committee to find a way to stop the bleeding despite having a solution at hand.

The Cabinet Committee on State-Owned Enterprises decided to set up a sub-committee to study the status and implementation of recommendations of the task force on austerity and government restructuring, according to a statement issued by the Ministry of Finance.

The cabinet committee discussed governance reforms with regard to SOEs and reconstitution of the board of directors of Sarmaya-e-Pakistan Limited, stated the finance ministry. Minister of Industries Hammad Azhar will chair the sub-committee.

The cabinet committee was informed by the Ministry of Finance that around 85 commercial SOEs were working under the administrative control of 19 federal ministries but the overall performance of SOEs had remained unsatisfactory despite a considerable financial support provided by the federal government from time to time.

The meeting was further informed that during fiscal year 2017-18, an amount of Rs143 billion was provided to various SOEs in subsidy, Rs204 billion in cash development loan, Rs27 billion in equity injection and Rs318 billion in sovereign guarantees. Despite such a large support amounting to Rs692 billion in a single year, the SOE sector, as a whole, registered net losses of Rs265 billion in 2017-18, according to the finance ministry.

A key reason for every government’s failure, including that of Pakistan Tehreek-e-Insaf (PTI), to undertake reforms in these enterprises was the vested interest of bureaucrats, who charged a hefty fee for attending board meetings of SOEs and a secretary or an additional secretary was a member of many boards at the same time, said sources in the ministry.

The finance ministry did not share latest figures of losses caused by SOEs but the earlier reported data suggested a massive increase in their losses in the past couple of years.

The sovereign guarantees, which stood at Rs1.55 trillion by the end of June 2019, surged to a record Rs1.9 trillion by the end of March this year, an increase of 21.5% in just nine months, according to budget documents. In its presentation, the Ministry of Finance attributed the poor performance of SOEs to various factors, particularly redundancies and duplications, a completely decentralised governance framework with a lack of inter-agency coordination, excessive interference and over-regulation by multiple government agencies and a lack of technical expertise and specialised skills in line ministries for the management of commercial SOEs.

However, instead of taking prompt action to close the loss-making enterprises or to revive them with financial injection, Cabinet Committee Chairman Dr Abdul Hafeez Shaikh decided to establish another committee. Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Husain briefed the meeting on the gist of proposals of the task force on austerity and government restructuring for the restructuring and reorganisation of the federal government.

Husain stressed that the task force’s proposals, which had already been approved by the federal cabinet and were being implemented at different levels by the federal government, could be the starting point for the cabinet committee to see and decide which SOEs were to be privatised, which were to be liquidated, wound up or closed down and which were to be reorganised and retained by the government or merged with other entities, said the finance ministry.

However, the meeting decided to set up another committee and called for taking the help of line ministries to reform the SOEs. The meeting asked Hammad Azhar to study the status and implementation of recommendations of the task force on austerity and government restructuring and report to the cabinet committee in its next meeting to be held soon.

The sub-committee, headed by Muhammad Hammad Azhar, would have representation from the Finance Division, Privatisation Commission and the office of the adviser to prime minister on institutional reforms and austerity.

The Ministry of Finance also briefed the cabinet committee on various steps taken for reforms and improvement in the SOEs governance framework.

It updated members of the committee about the legal framework being developed for the liquidation, privatisation and retention of SOEs under government ownership on the basis of economic rationale and financial performance.

However, it decided not to push further the agenda of reconstituting Sarmaya-e-Pakistan. 

Published in The Express Tribune, June 25^th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.