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The Federal Cabinet last month decided to constitute "Sarmaya-e-Pakistan Company" to revive 193 state-owned entities and manage their affairs in an efficient manner.

Reportedly, the Board of Governors, to be headed by the Prime Minister, will comprise three federal ministers, seven members from the private sector and it would present its recommendations to the Cabinet to decide future line of action.

Sarmaya-e-Pakistan Limited will get a Rs 500 billion infusion; it will be incorporated with 100% federal government shareholding and the Government shares in the existing public sector companies will be gradually transferred to the new firm.

The key gaps identified by the incumbent government in the public sector enterprises (PSEs) are:

1) lack of relevant skills and expertise in the administrative ministries and divisions for guiding and helping the PSEs perform in a professional and competitive way;

2) the uniform application of instructions issued from time to time by the Finance Division and relevant ministries complicating the operations of the public sector companies in a competitive market economy; and

3) interference by the ministries in the operations of PSEs.

The Sarmaya-e-Pakistan company aims to devise a framework and governance structure conforming to international best practices as followed in Singapore and Malaysia.

The pivot of the new company is stated to be that it will be isolated from the ministries and will instead be exclusively manned by qualified professionals as boards of directors and equaly qualified persons would be included in the senior management in line with best corporate governance models in order to improve efficiency.

Statutory corporations and commercial concerns such as the National Highway Authority (NHA) will be incorporated as public limited companies and subsequently will be placed under the control of new company.

In a nutshell, the new Sarmaya-e-Pakistan Company means shifting of the control of PSEs from ministries to the professional boards of management and an initial injection of Rs 500 billion to restructure and turn around the loss-making PSEs.

Also new is that the statutory corporations and commercial concerns such as the National Highway Authority (NHA) will be incorporated as public limited companies and subsequently will be placed under the control of new company.

The policy is however silent on the status of Pakistan Railways, Pakistan Shipping Corporation and similar enterprises in the public sector.

Now lets put some facts on the table :

1. Under the present setup also, the PSEs in the corporate sector are meant to be autonomous and governed by the board of directors in accordance with the SECP rules as any other corporate entity in the private sector.

The interference in the affairs of PSEs by the ministries and political leadership is absolutely unwarranted.

In a political setup, this interference is unlikely to cease even in the Sarmaya-e-Pakistan Company, although PTI government has pledged better governance.

2) In the latest official SOEs Annual Report for 2015-16 comprising 306 pages the Ministry of Finance has conceded the fact that total net profit of SOEs stood at Rs 193.5 billion in fiscal year 2014 that has nosedived to Rs 52.934 billion in FY2015. This net profit has now turned into net loss for whole 197 SOEs with the national exchequer facing a loss of Rs 44.772 billion in FY2016.

The status of these SOEs has further deteriorated in 2018.

3) The worst entities are the power distribution companies (Discos). All Discos are now loss-making units: Quetta Electric Supply Company (Qesco) Rs 34.608 billion, Hyderabad Electric Supply Company (Hesco) Rs 27.246 billion, Pakistan Railways Rs 26.994 billion, Sukkur Electric Power Company (Sepco) Rs 21.739 billion, Pakistan Steel Mills Rs 18.757 billion, Peshawar Electric Supply Company (Pesco) Rs 14.508 billion, Faisalabad Electric Power Company (Fesco) Rs 13.311 billion, Lahore Electric Supply Company (Lesco) Rs 11.184 billion and Multan Electric Power Company (Mepco) Rs 10.294 billion.

4) The Top 10 cash-bleeding SOEs have caused an accumulated loss of Rs 225.9 billion just in one year. The national flag carrier PIA tops this list with a Rs 45.276 billion loss.

5) Among top ten profit making companies, OGDCL clinched first position by making profit of Rs59.971 billion while National Bank of Pakistan (NBP) earned a profit of Rs 22.752 billion.

The remaining profit-making entities included Wapda, Parco, Government Holding Private Limited (GHPL), PPL, PSO, Gepco, NTDCL and Pak-Kuwait Investment Company.

6) For FY2015/16, the number of SOEs increased from 183 in FY2014/15 to 197 in FY2015/16. The GOP established new Re-gasified Liquified Natural Gas (RLNG) terminal companies and RLNG power generation companies to facilitate installation of power plants for trading and procurement of RLNG at competitive terms.

7) In terms of sectoral classification, promotional and advocacy sector has the largest number of SOEs (46) with most of them operating as funds and foundations and research and development entities for industries and production.

Energy sector comes next with 39 entities and has the biggest asset size in the entire SOEs portfolio with companies ranging from hydrocarbons to power distribution, transmission, generation and trading.

8) On human resources, the number of individuals employed has seen an increase by approximately 5.3% from 402,543 individuals in FY2014/15 to 424,014 in FY2015/16, largely due to new investment thrusts in the energy, transport and infrastructure sector. Sub-sectoral wise, distribution companies continue to provide employment opportunities to the largest number of individuals (124,885) followed by Pakistan Railways (75,597).

9) Consequently, the number of Boards of Directors (BoDs) has also increased from 970 in FY2014/15 to 1,377 FY2015/16. For FY2015/16, 27% of the total directors were Executive Directors, 47% Non-Executive Directors while 26% Independent Directors. Trading and energy sectors have the highest percentages of independent directors.

(To be continued)

(The writer is former President of Overseas Investors Chamber of Commerce and Industry)

Copyright Business Recorder, 2019

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