Cabinet approves proposed reforms in SOEs

ISLAMABAD: After a delay of over two years, the government has finally approved the proposed reforms in state-owned enterprises (SOEs).
Briefing the media following the federal cabinet’s decision, Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Hussain said that the government was working on bringing reforms in the state institutions. “Before [our government came into power] no one even knew how many institutions we had.”
Now, after the government conducted a survey, we got to know that we have 441 institutions, he said while addressing a joint press conference with Finance Minister Shaikh, Federal Minister of Industries and Production Hammad Azhar and others on Tuesday.
The adviser said that as many as 56 chief executives, who were working abroad, had approached the government to work and collaborate with them.
“We have 85 SOEs (state-owned enterprises) — and the government will decide on which to keep and which to sell,” he said, adding the government had invested Rs19 trillion in SOEs. “We will have a performance agreement with these institutions,” he said.
“We have appointed 56 chief executives in various organizations so far and the best person at the best place will strengthen these institutions,” he said, adding that out of 44 loss-making institutions initially at least 28 institutions would be privatised.
Meanwhile, Shaikh said that the government was trying to bring about a unified law that would regulate both companies and state institutions.
The finance minister said that public listed companies and state institutions are currently functioning under separate laws. He said that three “big laws” had been approved that would strengthen Pakistan’s economy.
It is worth mentioning here that the legislation related to structured governance reforms for the management of SOEs developed in consultation with the International Monetary Fund (IMF), the World Bank (WB) and the Asian Development Bank (ADB) is long awaited.
As per a report prepared by the Ministry of Finance, the proposed law would introduce structured governance reforms in the management and oversight of the SOEs. Through this proposed enactment, the boards of directors of the SOEs would be given more autonomy in terms of decision-making in addition to ensuring the separation of the office of chairman from the CEO in all SOEs including entities established through special enactments. And the role of the line ministries/divisions would be streamlined for operational autonomy of the SOEs.
The report was prepared to undertake reforms in SOEs in extensive consultative and collaborative work with development partners – IMF, WB and Asian Development Bank – to focus on 85 SOEs mostly operating in seven sectors – power, oil and gas, infrastructure transport and communication, manufacturing, mining and engineering, Finance, industrial estate development and management, and wholesale, retail and marketing.
The report noted that breaking down the performance of SOEs reveals that over the past six years, one-third of the commercial SOEs have experienced losses intermittently. Additionally, the sum of the losses of top-10 loss-making SOEs contributes around 90% to the total losses of SOEs portfolio each year. NHA, Pakistan Railways, PIA and power sector DISCOs have been among the major top 10 loss-making SOEs.
As many as 12 loss making SOEs, mostly in the power sector, had caused Rs156 billion loss during the fiscal year 2018-19. Among loss making SOEs proposed for privatisation, the major loss making entities are eight DISCOs – Hyderabad electric supply company limited ((HESCO) Islamabad Electric Supply Company (IESCO), Peshawar Electric Supply Company Limited (ESCO), Sukkur Electric Supply Company Limited (SEPCO), Multan Electric Company Limited (MEPCO), Lahore Electric Supply Company Limited (LESCO), Faisalabad Electric Supply Company Limited (FESCO) and Quetta Electric Supply Company limited )QESCO)) as well as one GENCO (Jamshoro Power Company) along and Pakistan Textile City Ltd, State Engineering Corporation and Telephone Industries of Pakistan.
There are 10 SOEs, which are on an active privatisation list and are at various stages of the privatisation process. Pakistan Steel Mills (PSM) is an important entity on the active list and is at an advanced stage of the privatisation process. SME bank is another loss making SOE, which is on the active privatisation list. In addition to these, partial divestment of OGDCL and PPL is also underway.
As many as 10 SOEs have been identified as potential privatization candidates and due consultations with line ministries have already been initiated. In fiscal year 2018-19, six entities were loss making with a combined loss of Rs38.5 billion mainly emanating from ZTBL (Rs18 billion), SSGC (Rs14.8 billion) and USC (Rs5 billion).