ISLAMABAD: Prime Minister Shehbaz Sharif has constituted a Cabinet Committee on State-Owned Enterprises (CCoSOEs) comprising ministers of four political parties, meant to propose reform and restructuring pertaining to State Owned Entities (SOEs).
The composition of the CCoSOEs will be as follows: (i) Minister for Finance (Chairman); (ii) Minister for Commerce (Member); (iii) Minister for Economic Affairs and Political Affairs; (iv) Minister for Communications; and (v) Minister for IT and Telecom. Special Assistant to Prime Minister on Government Effectiveness, Dr. Jehanzeb Khan will attend meeting as special invitee.
The terms of CCoSOEs will be as follows: (i) to enforce and monitor the implementation of the SOE Act, 2023 and other related law and policies; (ii) matters pertaining to appointment on the Boards of SOEs; (iii) reform and restructuring proposals pertaining to SOEs; (iv) periodical review of financial and operational performance of SOEs; (v) consideration and recommendation to the Cabinet of policies, instructions and guidelines to SOEs; (vi) proposals for insurance of direction to SOE and public service obligation; and (vii) any other related matter envisaged in the SOEs Act, 2023 and other related laws and policies.
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Last year, Dr Ishrat Husain, an ex-aide of former Prime Minister Imran Khan who prepared a report on SOEs said the past six years, noted that one-third of the commercial SOEs have experienced losses intermittently.
As many as 51 of these made profits in FY 19 amounting to Rs 336 billion but this was outstripped by the 33 loss making entities. The top ten loss-making SOEs contribute around 90% to the total.
The set includes NHA, Pakistan Railways, PIA, Pakistan Steel, five power sector Discos and ZTBL. The top ten profit-making SOEs include six in the Oil and Gas sector, three in Power, and National Bank of Pakistan, together generating net profits of Rs 294 billion.
At independence, Pakistan inherited 12 SOEs. This number rose a bit in the 1950s and 1960s as some development authorities and corporations (e.g., PIDC and WAPDA) were established. Then an explosion in numbers took place in the 1970s with the nationalization of large scale industries, banks, insurance companies, and educational institutions.
A process of reversal eventually began in the 1990s. Between 1991 and 2015 as many as 172 privatization transactions were completed.
The process then slowed, leaving the government with 212 SOEs at present. These are divided as follows: 85 are commercial SOEs while another 83 are subsidiaries attached to one or another SOE; and 44 are non-commercial entities (such as trusts, foundations, regulatory bodies, universities, research and training institutions, promotional and advocacy bodies and welfare funds).
The 85 commercial SOEs operate mainly 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 overall revenues of the SOEs in FY19 were Rs. 4 trillion while the book value of their assets was around Rs. 21 trillion. Excluding financial institutions, the assets of non-financial companies were Rs. 16 trillion. Power sector companies had assets of Rs 7.8 trillion, infrastructure Rs 5.3 trillion and oil and gas Rs 2.6 trillion. The revenues that year were roughly 10% of nominal GDP.
Additionally, SOEs provided employment to more than 450,000 people which constitutes around 0.8% of the total workforce. Despite their important role in providing essential public goods and services, the financial performance of several SOEs has remained unsatisfactory.
In FY 19, the commercial SOEs collectively recorded net losses of Rs. 143 billion which was significantly lower than net losses (Rs. 287 billion) incurred by the SOEs in FY 18. This improvement was driven by policies to encourage growth in local up-stream oil and gas markets and some operational improvements in the power sector.
Copyright Business Recorder, 2023