Periodic review of SOEs' working: MoF suggests setting up of CMU in Finance Division

ISLAMABAD: The Finance Ministry has proposed that a Central Monitoring Unit (CMU) be established in the Finance Division to periodically review the financial and operational performance of state-owned enterprises (SOEs) and generate detailed reports for onward submission to the Federal Cabinet.

The Finance Division in a brief on State-Owned Enterprises (Governance and Operations) Bill 2021 presented to the Finance Standing Committee of the National Assembly stated that there are 200 SOEs controlled by the federal government, which are under the administrative control of around 20 ministries/divisions.

The committee, however, put off the proposed law till the next meeting for taking a detailed briefing on the law with observation by some members that a CMU should have been established in the Ministry of Industries and not in the Finance Ministry.

These SOEs have a significant presence particularly in the banking, insurance, power, energy, railways, and aviation sectors. Majority of the SOEs were established under the Companies Ordinance, 1984 amended in 2017, whereas a few SOEs such as Pakistan Railways, Pakistan Post etc were established through especial enactments.

The financial performance of many SOEs has remained unsatisfactory leading to deterioration of service delivery and elevated fiscal risk. The Finance Division further stated that the current governance structure is decentralised, whereby the SOEs are managed by various ministries/divisions without any central coordination and supervision framework and limited autonomy of the SOEs as a number of ministries/divisions convey rules and regulations on their workings.

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In addition, role of government is not structured in issuing instructions, appointments on Boards etc and there is no performance benchmarking.

The SOEs Governance and Operations Law, 2021 aims at improving and integrating legal framework of SOEs governance through clearly defining the roles that the government as an informed shareholder, line ministries, the boards of SOEs, said the Finance Division.

It added that while formulating the law a detailed diagnostic analysis was undertaken on the existing legal and ownerships frameworks of SOEs operations and management using OECD Guidelines on Corporate Governance as benchmark, task forces were established represented by the Finance Division, private sector, the SECP, Privatisation Commission, World Bank, and Asian Development Bank, draft law was approved in principle by Cabinet Committee n State-Owned Enterprises (CCoSOEs) and consultation was undertaken with stakeholder. And the law was vetted the Law and Justice Division.

It said that the proposed law lays down principles of good governance such as performance measurement monitoring and reporting and the proposed bill covers SOEs registered under Companies Act or established through enactments with the stipulation that there is no conflict in this bill with the special enactments of the SOEs and regulatory requirements under Companies Act, 2017.

However, the scope of this law is not extended to regulatory bodies and the SOEs, providing health and educational services and facilities. The proposed law envisages establishment of Central Monitoring Unit FMU in Finance Division to periodically, review the financial and operational performance of SOEs and generate detailed reports for onward submission to the Federal Cabinet.

As per the law, there would be a structured mechanism to appoint the suitable candidates to Board of Directors (BoDs) and it would duly clarify the jurisdictions of the BoDs and line ministries/divisions. The proposed law requires the federal government to periodically review SOEs ownership and management policy for giving effect to the objectives of this bill.

The nominations of independent directors to be institutionalised and there would be majority of independent directors with security of tenure and removal criteria. The appointment of CEO would enhance board independence and policy directions to be issued with approval of the Cabinet. The office of the chairman would be separate and distinct from the CEO and SOEs for exemption of PPRA rules to devise their own procurement policies.

Copyright Business Recorder, 2021