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ISLAMABD: Legislation relating to structured governance reforms for the management of State Owned Entities (SOEs) developed in consultation with the International Monetary Fund (IMF), the World Bank (WB) and the Asian Development Bank (ADB) has yet to be introduced in parliament.

BR asked several senior officials whether the passage of this law from parliament is a prior condition under the IMF staff level agreement on the second to fifth reviews reached on 16 February 2021, but received no response till the filing of this report. 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 Finance Ministry has prepared a report 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 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-makings SOEs.

As many as 12 loss making SOEs, mostly in power sector, had caused Rs156 billion loss during the fiscal year 2018-19. Among loss making SOEs proposed for privatization, 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 privatization list and are at various stages of the privatization process. Pakistan Steel Mills (PSM) is an important entity on the active list and is at an advanced stage of the privatization process. SME bank is another loss making SOE, which is on active privatization 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 Rs. 38.5 billion mainly emanating from ZTBL (Rs.18 billion), SSGC (Rs.14.8 billion) and USC (Rs. 5 billion).

The government plans to retain 14 entities under government ownership but require immediate reforms and possible restructuring. Among them Pakistan Railways and Pakistan International Airlines which were collectively making a loss of Rs. 88 billion in fiscal year 2019.

Copyright Business Recorder, 2021