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September 16, 2020

Govt upbeat law to turn SOEs to profit-making entities

National

September 16, 2020

ISLAMABAD: Keeping in view Pakistan's endeavors to meet one of the IMF benchmarks for Extended Fund Facility programme, the government is upbeat on making a law to turn all state-owned enterprises (SOEs) into profit making institutions.

And to this effect, the federal cabinet has ratified the decisions taken by its committee on SOEs, directing the Finance Division to carry out the forensic audits of the loss-making entities. The finance ministry would obtain information from Auditor General of Pakistan (AGP) about the availability of expert auditors to carry out forensic audit of major loss-making SOEs in pursuance of PM's directives.

Reports said the ministry would manage information from audit firms regarding estimated cost of the forensic audit and time during which the forensic audit would be completed. It would also consult the relevant ministries and divisions to select major loss-making SOEs under their control, saying the audit would not be confined to a particular sector.

According to a top official of the Finance Division, one of the benchmarks under the IMF’s Extended Fund Facility (EFF) programme was to frame a law to reform the governing mechanism of SOEs. And in this connection, a detailed diagnostic study had already been carried out by the technical mission of IMF, which identified the key governance issues in the management of SOEs in Pakistan. "A legal drafting team was engaged with the technical support of ADB." Moreover, the official said that due consultations were made with the SECP, Privatization Commission, ADB, World Bank and IMF along with independent experts of the task force that was constituted for this purpose.

This draft SOE law namely State Owned Enterprises (Governance and Operations) Act, 2020 has been prepared that covers: a) Prudent and efficient management according to which commercial SOE must be commercially successful and non-commercial SOE must be efficient (b) Measurable performance according to which a state-owned enterprise must identify its business goals (c) Responsible management according to which the management of a state-owned enterprise must be competent, honest and accountable (d) Transparent performance must be ensured. Under the proposed law, a state-owned enterprise would have to report its performance fully, transparently and timely. The draft law would also provide selection criteria for a director and encompasses the corporate governance mechanism framework.

It has been approved in principle that in the proposed law, the commercial state owned enterprises shall maintain independent procurement policies with approval of the federal cabinet, which comply with Chartered Institute of Procurement and shall only be responsible for compliance of provisions of PPRA Ordinance, 2002 to such extent as may be directed by the federal government. "The committee also discussed the exemption criteria of the SOEs from the PPRA rules."

The official, while referring to the observations of Dr Ishrat Hussain, Adviser to the PM on Institutions Reforms and Austerity, said the performance of the SOEs was not being evaluated by the concerned ministries and divisions. He said a committee, comprising professional experts based in the finance division, should also be constituted to monitor the performance of these entities on the basis of 80:20 rule.