SOEs: Govt must reduce footprint

EDITORIAL: Reportedly, the financial health of State-Owned Enterprises (SOEs) is deteriorating fast, as net fiscal inflows from SOEs dropped to one-tenth in the first half of the last fiscal year. That is not a pretty picture, especially when the finance minister is very vocal about cutting losses in SOEs.

There are a few reasons for this, such as historically low oil prices keeping profits depressed across the oil and gas supply chain. Now that prices have improved, a rising circular debt threatens to eat away at these gains. Achieving efficiency from SOEs remains difficult; they continue to drain precarious fiscal resources, a burden that ultimately falls on taxpayers through measures like the hefty petroleum levy.

The best remedy is to reduce the government’s footprint in commercial ventures. Given the history of all administrations over the last three decades, it is clear that the government should not be in the business of running businesses.

Consequently, the ultimate solution lies in expediting privatization. The government’s first success after almost two decades of lull was the privatization of PIA. Critics may argue that PIA Holding Company’s losses continue to accumulate, which may be true.

However, had PIA’s operations remained under government control, the rise in oil prices would have likely resulted in even uglier operational losses. Now that management is in private hands, the government is exonerated from these liabilities. To cut its losses further, the government should expedite its privatization program. Fortunately, following the success of PIA’s privatization and recent changes to the judicial system, investor confidence—particularly among foreign investors—in purchasing public assets is returning.

They are finally getting a level playing field, and no court would repeat what happened during the attempts to privatize Pakistan Steel Mills in the early 2000s. There are also other past examples of mishandling foreign interest, such as the Reko Diq and rental power plant cases. However, the legal advice foreign investors receive today strongly supports participating in privatization. The risk of court or state intervention after a transaction has reduced significantly. This shift is evident from the participation of several foreign companies in the privatization of FESCO—the first power distribution company on the block. It takes time and precedent to build confidence; while there was no foreign participation in the case of PIA, FESCO is turning into a success story that incentivizes others to join in.

It is of utmost importance to expedite the privatization of power distribution companies, as IESCO and GEPCO are the next two in line after FESCO. The Privatization Commission should adhere to the established timelines and avoid delays, as was the case with PIA. The sooner privatization happens, the sooner losses from State-Owned Enterprises (SOEs) will reduce. Once these companies are turned around, they may start paying taxes to the government and creating jobs in the private sector. Furthermore, new sectors might open up for private enterprise, and increased efficiencies in these areas would have spillover effects across the economy.

Thus, the key lies in accelerating deregulation and privatization within the energy sector. Industrial expansion will follow once DISCOs are privatized and the market is opened to private players, mirroring the growth seen in the early 2000s following the deregulation of the telecom sector and the privatization of PTCL. Today, telecom companies are major contributors to taxes and employment generation. A similar transformation occurred in banking, which has become the largest tax-paying sector in the country. The next revolution could very well be in the energy sector; all the government needs to do is reduce its footprint.

Copyright Business Recorder, 2026