Cabinet body okays draft law for state-owned enterprises

Move aimed at stemming colossal annual losses of over Rs700 billion

Shahbaz Rana September 01, 2020
As part of a condition of an international financial institution, the government has now proposed a new law to stem SOE loss-es. PHOTO: REUTERS


A cabinet body on Monday approved, in principle, a draft law for state-owned enterprises (SOEs) that is aimed at putting in place a structure to stem colossal annual losses of over Rs700 billion and save their office-bearers from undue chase by various investigating agencies.

One of the clauses of the proposed law gives indemnity from the National Accountability Bureau (NAB) inquiries, until the matter is referred by a secretary-level committee to the anti-corruption watchdog, according to finance ministry officials.

Headed by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh, the Cabinet Committee on State-Owned Enterprises (SOEs) cleared the draft bill on SOEs. After the committee’s green signal, the draft will now be reviewed by the Finance Division and the Ministry of Law before sending to the federal cabinet for approval.

However, the Cabinet Committee on SOEs once again remained indecisive about making the defunct Sarmaya-e-Pakistan Limited (SPL) - a brainchild of former finance minister Asad Umar, operational. The committee did not take decision to either shelve or make SPL operational.

Before coming to power, the Pakistan Tehreek-e-Insaf (PTI) had dubbed SPL a solution to all ills of public sector enterprises (PSEs).

The finance adviser gave directive that the proposed SOEs law may be reviewed further in consultation with the line ministries, divisions and the law ministry, according to a statement issued by the Ministry of Finance after the meeting.

PSEs are causing huge annual losses and during the past two years the PTI government neither privatised them nor could restructure them. As part of a condition of an international financial institution, the government has now proposed a new law to stem their losses.

The main purpose of the proposed law is to put in place a professional structure to run these organisations professionally. Under the proposed law, the Cabinet Committee on SOEs will decide the policy matters of SOEs and a central monitoring unit at the finance ministry will monitor their working.

There will be a nomination committee for appointing directors on boards of SOEs and a majority of members will be from the private sector. For the appointment of board members, the government will first advertise the positions aimed at complying with a judgement of the Supreme Court of Pakistan.

The chief executive officer of the government-owned company will be appointed by the board as against the current practice of being appointed by the government, said the officials.

As per the proposed law, the management of the enterprise and the board will prepare a three-year business plan.

The preferential treatment enjoyed by government entities has been proposed to be withdrawn and these companies will be treated on a par with private sector companies.

At the same time, the public sector companies will have freedom to make their own policies, including procurement plans, and will not be restricted by the Public Procurement Regulatory Authority (PPRA) rules, said the officials.

However, the decision of following their own policies, independent of the government policies, will be taken by the Cabinet Committee on SOEs in each case, according to the finance ministry officials.

According to a critical proposal, NAB will not have direct jurisdiction over public sector companies, said the finance ministry officials. A committee, headed by the secretary of the ministry concerned, will first have a look at the complaint against officials and board members, said the official.

In case the committee has reasons to believe that some wrongdoing has happened, it may refer the case for further investigation, they added.

The statutory companies will also be covered under the proposed SOES law. The regulatory bodies, the government educational institutions and section 42 non-profit companies would not fall under the jurisdiction of the proposed law, said the officials.

SPL fate

The cabinet committee did not take a decision on the fate of the SPL -for the consecutive second time. The committee had been requested to take a decision whether to revive the SPL or shelve it, according to the officials.

After Asad Umar’s exit as finance minister, SPL became dormant and out of eight, six members resigned from their positions. Umar wanted to restructure the loss-making enterprises but the government took a U-turn after Shaikh became the finance adviser. Shaikh revived the stalled privatisation programme but in the past one year nothing moved forward.

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.

In 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

The Ministry of Finance had also sent the summary for consideration of the Cabinet Committee on State-Owned Enterprises for completing the board of SPL. The cabinet committee did not approve the summary.

The finance ministry handout also stated that the finance adviser was given a detailed briefing on the triage of State Owned Entities. The triage was undertaken for liquidation, privatisation and retention under government ownership, on the basis of economic rationale and financial performance of SOEs.

The committee discussed in detail the proposed SOEs for retention, privatisation and for restructuring. The adviser directed that the list should be reviewed and revisited till the next meeting and a new category may be introduced in the list where ownership may be retained by the government and the entity can be operated by the private sector for better management.

There was also a proposal on the Forensic Audit of Major Loss Making SOEs on the instructions of the prime minister. The chair directed that before taking a final decision on the proposed forensic audit, detailed information on the following aspects may be shared with committee in its next meeting.

Published in The Express Tribune, September 1st, 2020.

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