President removes hurdle to sacking DISCOs’ boards

Promulgates ordinance that empowers govt to remove independent directors of SOEs

Shahbaz Rana June 07, 2024
President Asif Ali Zardari addressing a joint session of Parliament on April 18, 2024 in Islamabad. PHOTO: X/@NAofPakistan


Hours before the start of parliamentary sessions, President Asif Ali Zardari promulgated an ordinance to remove a legal hurdle that had prevented the government from sacking the boards of all loss-making power distribution companies (DISCOs).

President Zardari promulgated the State-Owned Enterprises Governance and Operations Amendment Ordinance 2024 with effect from June 5, 2024. The ordinance was issued just a day before the scheduled sessions of the National Assembly and Senate, indicating the government’s preference to use ad hoc measures instead of bringing a bill in parliament to amend the law.

The life of an ordinance is up to eight months, including a four-month extension from the National Assembly. Through the ordinance, the government has secured temporary legal powers to remove the independent directors appointed on boards of state-owned enterprises (SOEs).

The government has made amendments to three different sections of the SOE Act 2023, which had become a hurdle in the way of implementing Prime Minister Shehbaz Sharif’s decision to sack the boards of eight DISCOs.

Major changes have been made in Section 13 of the SOE law. According to the pre-ordinance law, a director, once appointed, shall hold office for a period of three years, unless he resigns in writing or is removed earlier in accordance with provisions of this Act.

Through the ordinance, the government has inserted two conditions. The first condition says “provided that for reasons to be recorded, the federal government may remove a director or directors on the recommendation of the board nomination committees”.

Another provision has been added in sub-section 2 of Section 13, which states that directors can be removed without any inquiry on the recommendation of the board nomination committee.

“Save for as provided in the proviso to sub-section 1 of Section 13” an independent director, once appointed by the federal government, shall not be removed unless it is established through an inquiry conducted in the prescribed manner”, according to the ordinance.

Headed by Power Minister Sardar Awais Leghari, the board nomination committee on May 2 recommended the removal of directors of all 10 DISCOs. However, the PM allowed the sacking of directors of eight companies except for Hyderabad and Sukkur DISCOs.

The Express Tribune reported last week that PM Sharif’s plan to weed out political influence from the boards of eight DISCOs hit the first major roadblock after pushback from various quarters.

The SOE Act had become effective from January 2023 but the boards had been appointed prior to that.

The board nomination committee recommended the PM to remove the boards on allegations of causing a colossal loss of Rs589 billion due to the “alarming indicators of bad governance and poor performance”.

These boards had been appointed during the tenure of Pakistan Democratic Movement (PDM) government.

The PM had authorised the Power Division to seek approval of the Cabinet Committee on State-Owned Enterprises for removing the existing directors and replacing them with the new ones. Subsequently, the cabinet committee endorsed the PM’s decision.

Immediately after the decision was made public, the backers and members of the boards had started pressurising the government. They also threatened to take the government to court on the ground that the boards had been constituted for three years and their tenures had the statutory protection.

Now, the government has removed the legal threat by promulgating the ordinance.

The government has also made amendments to Section 4 of the SOE law and reduced the purview of the SOE policy by excluding the process of evaluating the performance of ex-officio and independent directors from its domain.

Now, through an amendment to Section 10, a new section 3A has been inserted which states, “In carrying out its functions under Clause C and D of sub-section 2 of Section 10, the board nomination committee shall evaluate the performance of a director or directors of a state-owned enterprise based on the objective and principles laid in Chapter 2, 3 and 4 of this Act, to the extent applicable to a board of state-owned enterprise.”

PM Sharif during his last tenure had formed these boards between July and November 2022, primarily based on coalition partners’ recommendations, resulting in appointments of politicians and their relatives.

The Power Division had informed the Cabinet Committee on SOEs that due to the dismal state of affairs, all 10 government-owned DISCOs would incur losses of Rs589 billion in the current fiscal year.

Published in The Express Tribune, June 7th, 2024.

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