ISLAMABAD: The federal government, in the proposed State Owned Enterprises (Governance and Operation) Bill 2021, has sought indemnity for the directors, Chief Executive Officer (CEO) and other employee of a SOE from any legal proceedings.

The proposed law explicitly stated that “no suit, prosecution or other legal proceedings shall lie against the directors, chief executive officer, or other employee of a state-owned enterprise if the liability arose out of an act or omission of the director, chief executive or employee and the act or omission was done in good faith and with due care”.

Former finance minister Dr Abdul Hafeez Shaikh disclosed to the media on March 08, 2021 at a press briefing after the cabinet meeting that SOEs law has been approved by the cabinet.

According to proposed law an independent director once appointed by the federal government shall not be removed unless it is established through an inquiry conducted in the prescribed manner that the director is found to be in non-compliance with the provisions of law, or the Companies Act 2017, or any other applicable law and fails to fulfill his duties and responsibilities and using the funds, assets and resources of the state-owned enterprise without due diligence and care etc.

The primary objective of a SOE shall be to operate in an efficient manner, achieving the objectives, generate sufficient revenues to cover cost and become financially sustainable. The federal government shall not require a commercial SOE to undertake a public service obligation which deviates from the primary objective except as specified in Schedule-II of this Act.

The Board of SOE shall, prior to the commencement of each financial year, adopt a business plan in respect of the following three financial years, which shall contain information about the operations, strategic direction, and financial and non-financial performance measures of the state-owned enterprise and demonstrates how the state-owned enterprise shall achieve its primary objective.

The Board shall be given autonomy and independence in the discharge of its functions in accordance with the adopted business plan and no administrative or standing instructions by any Division of the federal government shall be applicable to any SOE unless prior approval of the federal government has been obtained and any such instructions already in field at the time of coming into effect of this Act shall require federal government ratification within a period of six months, failing which they shall be deemed to be rescinded.

The SOEs would maintain independent procurement policies with the approval of the federal government, which comply with the Chartered Institute of Procurement and Supply’s Global Standards of Procurement and Supply and shall only be responsible for compliance of the provisions of the Public Procurement Regulatory Authority Ordinance, 2002 to such extent as may be directed by the federal government. Until the procurement policy of SOE is prepared and approved by the federal government, the Public Procurement Regulatory Authority Ordinance 2002, apply mutatis mutandis to it.

The Board, in the case of a company shall appoint a chief executive officer to the SOE under a performance based contract for a specified period.

The Board would also develop and implement a code of conduct for the members of the Board, as well as the employees of the SOE with a view to ensure the highest professional standards and corporate values are in place and shall ensure the integrity of the systems of internal control and any person who is found liable for a deviation or violation from the company’s code of conduct or other systems of internal control shall be subject to disciplinary proceedings in accordance with the state-owned enterprise’s internal policies.

The Board of a state-owned enterprise shall establish an audit committee and the Chief Executive Officer of the SOE would not be members of the audit committee. The audit committee shall be responsible for (a) recommending to the Board the appointment of external auditors for the audit of its financial statements; (b) determination of appropriate measures to safeguard the SOE’s assets; (c) review of half-yearly and annual financial statements of the SOE and (f) investigating, where necessary on a confidential basis, any deviation from or violation of the company’s code of conduct or other systems of internal control.

The Board of a company would meet at least once in every two months; and at other times that the board considers necessary for the efficient management of the business and affairs of the SOE. The board of a SOE shall ensure that for each financial year, audited financial statements prepared in accordance with International Financial Reporting Standards. A state-owned enterprise must submit to the federal government a report on its operations and its subsidiaries for the financial year to which it relates, not later than four months after the end of that financial year.

A state-owned enterprise must arrange for publication of a summary of the annual report on an internet site maintained by the SOE or, where the it does not have a website, on the website of the Division to which the business of the state-owned enterprise is allocated under the Rules of Business, 1973, or in one or more newspapers generally circulating in Pakistan.

The summary of the annual report must be published within one month after the report is submitted to the federal government and should compare the actual performance of the state-owned enterprise during the financial year to which the report relates with the targets or benchmarks set in its statement of corporate intent for that financial year. A state-owned enterprise must submit to the federal government a half-yearly report of the operations of the state-owned enterprise for the first half of the financial year to which it relates not later than two months after the end of the first half of that financial year.

As per proposed law the role of the federal government subject to the proposed law included;(1) the federal government shall exercise all the powers and rights that shareholders have in relation to the SOE under the law or the constitution of the state-owned enterprise;(2) the manner of exercise of shareholders rights with respect to the state-owned enterprise shall be prescribed in the state-owned enterprise ownership and management policy and shall include, without limitation (a) the designation of the officers authorized to act as shareholder on behalf of the federal government at statutory meetings; and (b) any other matter necessary for the efficient exercise of shareholder rights by the federal government. The provisions of this section shall have overriding effect over any procedure to the contrary in any other applicable law.

Copyright Business Recorder, 2021