SOEs need road map

Talk about reforming state owned enterprises (SOEs) and then refloating them seems to be a favourite topic these days. Though everyone has been mindful of this facet of failing governmental operations, it was in early 2010 that the then minister of finance Shauket Tarin acted as a catalyst and consequently a Cabinet Committee on Austerity (CCoA) was constituted by the Prime Minister to prepare a roadmap for implementation and monitoring of the approved austerity measures.
Amongst the recommendations on these measures, the CCoA recommended the formation of a subcommittee under the heading of a Cabinet Committee on Restructuring (CCoR) for the restructuring of SOEs or public sector enterprises, which included the Pakistan Steel Mills, Pakistan International Airlines, Pasco, Pepco and Pakistan Railways. Nearly one year has elapsed with not much of progress for people to see.
Although it may not be a fact, but these SOEs are held responsible for an accumulative loss of Rs 300 billion and the huge weight that has on the national budget. And in case of Pepco, it is then wrongly stated that it alone is causing a loss of Rs 250 billion per year which the GoP has to bear. That the gap between the cost of service and the notified tariff - which the GoP is forced to subsidise instead of increasing power rates would be the cause, is convincingly forgotten.
Explaining the matter, we see that out of the above, more than Rs 200 billion is in fact the gap between the cost of services and tariff rates in the power sector. And inefficiencies not withstanding, this gap cannot ever be considered as a loss on account of some inherent fault in the working of the SOEs. More so, when for the KESC, which is a privatised entity, the same reaches above the Rs 30 billion mark.
That the best of management in the KESC with the full support of everyone who matters has not been able to help bridge this gap is something that needs fresh thought. That KESC's privatisation is an apt case against privatisation is another facet to reckon with.
Coming back to the reform process, we see that the CCOR has recommended the setting-up of independent boards which would necessarily mean the dissolution of earlier ones and nothing more. On the other hand, honorary directors from the private domain normally do not possess the capacity to manage the SOEs, which are inherently different in content and make-up in comparison to their counterparts in the private and the corporate sector, whereas nominees from the government itself can be much better because of the huge stakes they carry in the shape of their future careers.
However, it seems that nominations from the government side are not being encouraged now. Leaving aside the issue of BODs and the possible changes in the offing, there is a need to list the various issues that are hindering the up to mark working of the SOEs before any solutions are offered or then implemented.
We see that the main issues pertain to the present low capacity of the enterprises, inhibiting factors pertaining to human resource management and further development, lack of vision and goals (these change with each change in government), entrenchment of a mindset which is 30 years old and the ensuing lack of induction of new skills and technologies and lastly, the requirement for these SOEs to discharge the socio-political obligations of the government in power, instead of implementing the actual and original charter of the particular enterprise.
It is further seen that all the above facets of negativity result in great interference in the day to day working of the SOEs, which is both from within and that which comes from without. The interference is so large that in most of the cases the particular SOE is made to move in a direction which is totally skewed and different from the laid down charter(s). In case, the above is correct, then until and unless, all these five imperatives are not corrected, no SOE can profit in times to come. And the haemorrhage would continue.
What would be the recommendations. The first would be the setting-up of a committee to select the CEOs of these state owned enterprises. A set procedure would be adopted, whereby only professionals with relevant experience will get selected.
Additionally, it will have to be remembered that the age of the generalist is long gone. 1960 and onwards became the age of the specialist. That this age, after 1985, converted into the era of the super specialists also needs to be kept in mind before selecting the CEOs for the SOEs. The selected professionals will thereafter work on the enhancement of the core competencies of the organisations, which in turn, will support capacity building of the organisation.
It will also be of extreme importance to the then post-HR professionals for management and development of the existing resource of that organisation. The third of the requirements has to be the inculcation of the importance of the introduction of the latest skills and technologies in to the system through the appointment of high profile professionals as chief technology officers. In the ongoing Worldwide stampede to acquire new technology, such professionals play a great role and cannot ever be relegated to the back burner.
As a fourth step and in order to correct the direction of the present wavered way of doing things, the charter(s) and TORs of all SOEs would have to be redone. All this is of extreme importance because in many cases more than one entity or organisation seems to be doing the same job or at least is in the overlapping mode.
Moreover, the left does not know what the right is doing and consequently we have Enercon, NPO, EDB, PCSIR, PSQCA, Pepco, Wapda and a host of others in the overlapping mode with not much co-ordination between them. Regretfully, the ministries at the federal and provincial levels have also entered into the fray and would rather operate as implementation agencies while forgetting their policy-making status and herein, lies the seeds of intervention of the highest order.
Sadly, when asked, the ministries would reply that they only take-up operations when evidently the relevant SOE does not deliver. Some of the management experts have now come to the conclusion that the various MLDAs operating in the country are also in the process of doing the same. All in all, the people, the SOEs, the government (both federal and provincial) and even the MLDAs are in a thick soup. From this, it can be concluded that the SOEs need to be allowed to operate without interference and in accordance with their charters, vision and that this may be the only way in which these public sector enterprises could ever be restructured.
Another facet which requires to be highlighted is the issue of monitoring and audit of SOEs - both of the internal and external nature. By and by, the auditory edifices have been allowed to wither away. On the other hand, the Auditor General Pakistan's resolve to upgrade the government audit to international levels is highly laudable.
It is further known that it has been decided that the audit would be carried on the concurrent basis. In order to get benefit out of this development, improvement in the internal audit of the SOEs is of utmost importance. The best methodology for doing so would be to get competitors on deputation from the AGP's office duly strengthened with qualified professionals on the permanent payroll of the SOEs.
Until and unless, the above very cogent five steps are not taken, no SOE can be refloated. Simple dissolution of the existing BODs, formulation of new BODs, requiring BODs to select CEOs and steps including privatisation will not help in the current scenario. At the same time, government's ceding their obligations specially provision of services and letting the private sector take care of this aspect, can never be successful.