The Asian Development Bank (ADB) and the government on Tuesday signed an agreement to lend $20 million to improve corporate governance, technical capacity and regulatory framework of Pakistan's privatisation programme. Dr Werner E Liepach ADB's Country Director for Pakistan and Mohammad Saleem Sethi Secretary Economic Affairs Division (EAD) government of Pakistan signed the loan agreement.
"The project will finance management, and financial consulting services to develop the capacity of Ministry of Finance to monitor the Public Sector Enterprise (PSE) portfolio, assess fiscal liabilities, identify and track potential issues, and oversee corporate restructuring of selected PSE. It will also strengthen the process by improving the corporate governance and management capacity of selected PSE, and strengthening governance and regulations in selected sectors dominated by PSE," said Dr Liepach.
PSE accounts for about 10 percent of Pakistan's gross domestic product (GDP) and thus comprise a major share of Pakistan's economy. Weak corporate governance and management issues have been resulting in their poor service delivery and bleeding of country's scarce financial resources with taxpayers ultimately bearing the brunt of these inefficiencies. The project seeks improvement in the governance and regulatory regime to ensure that efficiency gains in PSE are in line with interest of the general public and consumers. The assistance will help improve financial control and reporting through improved inter-agency co-ordination and online monitoring system at the Security and Exchange Commission of Pakistan (SECP).
It will also assist the Privatisation Commission in preparing a privatisation strategy and monitor the transaction. "The expected impact would be reduced fiscal and economic costs through improved management and governance of Pakistan's Public Sector Enterprises" Dr Liepach added. According to the Bank it will provide technical support to the government's PSE reform programme through the project. Technical assistance and expert advice will be crucial for the strategic restructuring work that many PSEs require before further divestiture can take place. The technical advice leverages government investments in PSEs and their reform before and during privatisation. The pre-transaction technical advice is expected to reduce the necessary adjustment costs during and after privatisation. For 2015, a policy-based programmatic assistance of $400 million in support of PSE reforms is in the pipeline of ADB's country operations business plan. This assistance could leverage the technical assistance to be provided under the project, and partly finance the government's adjustment costs.
According to the Public Sector Enterprise Reforms Project (RRP-Pak) PSEs are imposing high net costs on the government. Fiscal transfers to PSEs are estimated at several hundred billion Pakistan rupees, of which most are subsidies (Rs 512 billion in fiscal year 2012, of which Rs 464 billion for the power sector). In fiscal year 2013, the government released transfers of Rs 344.1 billion for PSEs in the energy sector, Rs 1.6 billion as equity injection for Pakistan International Airlines, and Rs 13.5 billion for PSEs in other sectors such as steel, stone, paper, and packaging. PSEs have accumulated a debt stock of Rs 573 billion as of December 2013. These figures do not fully reflect sovereign guarantees, asset depreciation, and other non-cash support such as waiver of interest and fees.
Successive governments in Pakistan have expressed concerns over the poor performance of PSEs and have vowed to revamp these entities, especially at times of increased awareness of their fiscal cost. However, efforts to improve the performance of key infrastructure PSEs have not been successful. The government has not had sufficient capabilities, institutional, technical, and legal to instil sustained improvements in PSE management. Encouraging commitments have been made since September 2013 under a new International Monetary Fund $6.7 billion extended facility.
In October 2013, the government identified 68 PSEs for privatisation, of which 31 PSEs are expected to be partially privatised. For profitable PSEs, divestiture is expected through capital market transactions. For more problematic PSEs, ownership and management control is likely to be partially transferred to strategic private investors. However, key constraints to successful and sustained PSE reform need to be urgently addressed to make the process successful and sustainable, maintained in the project documents.
Comments
Comments are closed.