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October 14, 2018

Inefficient public sector entities adding to national debt


October 14, 2018


By Mansoor Ahmad

LAHORE: Public sectors entities are the Achilles heel of our economy, remove their inefficiencies or privatise them, half our economic woes will be resolved; keep the status quo the inefficiencies will increase and so will the national debt.

Political parties are not on the same page about the way these entities should be treated. Most public sector enterprises are not only overstaffed, but the workers and officers appointed on political grounds are incompetent and corrupt as well.

The equipment installed in these companies has lost efficiency because of want of repair and maintenance. Combined impact of these drawbacks is that most of these companies are operating on huge loses.

These companies do not operate like the private sector commercial companies. The Pakistan State Oil (PSO) for instance enjoys near monopoly in the oil sector, and should make hefty profits, but its margins are drastically reduced.

One reason for this is that the state, as the owner of PSO, asks it to supply oil to the power sector companies on credit, which is difficult to recover as the state owes payment to the power companies. No private sector oil company supplies oil on credit to its customers.

Governments in the last three decades have tried every trick to make the public sector companies commercially viable, but since these companies operate on bureaucratic red tape the inefficiencies never improve.

Each political or military government inducted their cronies and supporters in these companies without merit. This made the decision to privatise, politically difficult.

Each government in the last two decades tried first to sell these companies, and on resistance from workers and some political elements, decided to revamp the companies through better management. Better management needed further investment in these entities.

However, those investments too went down the drain due to the political appointments made without merit.

The present government, soon after assuming power stated that these companies would be reorganised transparently to restore efficiency. The inexperienced economic managers conveniently ignored the fact that after years of abuse, these companies have not only lost operational efficiency, but the equipment has also degraded.

Revamping these companies would not only require installing competent managements, but also investment in new technology. Again the new management has to be appointed purely on merit and not on the whims of the prime minister.

Recent appointments at all levels reveal that appointees may be competent, but were not appointed on pure merit. Rather, they were selected by the ruling party.

This is in line with the appointments made by all previous governments. As far as new investment is concerned, the government does not have the resources to upgrade technology.

The revamping exercise would end up in failure like the earlier attempts by previous governments.

This government has also declared that even if there is overstaffing, the existing workers competent or not, would not be shown the door

Asad Umar, having experience in private sector, probably knows better that you cannot operate a commercial company with excess baggage of employees. The extra fat has to be removed if efficiency has to be achieved.

Presence of incompetent workers in the company hurts the efficient workers’ sentiments. Moreover, their salaries are additional burdens on the loss making entity.

The three main public sector entities include the Pakistan Steel Mills, PIA and Railways. All are dependent on dole out from the government even to pay monthly salaries.

All need fresh technology. The eight power distribution companies are in the worst shape, bleeding the exchequer to the tune of Rs1,000 billion a year.

The expected budget deficit this year was Rs2,100 billion. That was before devaluation, and is likely to increase by Rs140 billion.

Seventy percent of the power sector woes are due to mismanagement and 30 percent due to inferior technology. The government should at least improve the management and curb corruption to reduce the power sector loses by 70 percent.

Privatising these companies is the best option, but since this government is against privatisation, the only option is to improve efficiency and curb corruption.

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