SOEs in Pakistan, India, and Bangladesh

State-Owned Enterprises (SOEs) are a common feature in the economic landscapes of developing countries such as Pakistan, India, and Bangladesh. The performance of these SOEs has been a topic of debate and scrutiny. Some have thrived, while others have struggled to stay afloat.

This article offers an analysis of SOEs in these three countries, comparing their performance and examining the reform measures each has undertaken to improve the governance and profitability of these enterprises.

It also discusses the importance of retaining SOEs, emphasizing their crucial role in providing essential services and protecting the public from market manipulations.

State-Owned Enterprises in Pakistan

Pakistan’s experience with SOEs has been marked by both successes and failures. It has been noted that when the state run companies were managed in a professional manner, these companies achieved significant results, while the same companies registered steep decline when political and bureaucratic intervention stymied their growth trajectory with disastrous consequences.

Some SOEs, like Pakistan International Airlines (PIA) and Pakistan Steel Mills-which had shown consistent growth and financial success when run professionally- have faced severe financial challenges and inefficiencies, leading to substantial losses and requiring frequent bailouts in the last twenty odd years of massive mis-governance.

On the other hand, entities like Oil and Gas Development Company Limited (OGDCL) and Pakistan Telecommunication Company Limited (PTCL) have operated profitably, making significant contributions to the national economy.

Reform measures in Pakistan:

1- Professionalisation of management: One of the most critical reforms has been the professionalization of SOE management. Pakistan has taken steps to depoliticize SOE leadership and appoint qualified professionals, ensuring that decisions are made in the best interest of the organization and the public.

2- Privatisation: Pakistan has embarked on a privatization drive to divest the government’s ownership in select SOEs, thereby reducing their financial burden on the state and bringing in private sector efficiencies.

This approach has led to the successful privatization of various entities, including PTCL and Kot Addu Power Company.

The country has a robust privatization infrastructure both in terms of laws and institutions yet the results have not been too gratifying due to weak political will and ingrained bureaucratic inertia stalling privatization as far as possible.

3- Financial restructuring: Efforts have been made to restructure the finances of struggling SOEs. This involves recapitalization, debt restructuring, and rationalizing subsidies. For example, Pakistan Steel Mills underwent a financial restructuring process to reduce its financial burden without much palpable success.

4- Regulatory oversight: The establishment of regulatory bodies to monitor SOEs’ performance and ensure transparency and accountability has been a crucial reform. Regulatory agencies like NEPRA (National Electric Power Regulatory Authority) and OGRA (Oil and Gas Regulatory Authority) oversee the power and petroleum sectors, promoting fair practices.

5- Corporate governance frameworks: Under the watchful eyes of SECP (Securities and Exchange Commission of Pakistan), the country has most elaborate legal and regulatory framework providing an effective corporate environment for SOEs to operate.

Starting from the Companies Act 1984 as amended in 2017 followed by dedicated SOE Law 2023, Pakistan has implemented corporate governance frameworks to enhance transparency, including improved financial disclosure and internal controls within SOEs.

This framework if applied as per its spirit offers solution to mitigate issues related to mismanagement due to appointment of Boards of Directors on basis other than merit and consequent improved governance of these companies.

State-Owned Enterprises in India

State-Owned Enterprises (SOEs) in India have had their share of challenges, with some entities facing financial losses and inefficiencies. However, India has undertaken significant efforts to transform and turnaround these struggling SOEs, demonstrating that with strategic measures, these public enterprises can be revitalized to contribute positively to the economy.

These measures included Strategic Disinvestment, Performance-Linked Incentives, Mergers and Acquisitions, Autonomy and Decentralization and Public-Private Partnerships. Several SOEs in India encountered financial difficulties and inefficiencies due to factors like bureaucratic red tape, political interference, and outdated business practices. Some of these struggling SOEs included:

a) Air India: The national carrier faced severe financial woes, driven by mismanagement, increasing debts, and operational inefficiencies.

b) Bharat Sanchar Nigam Limited (BSNL): The state-owned telecom company was grappling with declining market share, outdated technology, and fierce competition.

c) Indian Railways: Despite being one of the largest employers in the world, Indian Railways faced challenges such as outdated infrastructure and safety concerns.

