Managing SOEs

Pakistan has about 197 state-owned enterprises (SOEs), reporting to 18 ministries and two divisions, according to the latest SOE performance report released by the Finance Ministry. Of this the Ministry of Energy (after combining power and petroleum divisions) boasts the biggest number (47 SOEs), followed by the Ministry of Industry and Production to which 36 SOEs report to, and then there is Ministry of Finance to which 31 SOEs report. The question is who would drive the SOE reform agenda. The answer, unfortunately, is still fuzzy.

First off, not all of those 197 SOEs are SOEs in the sense people imagine them to be. For instance, included in the list are a host of DFIs that are arguably contributing precious little towards infrastructural development but are surely not half as bad as the loss-making power discos or exchequer hammering Pakistan Railways, PIA, Pakistan Steel Mills. Also included in 197-member list of SOEs are many shops such as Furniture Pakistan or Horticulture Development Board that can easily be disbanded overnight without much fanfare or hue and cry. Just quietly put them to sleep!

The rationalised number comes down to about 140-150 SOEs, according to Naveed Iftikhar, a former Finance Ministry staff who had worked on the drafting of PSE Corporate Governance Rules 2013. He rightly flags that there is a lack of clarity in the government over which SOEs to sell outrightly, which to spruce up and then sell, which to disband overnight, which to sell in PPP mode and which to park in the holding company to hold on to till death does us apart.

One hundred days on and there is still lack of clarity over who is going to take this decision. The cabinet (de facto: finance ministry), or a task force reporting to it, or the ‘Sarmaya-e-Pakistan’ (the rumoured name of Pakistan’s answer to Malaysia’s Khazana), or the Privatisation Commission.

Nadeem-ul-Haq, former planning boss, favours the holding company model, where nearly all these SOEs are parked in one holding company that in turn can decide what to do with these assets. The benefit of that parking all of them in one holding company is that they will report their financial and operational to the parent company and thereby the stakeholders would know what kind of mess exists out there.

This is similar to the thesis previously offered by Nadeem Naqvi, former stock exchange boss, who would often argue to get SOEs, at least discos, listed on the exchange on the premise that sunlight is the biggest disinfectant. Only that enough sunlight has shone over PIA (and had shone over pre-privatisation KESC), but to little affect. So not very sure if holding company model can be very useful in absence of a hard task manager, say someone like banker and former finance minister Shaukat Tarin, who enjoys complete backing of the ruling party that in turn enjoys a strong political capital.

The word on the street so far is that all those companies, the privatisation of which require heavy political capital, will be parked in a holding company. These are reportedly 11 in number and include a few discos, PSM, Utility Stores, and PIA. Khazana model, as previously discussed in this space worked on autonomous board and management in a competitive business environment. In the absence of these key attributes, the government may be at the risk of creating one brontosaurus to replace many white elephants.

On that note, Vaqar Ahmed, Joint Executive Director at think tank SDPI, rightly points out that because the entity operating as a holding company will be big player in the market, the government should take the subject to the Competition Commission of Pakistan before going ahead with the move. It’s another thing that going to the CCP may well only be a formality.

But even if Khazana model is followed in toto, who is to take charge of the rest of the SOEs and decide their fate? Granted that Privatisation Commission has the power for restructuring SOEs, propose regulatory framework and assist in deregulation. But these are to be in the context of privatisation, whereas not all SOEs are expected to be up for sale, just as not all SOEs will make to Khazana model.

Therefore, it appears that it will either be the treasury office that will take charge, perhaps the Economic Reform Unit within it. Or, the SOEs that are not in the negative spotlight – say Pakistan Machine Tool Factory Pvt Limited (FY16 loss: Rs438mn) – will remain as they are enjoying freedom from transparency parked inside the dark corridors of the many ministries and divisions, and play parasites ever after.