Pakistan – Restructuring of PSEs

EDITORIAL (February 15 2010): It is good to know that some concrete measures would be taken soon to improve the health of Public Sector Enterprises (PSEs) in order to reduce burden on the budget. According to the latest reports, the Cabinet Committee on Restructuring (CCoR) has finalised a roadmap for the turnaround of eight loss-making public sector entities, focusing in particular on replacing their managements with professionals from the private sector.

Talking to a newspaper, Finance Minister Shaukat Tarin revealed that the Committee would replace the existing managements of Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) with others within two weeks after approval of the plan by the Prime Minister. New and vibrant boards were also needed for corporate restructuring of Pakistan Railways, Pepco, NHA, USC, TCP and Passco.

These eight entities were incurring annual losses of about Rs 200 billion and Ministry of Finance had always been advocating for structural changes in the management of these PSEs to make them profitable. Tarin deplored that weak governance, susceptibility to outside influence and implicit guarantees by the government were the major reasons behind these entities’ under-performance.

In order to facilitate the transition and tone down the resistance from the related ministries, the Committee had also decided to co-opt the concerned ministries in the restructuring effort. Such an approach was deemed essential to get the necessary co-operation of the concerned ministries and ensure consistency of policies by the government.

As for the purpose of the whole exercise, the basic idea behind the new plan was to empower the boards to operate business profitably and disassociate politics from business affairs. The new boards would be made responsible to prepare and present restructuring plans in a given timeframe based on the conditions in their particular units.

In our view, it is quite evident that the CCoR is moving in the right direction and the active support provided by the Finance Minister would not only help expedite its work but also reduce resistance at various levels which is essential for the success of the exercise. It is a world-wide phenomenon that vested interests create all sorts of hurdles in order to maintain the status quo and dissuade the government from taking a bold approach of restructuring or privatising the public sector entities. The power of the bureaucracy and the trade unions, in particular, is generally eroded whenever such a plan is implemented.

However, the problems of loss-making PSEs are now so severe and complex in Pakistan that there seems to be no alternative for the government but to make a bold departure from the past and take a more sensible route. Most worrying is the continuous haemorrhage on the budget due to the mismanagement that is rampant in these business organisations. According to certain estimates, total annual loss by the 22 state-owned enterprises was now over Rs 300 billion, which was almost equal or more than government spending on the development projects.

An intriguing aspect of this loss is that in certain cases such as PIA, PSM and NHA, such a loss subsidises the rich but would punish the poor through increased taxes. Circular debt and increasing contingent liabilities of the government are also the by-products of the losses of certain PSEs. We feel that it is imperative for the government to move speedily to restructure the PSEs in order to enable them to improve their financial position by increasing their efficiency levels and arrest this rot once for all. The work done by the CCoR so far, its plans for the future and the co-operation elicited from the related ministries could go a long way in restructuring the PSEs and make them profitable. However, all this requires across-the-board support of heads of political parties that matter.

Support from within the ruling clique or the opposition to labour unions – vicariously opposed to rightsizing and restructuring from either quarters will create unsurmountable obstacles. Secondly, the Board of Directors of these institutions – filled by cronies of either the Prime Minister or ministerial elite – would need to be replaced by people who can add value to the Board and provide a shield to the management of PSEs. Needless to add that a successful outcome of this exercise could contribute a great deal in improving public finances of the country, reducing government borrowings from various sources and releasing resources for the badly-needed development expenditures.

Copyright Business Recorder, 2010


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