Reviving ailing PSEs - II

The last week's column identified the key gaps observed by the incumbent government in the public sector enterprises (PSEs) such as lack of relevant skills and expertise in administrative ministries and divisions for guiding and helping the PSEs perform in a professional and competitive way, the uniform application of instructions issued from time to time by the Finance Division and relevant ministries complicating the operations of the public sector companies in a competitive market economy and interference by the ministries in the operations of PSEs.
With increased investments in infrastructure and energy sectors, the total assets base of SOEs increased from Rs 10.8 trillion in FY2014/15 to Rs 11.5 trillion in FY2015/16. Commercial PSCs make up of 77% of the total assets base while federal authorities make up another 21%.
In terms of sectoral share, energy sector continues to top the asset base with over Rs 6.7 trillion of assets in FY2015/16 followed by financial (Rs 3.1 trillion) and transportation sectors (Rs 0.8 trillion).
Having placed the most striking facts on the table, let us envisage the key challenges ahead for the Sarmaya Company.
1) The evaluation, separation and turnaround of the 197 companies warrant the replacement of the existing company boards perceived to be incompetent, political appointees and cronies and cause of poor governance. This means an induction of a new stream of around 2000 competent professionals of integrity considering a board of 10 members and depending on the number of PSEs identified for separation and turnaround.
Also, for the same reasons, the replacement of the CEOs of the PSEs means induction of around 200 high caliber professionals into these ailing entities.
In this regard, one must recall that the PML-N government on taking over in 2013 went for a similar exercise and awarded the task to M/S Ferguson to identify and select high profile professional to head PSEs. Shams Kassim Lakha and a team of reputed professional from the private sector were delegated the responsibility to overlook the whole process.
M/S Ferguson and the selection team worked well and completed the process in over 6 months and made recommendations to the government. To the best of this author's knowledge a very few of the candidates might have been positioned on job on merit, it was, by and large, business as usual based on nepotism, vote politics and party loyalties. The result was apparent. The losses at all PSEs grew exponentially.
The foremost challenge for the PTI government is to bring on board all such talent in a transparent manner and in a short period of time, although considering the prevailing environment this process is not likely to be completed in another 12 months or much more.
Also, the appointments on merit will be a challenge and a test case for the incumbent government too.
2) Another challenge is to first install the new management controls, then restructure the PSEs inclusive of rationalisation/retrenchment of surplus manpower and move the organisations from red to black and finally ensure the sustainability of all this investment in time and money.
The question is whether the government will be able to achieve all of this in the next 3 years as the 4th year is already an election year during which vote politics prevails over all other considerations. PML-N government aborted its privatisation process in its 4th year of governance for the same reason.
Any backtrack by the incumbent government at any stage of the process or its reversal by the new government, if not PTI, would be catastrophic for the nation.
3) The cardinal principle that the "Government has no business to be in business" has proved to be true.
Today, it's all about competitiveness and value to consumers in terms of quality, price and service.
It's most unlikely that PIA, with all the restructuring and injection of good money, will ever be able to compete on price and quality with international carriers on international routes or local carriers on the domestic routes. In real terms PIA is more or less out of the aviation market - more so since the last five years having surrendered most of the international routes.
Also, the same goes for Pakistan Steel Mills which, with its energy guzzler and inefficient technology of 70s, cannot compete with competitors offering better quality and price - based on new and efficient technologies.
Last week, the government announced that it will inject funds into the ailing Pakistan Machine Tools Factory (PMTF) which was established in the 1960s to support the local industry to manufacture for them special tools for their production facilities. PMTF stand closed since for last many years on account of gradual loss of business as the industry moved towards soft-ware driven newer and more energy efficient technology.
It's not understandable as to what market a revived PMTF will serve.
4) Promotional and advocacy sector has most number of PSEs (46) with most of them operating as funds and foundations and research and development entities for industries and production. Most of these entities were established in the 1960s. A closer look at these entities will reveal that most of them have outlived their requirements and are redundant. None of them is carrying out any meaningful R & D for industries and production and there has always been a disconnect between the two.
5) Energy sector comes next with 39 entities and has the biggest asset size in the entire PSEs portfolio with companies ranging from hydrocarbons to power distribution, transmission, generation and trading.
The energy sector is the most difficult one and is largely responsible for mauling the nation's economy. The non-manageable circular debt is on account of the governance lapses in the energy sector.
The worst is the power sector where all the Discos are loss-making units. Its turnaround is far beyond the management change and restructuring.
The whole supply chain consisting of fuel supply, the conduct of IPPs, the non performing utilities in the public sector, line loses, receivables is riddled with incompetence and poor governance of the highest order.
Recently, the Supreme Court of Pakistan took the notice of extraordinary high payments made to the IPPs. There are many more such mega lapses in the system. All over the world, the power sector has been privatised resulting in lower tariffs and better service to the consumer.
In most of the flourishing markets, the power sector is deregulated offering consumers multiple choices of service provider; as a result of which tariffs have come down and service remarkably improved.
Pakistan's experience of privatised telecommunication sector has been a rewarding one where tariffs came down and service improved in the presence of multiple service provider and choices available to the consumer.
The incumbent government's decision to retain the power sector under government domain and reform it may not, in the given timeframe, give the same results as privatizing it and then deregulating the sector, offering consumers better tariffs and service.
The government policy is silent on the question whether under the ambit of Sarmaya Company it intends to reform and restructure the PSEs and then goes for their sell-off at better priced or the policy is to retain them as performing public assets. The incumbent government, by adopting any of the said two options, has indeed embarked on a very challenging task.
(Concluded)
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)