Sovereign Wealth Fund hits legal snags

Pakistan's plans to sell stakes of its profitable energy companies to the United Arab Emirates (UAE) through the Pakistan Sovereign Wealth Fund (PSWF) have hit snags, as the government admitted on Tuesday that there was a lot of confusion and overlapping about the wealth fund.

"There are many confusions in the law [Sovereign Wealth Fund Act], therefore, it has not yet been made operational", said Nasheeta Mohsin, the acting finance secretary, while briefing the National Assembly Standing Committee on Finance.

The meeting was chaired by Syed Naveed Qamar of the Pakistan Peoples Party (PPP). Qamar, a former finance and power minister, was part of the previous Pakistan Democratic Movement (PDM)-led government that had framed the Pakistan Sovereign Wealth Fund Act in August last year.

"The original idea of setting up the Fund was to sell the fund-managed companies to the Middle Eastern countries, but after that so much has happened and it did not materialise," Qamar said. "The question is whether to retain the Sovereign Wealth Fund or not because there is so much overlapping," he added.

The government's first briefing on the affairs of the PSWF, which largely remains wrapped in secrecy, gave credence to the apprehension that the PSWF Act was passed by the government last year without putting much work in it.

"It seems the government does not have clarity on the functionality and the management of the Sovereign Wealth Fund and as a result the committee did not get a clarity", Qamar said, adding that the PSWF was in direct conflict with the Privatisation Act and the State-Owned Enterprises (SOE) Act.

The PDM government had enacted the PSWF Act to transfer shares of seven profitable entities in the first phase and then sell them overseas to raise money. These entities include the Oil and Gas Development Company Ltd (OGDCL), Pakistan Petroleum Ltd, Mari Petroleum, National Bank of Pakistan (NBP), Pakistan Development Fund, Government Holdings (Private) Ltd, and Neelum-Jhelum Hydropower Company.

Four of these companies earned a net profit of Rs386 billion in the fiscal year 2022-23, with OGDCL being the most profitable entity, earning Rs225 billion, according to a finance ministry report.

Last year, the UAE rulers had refused to give any new lending to Pakistan and instead asked Prime Minister Shehbaz Sharif to sell the stakes in its companies and also give seats to the UAE firms on these boards in return for equity investment.

But no deal has so far been materialised despite a push from the Special Investment Facilitation Council (SIFC).

Minister of State for Finance Ali Pervez Malik said that the supervisory council and an advisory council of the PSWF have not been made operational because of the prevailing confusion. He agreed that there was an overlapping of the wealth law with the privatisation and the SOEs laws.

Ali said that the envisaged purpose of the wealth fund was to utilise the assets of profitable companies for investing in other entities. The development came on the heels of the government's decision to rewrite the wealth fund law under pressure from the International Monetary Fund (IMF).

The Express Tribune had reported last month that Pakistan conceded to the IMF's demand to rewrite the PSWF Act. The IMF wants an end to secrecy in the fiscal and governance affairs of the wealth fund and to ban the direct sale of assets to foreign nations.

The IMF has also prohibited the State Bank of Pakistan (SBP) from lending money to the wealth fund. The PSWF will also be banned from providing loans to any government entity. Under the IMF condition, the fund will also be restricted to selling its owned and controlled companies only through international competitive bidding, abandoning negotiated sales.

In yet another major change, the wealth fund cannot retain revenues, which will now be surrendered to the national exchequer. The sovereign wealth funds are established by countries that have ample cash but Pakistan is a cash-starved country, National Assembly Opposition Leader Omar Ayub said.

The objectives of the fund are preposterous and badly farmed, commented committee member and a former foreign minister Hina Rabbani Khar.

However, it seems that the government was still under pressure to make the wealth fund operational. The finance ministry announced on Tuesday that it has reached out to 18 firms to make the wealth fund operational.

These are Accenture, Ernst & Young, Alix Partners, Grant Thornton, Alvarez & Marsal, IBM, Bain & Company, Kearney, Baringa, KPMG, Boston Consulting Group (BCG), McKinsey & Company, Bearing Point, Oliver Wyman, Capgemini, PricewaterhouseCoopers, Deloitte and Roland Berger. It has asked them to submit their proposals by the end of this month.

NBP

The standing committee also took a briefing from the NBP President and expressed concerns over the bank's growing interest in giving more loans to the government than the private sector.

Compared to Rs1.47 trillion cumulative loans given to the private sector, the NBP has given Rs4.4 trillion loans to the government. In the last year, it earned Rs215 billion profit from the loans that it gave to the government, which was equal to 78% of its total profits.

The NBP president informed the standing committee that the bank had made around Rs14 billion payments to the pensioners in light of a Supreme Court judgment and these payments wouldbe reflected in the end-June balance sheet.

The president admitted that the bank's non-performing loans were on the rise but said that there was no threat as these loans were adjusted against the profits.