Privatisation Commission of Pakistan warned the federal government that bleeding State Own Enterprises (SOEs) could not become profitable without tackling the problem of overstaffing in these entities. In a proposal moved to federal cabinet, PC states, "If the government retains the total workforce and winds up operations of these huge loss making institutions, the cost would only be a fraction of Rs 300 billion every fiscal year".
In its recommendations, Privatisation Commission admitted that restructuring of SOEs is absolutely essential to ridding the national exchequer of the Rs 300 billion bail out packages of SOE, an annual haemorrhage that is recurring in nature. PC has suggested that it needs to conduct a study to determine human resource costs of all the big SOEs and cost benefit analysis must be undertaken to determine their annual government bailout versus the cost of maintaining a large work force.
The commission further urged the government that it be allocated the mandate for restructuring. Sources in privatisation commission said that one of the core problems confronting the PC is that while it has the power to manage the privatisation process, it does not have any control over the companies it is putting up for restructuring or sale. That control tends to fall under other federal ministries that are reluctant to give up their say over state-owned enterprises.
Ministry of Finance got approval for restructuring of 8 major PSEs and Cabinet Committee on Restructuring (CCoR) was empowered to appoint professional management boards and CEOs. CCoR was also empowered to approve financial and management restructuring plans. But CCoR has met only once since its inception under the former chairman of committee Shaukat Tareen. No subsequent meeting of CCoR has been called to evaluate the progress in this regard.
Even CCoR failed to ensure good management practices in a majority of state-owned enterprises (SOEs), and the Finance Ministry approached the Securities and Exchange Commission of Pakistan to formulate laws that will allow the restructuring of the boards of these public sector organisations.
The decision comes as all the deadlines set by the CCoR have been missed and the target, to change the boards of eight major enterprises on the lines of private companies by the second week of November, has not been achieved. The SECP has started formulating the 'Corporate Governance Regulation for the Public Sector' similar to the commission's laws for the corporate companies in the private sector.
"The criteria, qualifications, relevant experience and the powers of the board members are being clearly laid down in the new regulations which will reduce the political role and bureaucracy," sources said. In a recent meeting of Cabinet, the commission suggested that if PC would empower it, it will undertake reappointment of the Board of Director of these SOEs without political interference and complete the task within 90 days period. To gain this objective the PC unveiled a strategy in which appointment of international advisors on strategic alternatives was to be made. A professional management was to replace the present one.
Revaluation of assets to maximise balance sheet with a view to creating leverage and market capitalisation capacity and privatisation of SOEs after turn around in the medium to long term was also to be included in this strategy. The drawback of this lack of jurisdiction of the Privatisation Commission is that it cannot undertake any restructuring of state-owned enterprises being put up for sale.
Restructuring involves reducing the often-bloated workforce of the company, installing a new management team and in general, preparing it for take-over as a profit-making entity. The ministry of finance had initiated the restructuring process at the start of the current fiscal year to reduce the annual loss of around Rs 300 billion incurred by 23 SOEs.
Meanwhile, the eight public sector enterprises face an annual loss of around Rs 250 billion, which is higher than the development budget. These PSEs are Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM), Pakistan Electric Power Company (Pepco), Pakistan Railways, National Highway Authority (NHA), Pakistan Agriculture Storage and Services Corporation (Passco) and the Utility Stores Corporation (USC).