The government plans to gradually off-load the majority of existing State-Owned Enterprises (SOEs) that number about 212, to restructure the remaining units in short-term, and not to establish any new public sector entity in future unless required for strategic reasons. For the purpose, a ‘State-Owned Enterprises (SOEs) Policy’ is being framed aiming at improving their management and operational & financial performance thereby redefining the role of government in accordance with the recently-introduced ‘State-Owned Enterprises (Governance & Operations) Act, 2023’. The Policy also proposes to give much-needed clear commercial mandate to the SOEs among other measures.
The State-Owned Enterprises (SOEs) engaged in commercial activities, some 84 these days, are often criticised for their inefficiency and poor performance in terms of profit and loss, in particular. A close look of the environments in which these public sector companies operate will reveal that their lackluster performance is mainly attributable, amongst other factors, to their inability to adopt a more aggressive and appropriate commercial approach and financial accountability. This is largely due to their limited decision-making power and too much government involvement in their working, in general.
It is obvious that if public sector companies have to face domestic and global competition, they should have freedom and flexibility in their operational and decision-making matters as is normally available to their competitors in the private sector. Though these SOEs are required to run as purely commercial organisations and show profits yet their decision-making on important matters is restricted by various controls of the ministries, complicated procedures and long chain of hierarchy which ends up in non-commercial management of business enterprises operating in a highly dynamic market.
There is hardly any effective delegation of power to the SOEs for making future plans and policies such as acquisition of latest technology, product diversification, foreign travels in connection with export promotion, creating joint ventures, and upgradation of existing machinery and infrastructure. These SOEs possess certain strengths of human resources and technological advancements such as trained engineers, professional managers, skilled manpower, knowledge of technology & management tools, and availability of working systems & organisational procedures etc. However, these key areas can only be put to productive channels if management is allowed a greater degree of deliverance and delegation of powers.
An organisational set-up with maximum autonomy and minimal government involvement will be an ideal public sector organisation which can take timely measures to respond to changing conditions in both domestic and international markets and to adapt itself for new challenges. A large number of commercial SOEs, mainly in the industrial sector, have already been privatised during 1991-2015 whereas remaining are currently in process of privatisation and divestment. Some of these manufacturing companies in the automobile and engineering subsector, such as Millat Tractors, Baluchistan Wheels, Bolan Castings, Karachi Pipe Mills and Pioneer Steel Mills are operating efficiently and profitably under private ownership.
On the other hand, other SOEs including Pakistan Switchgear, Metropolitan Steel, Quality Steel, Textile Machinery Co, and Indus Steel Pipes have ceased their production activities after divestment, and are non-existent at present. Most of these entities were highly profitable before privatisation, and thus their divestment proved counterproductive. At this point of time, Heavy Electrical Complex is in advanced stage of privatisation while Pakistan Steel is still in process of divestment, and that of Pakistan Engineering Co (PECO) and Sindh Engineering remains in limbo.
The industrial SOEs, under the administrative control of the Ministry of Industries and Production, are being governed under the Companies Act and required to comply with rules and regulations of the Securities and Exchange Commission of Pakistan (SECP). Policy decisions for setting the direction of a company are taken by its Board of Directors that is vested with full powers and authority to make decisions on all important matters like recruitment, promotions, foreign travels etc. In practice however these companies, whether private limited or registered with the Pakistan Stock Exchange, are not allowed to take decisions such as appointment of the Chief Executive Officer (CEO) or senior management.
Likewise, nomination of the Board of Directors is at the whims of the government in many cases ignoring the qualifications prescribed under the rules. Atypical example is cited of a commercial SOE that had, for a period of three years or so during 2012-2015, its Board of Directors consisting of the Minister for Industries & Production as Chairman, Secretary Industries & Production, Joint Secretary Industries & Production, Joint Secretary Finance, and a representative from a public sector entity, the CEO, and an independent director. Thus the 7-member Board had included five directors representing the federal government, besides the CEO, which certainly was against the SECP rules.
The political and bureaucratic influence and interference, rather control, on the SOEs has contributed largely towards mismanagement and poor performance of the SOEs as the management has to please them in many ways. For example, a deputy secretary of the ministry had obtained 6-months’ technical training in Japan from the SOE—a car assembler—now privatised. All expenses for his travel and specialised training abroad with car manufacturers were borne by the SOE though the individual had not worked for the SOE nor was expected to on return. Generally, the politicians such as minister, parliamentary secretary, MNAs of the area, would ask the SOEs for appointing politically-nominated persons, providing unauthorised vehicles to their staff, and, in some cases, recommending award of large contracts and appointing sales agents. Overstaffing has been a norm as the influential persons would demand recruiting their nominees in various categories from executive to worker even when the SOEs were on privatisation list.
In fact, politicians and bureaucrats were inducted in the SOEs on nationalisation in 1972 of the industrial units operating in the private sector, and division of the PIDC industrial units in subsequent years. The trend still continues. There are numerous instances when the bureaucrats were appointed as CEO or in senior positions, sometimes holding additional charge of the SOE. Even today, at least four SOEs, including the Heavy Electrical Complex, are being governed by the Joint Secretary Industries & Production as CEO on an additional charge basis. Among the various factors contributing to mismanagement, maladministration and poor performance of the SOEs are abuse of merit, inability to comply with rules, laws and regulations in vogue, and corrupt and dishonest practices, and above all, laxity on the part of the government to have accountability. At one time, appointments of the CEO of selected SOEs were made on the basis of their association with political party leaders. Stories of massive corruption in the Pakistan Steel Mills in the past are well-known.
Time and again, successive governments have declared that “it’s not the government’s business to be in business” yet these SOEs, even the loss-making units, are retained under the garb of rehabilitation and restructuring to meet vested interests. Deregulation of administrative and operational activities of the SOEs, as proposed in the draft Reforms Policy, is therefore not likely to bring the desired results, unless there is an earnest political will to improve their efficiency and performance. The government needs to learn from the past failures and to finalise the document developing a proper and effective policy framework taking into consideration the recommendations of the World Bank given to it from time to time.
The writer is retired Chairman of the State Engineering Corporation