"We have to determine as to what should be the role of the government. Does it want to run the business or the government.....I wanted to tell the House that no one would be given Rs25 billion public money".
These words came from none other than the Finance Minister Dr. Hafeez Shaikh, in his closing remarks on the budget in the parliament.
If Shaikh really means what he says, managers at State Owned Entities (SOEs) must be quite disturbed at the moment.
And they ought to be; it was just a few weeks back that Pakistan Steel Mills sought a bailout of Rs25 billion, got the Prime Ministers approval of Rs10.6 billion - but now it will only be receiving a pittance (Rs3 billion) of what it originally sought.
It is good that the Finance Minister doesn want taxpayers money going to waste by bailing out inefficient state owned entities. But whats his alternative plan to keep these entities up and running remains a mystery.
As such there hasn been any statement regarding their restructuring as envisaged by Shaikhs predecessor Shaukat Tarin. So, if the governments word is taken at face value, then this strategy is a perfect recipe for disaster, followed by a mass upheaval in the times to come.
This is not in advocacy of government bailouts, but really what is the other available option in absence of any privatization deals planned for the next fiscal year.
Some would say restructuring is the way out - and it ideally is. But nothing suggests that the government intends to run a major overhaul campaign for the SOEs.
The backing off from the PSM bailout means there would be no money available for the planned Rs7 billion restructuring programme included in the Rs25 billion bailout demanded by the state-owned mill.
Restructuring at another big white elephant PIA also seems a far fetched dream as managers at the national flag carrier were reportedly waiting for the government to help them out of financial trouble.
A senior PIA official told BR Research that there are no plans of restructuring or rightsizing, as PIA is just waiting for a heavy bailout from the government.
Besides, in the absence of strong political will, not everyone expects restructuring to actually work in Pakistan.
"The government cannot and will not restructure the state owned entities because it lacks the political will. If they keep inducting people on the basis of political affiliation, it will keep adding to the burden for the government. The only way out is privatization, they will eventually have to sell it off even if they delay it now....restructuring just won work in Pakistan", senior economist Shahid Kardar told BR Research.
Ironically, the only apparent solution is not even on the things-to-do list for FY11. It is difficult to believe that the SOEs can continue operating without the governments financial assistance - so there may well be interim bailouts in the name of broader national and strategic interest.
Call it austerity if you like- but the government somehow has a designated Privatization Minister who is most likely to sit idle for the whole of FY11, as he himself is of the view that it is not the appropriate time to sell national assets. Who would buy a company like Pakistan Railways anyway, which does not even have balance sheets, according to the minister, is another debate though.
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