Successful turnarounds:

a) Air India:

• Strategic disinvestment: To alleviate the burden on the government and facilitate a turnaround, Air India underwent a strategic disinvestment process. In 2021, Tata Sons acquired a 100% stake in Air India, bringing in new management and financial resources.

• Operational improvements: Tata Group has committed to revitalizing Air India, enhancing service quality, and reducing operational inefficiencies. This has the potential to restore the airline to profitability.

b) Bharat Sanchar Nigam Limited (BSNL):

• Voluntary retirement scheme (VRS): To address the issue of overstaffing, BSNL introduced a VRS, reducing its workforce and associated costs.

• 4G Network expansion: BSNL embarked on an ambitious expansion of its 4G network, aiming to compete effectively with private telecom companies. This modernization has the potential to revitalize BSNL’s services and market presence.

c) Indian Railways:

• Dedicated freight corridors: Indian Railways initiated the construction of dedicated freight corridors to enhance the efficiency and capacity of its freight operations, reducing transportation costs and attracting more freight traffic.

• Stations redevelopment: The government has also undertaken the redevelopment of major railway stations to improve passenger amenities, making train travel more appealing.

State-Owned Enterprises in Bangladesh

Bangladesh’s experience with SOEs is characterized by both challenges and opportunities. Some entities, like Biman Bangladesh Airlines and Bangladesh Railway, have faced financial difficulties and inefficiencies, requiring government support. In contrast, enterprises like Bangladesh Telecommuni-cations Company Limited (BTCL) and Petrobangla have performed relatively well.

Reform measures in Bangladesh:

i) Capacity building: Bangladesh has focused on building capacity within SOEs, including skills development and training programs. These efforts aim to enhance the organizations’ ability to meet operational and financial challenges.

ii) Financial accountability: The government has enforced stricter financial accountability measures, such as auditing and compliance checks, to prevent financial impropriety and ensure that SOEs use public funds effectively.

iii) Restructuring and streamlining: Bangladesh has explored restructuring and streamlining SOEs to make them more efficient and cost-effective. This includes reviewing the organizational structure and optimizing resource allocation.

iv) Technology adoption: Promoting the adoption of modern technology and digital solutions within SOEs has been a priority. This approach helps improve service delivery and overall efficiency.

v) Public awareness: The government has initiated public awareness campaigns to educate citizens about the importance of SOEs in delivering essential services and contributing to economic development.

The need to retain SOEs: Protecting essential services

SOEs play a crucial role in providing essential services, such as energy, healthcare, and transportation, ensuring accessibility and affordability for the general populace. Moreover, they act as a safety net during economic downturns, preventing private entities from monopolizing vital services and exploiting consumers.

The debate surrounding the effectiveness of SOEs in developing countries is complex and multifaceted. Pakistan, India, and Bangladesh have each faced unique challenges and opportunities in managing their state-owned enterprises. While there have been instances of mismanagement and financial struggles, these countries have also witnessed successes and ongoing reform efforts.

Retaining SOEs in these nations remains essential to safeguard the interests of the general population and to maintain fair market practices. By implementing strategic reforms, enhancing transparency, and fostering innovation, these countries can harness the potential of their state-owned enterprises, ensuring they contribute significantly to national development while providing essential services to their citizens.

The path forward involves a delicate balance between public and private sector involvement, with a focus on optimizing efficiency and accountability in the operation of SOEs. Ultimately, the success of SOEs in these countries will depend on the commitment to reforms and the ability to adapt to evolving economic landscapes.

Copyright Business Recorder, 2023