ISLAMABAD: Ministry of Finance (MoF) has prepared a draft State-Owned Enterprises (SOEs) policy with technical support from Asian Development Board (ADB), aimed at improving their performance sans any special treatment.
The policy, drafted as an agreed IMF Structural Benchmarks (SBs) set in the 6th Review MEFP of EFF (February 2022) will be presented before the Federal Cabinet for final approval. The government will also announce measures to reduce losses of SOEs in the federal budget 2023-24.
Pakistan has around 200 SOEs, most of which are not performing optimally. The official list of 206 SOEs contains a number of subsidiaries of the SOEs and enterprises that would not normally be considered SOEs as they are not required to operate under the commercial mandate. Fifty to 60 SOEs are considered material, which together control over 97 per cent of assets held by all 206 entities.
The draft policy maintains that to improve the efficiency and access to capital it is imperative that all SOEs be identified for transformation to pursue private capital and private management expertise either through listing on the stock exchange, partial privatisation, contracting out or public private partnerships under the P3A Act 2021 as and when deemed appropriate.
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SOEs will not operate in sectors where private sector has potential to deliver goods and services in a competitive environment. In all sectors, the federal government will proactively introduce competition so that any SOE operating in that sector shall not have a dominant market position.
According to Finance Ministry, underperforming SOEs are burden on Pakistan’s economy and can weigh on medium to long-term macroeconomic resilience and growth prospects. The poor performance can be attributed to several factors: (i) lack of a consistent and overarching law that applies to all SOEs; (ii) lack of an overarching SOE ownership and reform policy; (iii) lack of a clear commercial mandate under which SOEs may operate; (iv) Board of Directors that are often incapable and ill equipped to government SOEs; (v) lack of effective centralized SOE ownership monitoring; (vi) lack of strategic view of SOE performance and accountability requirements; and (vii) limited transparency and effective accountability.
Ministry of Finance, through Central Monitoring Unit (CMU), will establish a central electronic database of information on the financial and non-financial performance of every SOE. The MoF will ensure the hiring of professionals in the areas of corporate finance, corporate law, strategic planning and management and capital markets to serve as CMU staff members. The database developed by the CMU will generate bi-annual reports for the review of CCoSOE. The database will contain financial and non-financial performance information for each SOE.
CMU will analysis SOE business plans and will present their analysis and recommendations to CCoSOEs for information and to SOE Management and Board for consideration. CMU will develop a monitoring framework for the SOEs against the financial non-financial benchmarks agreed in the business plan. The annual consolidated monitoring report of SOEs will be published on the website of the Finance Division at the beginning of the second quarter of each succeeding fiscal or calendar year (whichever is more appropriate).
Finance Ministry in consultation with the Law Division will develop a mechanism to reduce unnecessary interventions by investigative agencies and frivolous litigations against Directors, CEOs and Staff of SOEs. The mechanism to reduce unnecessary interventions by investigative agencies and frivolous litigation will be submitted to CCoSOEs for further instruction on implementing the proposed mechanism including, without limitation, any amendments in the applicable legal framework to be approved by the Cabinet.
According to the draft policy, no direction will be given to a SOE or Board of a SOE by any Division to perform any public service obligation or to bar from doing any operational function without the approval of the CCoSOEs or for any other assigned unit/ organization, without approval from the Federal Government through gazette notification. The process for directing a public service obligation set out in Schedule II of the SOE Act must be followed.
No SOE (or any subsidiary of an SOE or other federal government department) will be granted any special exemption which gives them an unfair competitive market advantage or maintain a dominant market position to the detriment or development of a sector unless notified by the federal government on a project-to-project basis. The federal government will ensure that SOEs do not enjoy any competitive advantages over their private sector competitors without objective justification, simply by virtue of their state ownership.
The policy will also envisage on reform plan which will include proposals for reforms of SOEs such as listing, restructuring and merger of some SOEs, entering into Public-Private Partnership (PPP), contracting out operations and asset sales.
Copyright Business Recorder, 2023
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