Understanding the losses

Despite the fact that numerous governments have led us to believe that public-sector enterprises have almost been eternally loss-making, a new public audit by the Ministry of Finance has shown that the mushrooming losses we see today are far more recent than the public has been led to believe. As recently as 2014-15, Pakistan’s state-sector organisations were turning a net profit of Rs52 billion. This was a fairly respectable figure, especially after the loss of the highly profitable PTCL to privatisation. However, within two years, a net profit was turned into a net loss of Rs191.5 billion. This loss was three times higher than the losses – of Rs44.7 billion – accumulated in the year 2015-16. These losses were the first in the country’s history. This downturn is the performance of public-sector enterprises is not only shocking, but also calls for an investigation into what happened. With one government after another committed to privatisation policies, the numbers would suggest that the case for privatisation was much weaker before the downturn under the last PML-N government. Perhaps this also explains why the last elected finance minister, Asad Umar, seemed confident that the PTI government could reverse these losses through investment and better management in the public sector.

One must also wonder how the National Highway Authority (NHA) remains top of the list despite fairly robust toll collection throughout its grid. The question would be whether the loss of Rs133.5 billion is purely operational, or whether it includes new highway building projects, in which case the numbers would be less significant. The presence of Pakistan Railways, PIA and various electricity distribution companies in the list of high loss-makers would not be a surprise to many who have following the public sector. A number of public-sector enterprises remain profit-making, including OGDCL, PPL, PSO as well as a number of others.

It is also strange that the number of state enterprises has increased from 197 to 204 in the year 2016-17, which would go against the declared policy of trying to shrink the state sector. Employment in the public sector has been shrinking, ever so slightly, due to hiring freezes and retirements. The highest employers remain energy distribution companies, followed by Pakistan Railways. While the function of public-sector enterprises is not to generate profits, the accumulation of a cumulative loss appears to be completely unnecessary. Instead of improving the performance of public-sector enterprises, it has just become worse. It is important to understand how this happened before any corrective measures can be taken.