The fate of SOEs

ARTICLE: The enthusiasm to turn around State-Owned Enterprises (SOEs) through a newly-established entity Sarmaya-i-Pakistan Ltd (SPL) appears to be fading away.

The government is reported to be now considering moving ahead with recommendations of institutional and governance reforms proposed by Adviser Dr Ishrat Husain to manage PSEs under a close monitoring mechanism.

The government is also reported to be considering reconstituting the dysfunctional board of directors of SPL.

The concept of SPL and restructuring of SOEs may have worked if the government had deep pockets along with some level of competence and political will to bring about effective changes within the SOEs. None of these is available and in the present scenario both the initiatives are mere exercises in futility and devoid of ground realities.

Previous governments, too, tried to salvage the SOEs with multiple recipes, but finally walked out leaving the problem unsolved, conveniently bequeathing to the incumbent government. If the SOE problem is not realistically managed by the incumbent government this cycle will surely continue.

There are around 85 commercial SOEs working under the administrative control of 19 federal ministries. During the fiscal year 2017-18, an amount of Rs143 billion was provided to various SOEs in subsidy, Rs204 billion in cash development loan, Rs27 billion in equity injection and Rs318 billion in the shape of sovereign guarantees. Despite provision of Rs692 billion in one year, the SOE sector, as a whole, registered net losses of Rs265 billion in 2017-18, according to the finance ministry.

Latest figures of losses incurred by SOEs are not yet available but in all probability they have registered a significant increase in losses. Reportedly, the sovereign guarantees that stood at Rs1.55 trillion by the end of June 2019, surged to a record Rs1.9 trillion by the end of March 2020, an increase of 21.5% in nine months. These aimless financial injections into the ailing SOEs lead us to two broad conclusions:

1) That, the SOEs are financially, technologically and human resource wise - totally bankrupt.

2) That the competence or political will to turn around the SOEs within the ranks of the SOEs and the government machinery is nowhere in sight while vested interests are very much there, like always, to frustrate all such attempts.

The reality is that the government does not have deep pockets to massively invest in the financial stability, human resource and technological development of sick SOEs, nor is there competence nor political will within the government ranks to implement reforms and make things happen. Further, the fragile political setup limits the government's outreach, if any, to go for drastic steps - which is what that may be really needed to turn them around.

The decision makers are left with two viable options either privatise the SOEs that are saleable or liquidate the SOEs that are redundant and dormant. If the incumbent government could comprehend this reality the process of decision-making may assume realism. The sooner government comprehends this reality, the better it will be for the nation.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020