‘Strategic’ SOEs bereft of strategic merits

“There is no such thing as a strategic SOE.” This statement by Finance Minister Aurangzeb is spot on. However, bureaucracy influences the leadership by suggesting numerous SOEs (State-Owned Enterprises) as strategic to maintain government control.

What is missing in the country is strategic planning for human development, economic security, and environmental sustainability. Vulnerabilities abound, creating risks at multiple levels. Addressing these should be strategic in nature.

The SOE Act empowers line ministries to recommend which companies should be considered strategic and to influence their privatization. While certain functions within SOEs may be strategic, the entities themselves should not be. Strategic functions can be carved out from these entities, allowing the remaining operations to be privatized.

For example, in the case of PSO (Pakistan State Oil), its petroleum storage can be separated from its retailing business, where the private sector can bring in efficiencies. The country has no strategic oil reserves to handle emergencies, yet the bureaucracy wants PSO retail pumps to be considered strategic assets. Any disruption at the port could lead to petroleum shortages within weeks.

The country’s reliance on imported RLNG is growing, with discussions focused on building another FSRU. However, there is no strategic deliberation on building onshore RLNG storage for emergencies. The FSRU can only store gas for a few days, as new ships are constantly in the queue to offload.

How can NTDC (National Transmission and Dispatch Company) be a strategic SOE? In the UK, the national grid is privately owned, with gas and electricity supplied by private players. This could also happen in Pakistan. The objective is to provide uninterrupted energy supply efficiently, something NTDC in government hands is failing to do.

The country’s port infrastructure is in disrepair and has not been upgraded to meet growing import needs. Large volumes of oil and grains are handled at Karachi Port, and any accident there could cause food shortages nationwide due to a lack of oil. The strategic requirement is to upgrade port infrastructure.

Food security risk is also rising due to a lack of grain storage. Current laws consider any storage of wheat as hoarding, preventing the development of warehousing models where silos can be used. The recent import of around 2 million tons of wheat has created a supply glut, making it hard for farmers to sell or store their fresh production. This impacts growers’ incomes and could reduce cultivation next season.

Climate change is the biggest threat the country faces. Recent heat waves have brought unprecedented temperatures, with Delhi reaching 52°C. This could soon happen in Lahore. Last year’s floods caused severe damage, and the frequency and severity of such events are likely to increase. While Pakistan’s contribution to greenhouse gas emissions is very low, the country needs to adapt to climate change and become more resilient, requiring strategic lifestyle changes.

Human development should also be strategic. Educating the 28 million out-of-school children and improving education and skills for others must be a top priority. Reducing stunting and malnutrition should also be a strategic priority.

The point is that multiple threats are strategic in nature, and government resources should be deployed to address them. Reduced government involvement in business entities can free up financial and human resources to focus on public mandates.

The discussion of SOEs as strategic is a red herring, created by bureaucracy for self-interest to maintain their political and economic clout and continue to enjoy perks and benefits from board and committee positions. They used to claim PSM and PIA were strategic, yet these entities are now in disrepair, and the government is desperate to privatize them. Companies in the energy and other sectors should be privatized before it’s too late.

Copyright Business Recorder, 2024