PPIB seeks to dodge swinging sell-off sword

ISLAMABAD: The Private Power and Infrastructure Board (PPIB) has sought help from its Board for declaration of its status as essential State Owned Enterprise (SOE) aimed at avoiding privatisation or winding up, sources close to Managing Director PPIB told Business Recorder.

The State-Owned Enterprises (Governance and Operations) Act, 2023, (SOE Act) was promulgated on January 31, 2023, to provide for the governance and operation of the management and financial efficiency of state-owned enterprises owned and controlled by the federal government.

The SOE Act inter alia principally outlines the roles, responsibilities, governance structures, and accountability mechanisms for SOEs, which are entities owned or controlled, wholly or partially, by the government.

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According to PPIB, in pursuance of Section 4(1) of the SOE Act, SOEs ownership and Management policy 2023 was promulgated with the approval of the federal government. Clause 11 of the SOE Policy provides that each Division of the federal government, which has SOEs operating within its administrative control under the Rules of Business, 1973, shall categorise the SOEs under any of the following categories in consultation with the respective Boards, and shall submit its recommendations of such categorization to the Cabinet Committee on SOEs within six months of coming into effect of this Policy: (i) Strategic or Essential SOEs, which are defined under Clause 9 of the SOE Policy. The said clause defines “Strategic SOEs” to refer to….the SOEs which are completely/ partially engaged in strategic functions.

The strategic functions refer to the outcomes which have significant strategic, security, or social importance in addition to economic values for the country“; and “Essential SOEs” to refer to “… the SOEs which are critical for the execution of Government policies and where the private sector is unable to assume those functions…” due to various reasons including large/ intensive capitalisation, market stabilisation/ food security, sectoral/ market development, a natural monopoly/ oligopoly service provider and where there is no effective regulatory oversight of their operations, SOEs established or required to be established under any Law/ Statute and entities established through G2G or inter-governmental arrangements; (ii) commercial SOEs to be privatised.

Notably, the SOE Policy distinguishes between commercial and non-commercial entities. However, since PPIB is not a commercial entity, it does not fall within this particular category; (iii) SOEs required to be restructured/ reformed and retained in the medium-term; and (iv) SOEs required to be restructured/ reformed prior to privatisation.

PPIB maintains that for the purpose of establishing a Strategic or Essential SOE, the SOE Policy underscores the following factors, as set out in clause 10 of the SOE Policy, that need consideration by the Board for such categorisation: (i) there is no private sector firm operating within the relevant sector providing the goods and/ or services that the new SOE will provide or the service cannot be procured from private sector firm due to a legal restriction; (ii) the federal government needs to establish a particular market in any sector of the economy which will be supported by the creation of the SOE, provided that such SOE shall under no circumstances be given exclusivity in provision of services or goods and shall strictly adhere to the principle of competitive neutrality as required under the Act and this Policy; (iii) if a new SOE has been formed through the corporatization of an existing government function, the new SOE will be clearly categorised as either commercial or non-commercial; and (iv) the provision of the good and/ or service cannot be procured through a public private partnership.

Keeping in view the foregoing, it is evident and amply clear that PPIB does not fall under categories (ii) to (iv) listed under clause 11. It; therefore, needs to be determined whether PPIB is a “Strategic” or “Essential” SOE under category (i) of clause 11. From the perspective of the SOE Policy, it appears that the distinction between Essential and Strategic SOEs hinges upon and has been drawn based on their respective roles, functions, and significance to the government and the economy. In essence, the core test provided for identifying an SOE as “Essential” SOEs is that they are vital for implementing government policies and performing specific functions within the economy or society which cannot be assumed by the private sector.

They are deemed “essential” because the private sector lacks the capability/ expertise to effectively assume such functions, for reasons including that a particular SOE has been established or required to be established under any law or statute to perform a specialised function. On the other hand, the SOE Policy categorises an SOE as “Strategic” if it engages in functions that hold significant strategic, security, or social importance, beyond just their economic value for the country.

Accordingly, they are deemed strategic due to their pivotal role in advancing national objectives that extend beyond purely economic considerations.

In view of Section 3 (1) of the SOE Act, the Private Power & Infrastructure Board established under the Private Power & Infrastructure Board Act 2012 (as amended from time to time) (the “PPIB Act”) primarily to promote, encourage, facilitate private sector investment in the power sector and to safeguard the investments already made therein as a one-window facilitator on behalf of the Government of Pakistan, falls within the definition of “State-Owned Enterprise” under the SOE Act since it is an independent statutory body corporate owned and controlled by the federal government.

While from PPIB’s standpoint the distinction between the “Essential” or alternatively “Strategic” nature of its functions (as defined in the SOE Policy) is a fine one, since PPIB may often have to perform functions which may be partially (if not fully) strategic in nature as per its statutory mandate, upon a holistic consideration of the PPIB Act and the statutory mandate spelled out therein, the scales appear to tip heavily in favour of PPIB being categorised as “Essential” rather than “Strategic” within the meaning and for the purposes of the SOE Act and corresponding SOE Policy.

The key reasoning for this is that one of PPIB’s core statutory functions enshrined under preamble of the PPIB Act is the implementation of power policies amongst other critical functions such as development/ implementation of power projects and private sector investment facilitation.

Moreover, one of PPIB’s key functions and powers stipulated under Section 5(2) is to “recommend and facilitate development of power policies.” Furthermore, pursuant to Section 32 (Issuance of policy directives) of the PPIB Act, the federal government may as and when it considers necessary issue policy directives, not inconsistent with the PPIB Act, to the Board in respect of its activities and compliance of such directives shall be binding on the Board.

PPIB; therefore, has a pivotal statutory role with respect to formulation, implementation, execution and compliance of governmental policies.

Furthermore, PPIB performs a pivotal role spanning across multiple facets of the power sector which the private sector cannot perform and has been established pursuant to statute.

The foregoing elements which are the pinnacle of PPIB’s statutory mandate correspond to the features identified under Clause 9 of the SOE Policy for a SOE to be categorized as “Essential”. Accordingly, PPIB leans largely towards classification as an “Essential SOE” under the SOE Act and SOE Policy.

After explaining the background, PPIB has requested Board may accord approval to the categorization and classification of PPIB as an “Essential SOE” under Clause 11 of the SOE Policy.

Copyright Business Recorder, 2024