ISLAMABAD: The Ministry of Finance (MoF) has described the suo motu actions taken by National Accountability Bureau (NAB), Federal Investigation Agency (FIA) and judiciary as major factors behind slowing down or paralyzing critical business and financial decisions in the State-Owned Enterprises (SOEs).
On August 11, 2021, Ministry of Finance briefed the Cabinet Committee on SOEs (CCoSOEs) on the financial performance of public sector companies (commercial) during the period from 2013 to 2019.
There were 212 SOEs operating under the Federal Government in 2018-19. After a thorough review and consultation, the then Adviser on Institutional Reforms Dr Ishrat Husain created a consistency framework under which 83 subsidiaries of the enterprises were eliminated from the list as their financials were already included in the consolidated financial statements of their holding companies.
This left behind 129 enterprises which were further divided into commercial and non-commercial SOEs (Trusts, Foundations, Funds etc.) Under this categorization, 85 SOEs were classified as commercial and 44 as non-commercial.
Subsequently, the SOEs Triage Report (agreed with the IMF and the World Bank and approved by the Cabinet) excluded NHA from the list of commercial enterprises and in future only 84 SOEs would form the universe for analysis and reporting.
According to the Finance Ministry, there was a gradual deterioration during the five years as aggregate profits of Rs. 204 billion in 2013/14 turned into losses of Rs. 286 billion in 2017/18.
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The main contributory factors for these losses are as follows: (i) poor management choices; MDs/CEOs appointments in most cases were not based on merit but favoritism, nepotism and loyalty. The principle of the right person for the right job was hardly observed; (ii) weak governance and oversight; Board membership consisted of Government officers not familiar with the business of the enterprises whereas private individuals were by and large selected on political affiliation rather than professionalism and subject matter competence; (iii) Fear factor; fear of NAB, FIA, judiciary suo moto, and the media slowed down paralyzed or deferred critical business and financial decisions; (iv) Excessive audits but little accountability; multiple audits - statutory, external, forensic, ad hoc, and inspections by various agencies and frequent calls by the parliamentary committees and the department and Public Accounts Committee preoccupied the top management thereby ensuring strict procedural compliance rather than commercial risk taking with little accountability for performance outcomes; (v) Procurement difficulties; SOEs competing in the market with the private sector were handicapped as they had to observe the PPRA rules, and the time dimensions prescribed in the rules; (vi) flawed human resource management; political appointments were made at lower grades liberally over and above the requirements of the enterprises to accommodate their supporters putting huge burden on the financial health of the company. Pressures on management for appointments, postings and transfers, promotions resulted in mismanagement of resources and large deficits; (vii) Ministry officials' interference; there was too much interference in day-to-day operations by the officials of the administrative ministries who also benefitted from perks such as cars, accommodation, repairs and maintenance, etc, obtained from the SOEs adding to their recurring expenses; and (viii) Lack of automation; in most SOEs with a few exceptions, full automation of business processes avoiding direct contact between the officials and the clients, suppliers ,etc, has not been put in place enhancing the discretionary powers of the officials at the cost of transparency.
However, the survey of 85 commercial SOEs for 2018- 19, the first year of the present Government, shows the following picture: (i) relative to 2017 - 18 the total net losses (profits minus losses) incurred in 2018-19 were reduced by Rs.143 billion ,i.e., down from Rs. 286 billion; (ii) if NHA is excluded from the aggregate net losses, a positive turnaround of Rs. 176 billion during the first year of incumbent Government was witnessed; (iii) in all 33 enterprises made losses of Rs. 480 billion as compared to Rs. 548 billion in 2017-18, while 50 made profits of Rs. 336 billion compared to Rs. 261 billion in 2017-18 and one broke even. One was under liquidation; (iv) top ten loss-making enterprises reported losses totaling Rs. 429 billion or 89 percent of the total losses while top ten profit-making enterprises made profits amounting to Rs. 295 billion or 88 percent of the total profits; (v) nine enterprises including six Discos, PIA, Pakistan Railways and Pakistan Post showed a significant reduction in losses compared to the previous year while five enterprises increased their profits. Seven loss-making enterprises ended up the year showing profits; and (vi) the highest amount of losses were recorded by the power sector companies while the highest amount of profits was contributed by the oil and gas sector companies.
Sharing the way forward with the committee, Finance Division said that in order to contain the losses of the top ten loss-making SOEs the Cabinet has already approved the restructuring plans for PIA, Pakistan Railways and Pakistan Steel Mills while the Power Division is working on a plan for management contracts for Discos. The corporatization of NHA is under way.
Copyright Business Recorder, 2021
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