Arbitration: MoF to align SOEs law with global law

ISLAMABAD: The Ministry of Finance is reportedly working to amend State Owned Entities (SOEs), Act 2023 aimed at bringing the law in accordance with international law and barring local firms from signing pact with any firm for international arbitration, well-informed sources told Business Recorder.

According to the Finance Ministry, since the promulgation of the SOE Act, 2023, the concerned agencies including the ministries/Divisions and the SOEs under their administrative control have been facing issues in interpreting and implementing the law.

The Corporate Finance (CF) Wing of Finance Ministry has received proposals from various sources regarding amendments in the Law that may bring about more clarity and lead to a smoother implementation by concerned Organisations.

NA passes SOEs Bill

The Finance Ministry has deliberated upon issues faced by concerned organizations in implementing and interpreting the law and deliberate upon proposed amendments to the law thereon. The proposals regarding amendments in the law along with comments are as follows:

The first issue, which came under deliberations was that Federal SOEs designating foreign international forums for arbitration even for disputes with other federal/provincial SOEs.

The Finance Ministry’s proposal states that in chapter 11 of the SOE Act the following may be added: No SOE shall enter into any agreement or arrangement contractual or otherwise with any other SOE of the Federal, Provincial, Regional or Local Government or with any local, private or public entity which specifies any foreign or international forum for the resolution of their adjudication, disputes arbitration or any other means; Provided that the SOE may, where necessary, and with the prior approval of the federal government include provisions of dispute resolution by foreign or international forums in their agreements or arrangements with any foreign government or company owned by a foreign government or a foreign private or public entity.

Sec. 2(o), SOE is defined as “A corporate body falling within the scope of Section 2 of Act.” The definition is vague.

Section 2(j)(i) states “owning by the Federal Government is defined as a company in which the Federal Government holds 50 per cent shares. This makes bilateral investment companies in which both the governments have equal shareholding, SOEs may be replaced with a fairer definition. This definition is also in conflict with the Companies Act which in Sec. 2(54) defines government ownership of 51 per cent or more shareholding.”

Section 3(i) scope of the Act. The reference made to Sec.2 (54) of the Companies Act in defining the scope of the Act causes confusion in regards to applicability of the law, eg, PTCL which is a company under Sec. 2(54) of the Companies Act is also an SOE according to this definition. The applicability of the SOE law is to be reviewed.

Section 10(3); the procedure to be adopted by BNC for performing its functions shall be notified. Finance Ministry argued that this requirement shall add to administrative burden, it may, therefore be done away with. Finance Ministry’s Corporate Wing stated that the nomination and appointment procedure has been given in Annex 7 of the SOE Policy. Para 9 of the annex assigns the CMU to issue inter-alia detailed framework for Board appointment processes. This may be reviewed in light of the proposal.

Section 12: The Section provides that the Board of the Company shall include its CEO. This shall violate the principle of separation of Board from management. Finance Ministry has proposed that this Section may be reviewed to exclude from the Board. The Corporate Wing of Finance Ministry has supported the proposal saying that this Section may be amended as proposed. Moreover, since the Section is titled “Board of a Company,” it is not clear whether it also applies to statutory bodies or not.

Sec. 13(2): An independent director once appointed shall not be removed unless his disqualification has been established through an inquiry conducted in the prescribed manner. The Finance Ministry has proposed that the criteria for disqualification given thereunder are too stringent and shall make removal of a director almost impossible. The conditions of removal may therefore be reviewed.

Sec. 17(2): Procurement policies of SOEs shall be compliant with the Global Standards of Procurement and Supply of the Chartered Institute of Procurement and Supplies.

Finance Ministry maintained that the Standards are a competency framework for supply professionals and are not standards of procurement. Therefore, the reference to Global Standards of Procurement may be omitted.

Corporate Finance argued that it is not clear whether Sec.17 and 17(2) cover hiring of services of legal advisors’/law firms, or whether Rule 14(g) regarding consultation with Law Division shall still apply.

Sec 10(4) of the Act and Para 35 of the SOE Policy: Section 10(4) requires that the BNC shall apply the fit and proper criteria whereas para 35 mandates the same to the SECP.

The proposal is that the provisions of the Act and the Policy may be synchronized. Corporate Finance Wing of Finance Ministry has stated that two roles are distinct. Before recommending the candidates to the federal government, the BNC shall apply the Fit and Proper criteria based on information shared on same by SECP.

Schedule 1: The logic of including 4 specific entities and all section 42 companies schedule-1 as ’Entities on whom the law is extended“ is not clear.

Sec. 5(b) and Para 11 of the Policy: The issue is, Section 5(b) mandates the Privatisation Commission to recommend a privatisation program for approval of the Cabinet whereas para 11 of the policy assigns similar functions to CCoSOEs.

It has been proposed that the role of PC must be brought in sync with provisions of PC Ordinance 2000.

Copyright Business Recorder, 2024