PSM: what to do, what not to do

As if one hadn seen the fate of the cabinet-approved CCoR Plan in March 2010 to restructure Pakistans loss-making PSEs, the cabinet recently approved another "revival plan", focussing on transforming Pakistan Steel Mills (PSM). Under this plan, the government will reserve the ownership while restructuring of the board of directors (BoD) of PSM will be done. Apart from appointment of three more BoD to exhaust the numeric limit, there will be separation of ownership and control with distinct roles and responsibilities for the chairman and CEO. However, how will the plan deal with the moral hazardous problem of such segregation is still unclear. As is the fact that despite a call for the downsizing of PSM by Federal Minister of Production Anwar Ali Cheema, the proposal highlights the eed to hire more BoDs. This strategy to solve the problem of PSEs is contrary to the one proposed by Shaukat Tareen, former Finance Minister. "Privatisation is the ultimate solution for power distribution firms and other public sector entities," he said, in an interview last year. Privatisation is not an alien solution to transform these loss-making entities. Pakistan has witnessed success stories in the telecom and financial sector. Yet the government has blinded itself to the proposal of many senior officials to privatise these companies which cost heavy losses to taxpayers every year. However, with elections just around the corner, privatisation (which is followed by downsizing) doesn top the list of solutions for saving PSM. Rent-seeking options will also be compromised if such a plan is accepted, making other solutions more lucrative. PSEs like Pakistan Railways and PIA have social service provision responsibility and therefore privatisation may not be a plausible solution for them. Steel Mills, on the other hand, is free from such restrictions but political hegemony comes in the way to make it a profit-making entity. The other argument by the concerned authorities, against privatisation is the price offering for PSM by potential buyers. This, too, is weak considering the opportunity cost of any further delay in selling it off. According to Finance Minister, Hafeez Shaikh, the government spends an estimated Rs.250 billion as PSE bailout cost each year. A total of Rs.30 billion has already been doled out to the PSM to cover its financial losses. Despite these significant costs and justified opposition from the ministry of finance, the governments decision to go against privatisation of this public-sector entity is hard to comprehend. The prevailing inefficiencies in enterprises like PSM are due to the centralised, bureaucratic structure with considerable government intervention. The solution to these problems is clearly missing in the announced plan, without which any action will fail to achieve the desired results. Even if the government opposes privatisation, an independent board comprising of private sector experts who are credible and dedicated to work in the interest of the company are much needed. With no government influence in the running of the entity, bureaucratic inefficiencies will cease to exist. Such plans, however, have seldom seen the light of the day. Action and implementation, the key to ensuring the success of such plans, is something that the government lacks. Whether this development will prove the general mindset wrong or will it strengthen our belief about the fate of the PSEs as a tool for political patronage remains to be seen.