EDITORIAL: The debate about turning around SOEs (State-Owned Enterprises), and entities operating in the public sector, which haemorrhage hundreds of billions of rupees every year, and making them profitable once again seems as old as time.
It forms an essential part of election manifestos of all leading political parties, it is mentioned on campaign trails, and parties out of power use it to beat the incumbent and make claims about positive changes to get people to vote differently.
Yet the problem only becomes worse with time and SOEs are straddled with more debt after every electoral cycle. The last smart idea to deal with this mess was floated in late 2018/early 2019, when Asad Umar was finance minister in the PTI (Pakistan Tehreek-e-Insaf) government and proposed forming a holding company to take all the bad debt off the SOEs’ books, but it was abandoned even before Umar was booted from the ministry. And here we stand, staring at the same problem all over again.
A study by the Pakistan Institute of Development Economics (PIDE) about one of the top-10 loss-making SOEs, Pakistan Railways (PR), has unearthed trends that are both very interesting and hair-raising at the same time. It’s common knowledge that perhaps the biggest problem with SOEs is that they are stuffed with political appointees which are then all but impossible to get rid of.
Political parties that got them those jobs as quid pro quo for services rendered in elections, etc., will not want to touch them for very obvious reasons.
And other parties find themselves quite helpless when it comes to throwing them out because they have become part of the official structure and run to the courts whenever they are charge-sheeted or terminated. Besides, they’re usually too busy with getting their own political workers into similar organisations to be too bothered with such cleansing.
Now things have got to the point that Pakistan Railways (PR) lost about Rs 144 billion in five years from 2015 to 2020. One reason is that at least 115,000 unverified PR retired employees are being paid Rs 35 billion in annual pension. Pension liability accounted for Rs 36 billion of the Rs 44 billion PR deficit in 2020, which forced the government to hand out a Rs 45 billion subsidy in that year.
This amounts to adding insult to injury. PR is already suffering simply because of the way it’s run. It has squarely failed to devise a customer-centric business plan to meet “stiff competition from road transport”, according to PIDE, mainly because of a regressive bureaucratic structure which has led to “an inefficient, underfinanced and overstaffed public agency running in losses for the last three and a half decades”.
PIDE’s recommendations, like a biometric verification system for pensioners and a pay-and-pension commission for all SOEs, are very welcome, but it’s not like such things have not been tried before. These enterprises are actually plagued by excessive political interference and a general lack of will in the bureaucratic machinery to tackle it because of the many links in the chain that themselves benefit from this particular type of corruption.
To improve things, the government will have to change its approach from bailing out sinking SOEs to making it impossible for politicians to interfere in their operations, especially hiring. And if the current rules allow sacked employees to get stay orders from courts, then the rules will simply have to change if these enterprises are to raise revenue for the state, instead of being one of the biggest financial burdens on it.
A good idea, which has also been proposed time and again, is to involve the private sector to induce a cold, market-driven sense of efficiency and productivity into these outfits. There will be stiff resistance from all the usual suspects that have grown fat from illegitimate proceeds over the decades, and nobody would want to invest their time or money in such broken-down enterprises, so the government would still have to straighten them out before embarking on any ambitious plans for their revival.
So far, this is the point where every initiative runs out of gas. And right now, the country’s politics is too divisive and toxic for such things to be too high on the priority list. Therefore, it seems that any serious reforms would have to wait for another day.
Copyright Business Recorder, 2022