Future of underperforming Public Sector Entities (PSEs) has remained a very divisive and heated issue in Pakistan. People in favour of nationalised corporations balk to hand over these organisations to business tycoons, just to get proceeds and to hide loses. It is claimed that privatisation brings fiasco of social welfare system and less government control on economy by ceding national assets to intended picks. On the other hand, who in support of privatisation raise voice against creeping loses and injecting public money to keep alive these bleeding and sick entities which winches country’s debt and open holes of corruption to drain public money for self-interests of politically motivated corporate leaders.
Historically, privatisation of PSEs in all its phases did not impressively contribute to national exchequer and especially in 1990s controversial issues barricaded the dreamed policy. In the recent released figures by Privatisation Commission of Pakistan (PCP), approximately 3.9 billion rupees are outstanding from defaulter buyers till date. It poses serious questions on dreamed outcomes and ultimate motive of the policy. As per Asian Development Bank report (1998) on Analysis of Privatization in Pakistan, only 22 percent of the privatised units emerged as better, 44 percent performed the same and 34 percent remained shoddier. All these trends and figures are backing anti-privatisation movement and support nationalised landscape of corporations. Nevertheless, it incites government and policy makers to rethink out of the box, when already privatised entities and current PSEs are not performing well. According to recent estimated figures, loses of PSEs have crossed the level of 1.3 trillion rupees which is around 4 percent of total GDP. This is considered as very noteworthy figure in the present economic situation of Pakistan, when overall GDP is less than 6 per cent and per capita income is very low.
To accelerate economic growth, government once again wants to privatise 11 units in next three years by putting 24 corporations as backburner and excluding 29 entities from the overall list of 62 underperforming PSEs finalised by Council of Common Interest (CCI). Once again in great political pressure, top financially bleeding organisations (like Pakistan International Airlines and Pakistan Steel Mills Corporation) have been left on their fate without taking any major step to improve their performance. It seems decision has been taken in haste without gaging impact on social and economic factors. It is also creating a sense that such measures on card are just to reduce loses and to accomplish economic reform agenda on the policy of market economy by attracting artificial investment in the country.
Historically, privatisation of PSEs in all its phases did not impressively contribute to national exchequer and especially in 1990s controversial issues barricaded the dreamed policy. In the recent released figures by Privatisation Commission of Pakistan, approximately 3.9 billion rupees are outstanding from defaulter buyers till date
Instances of already privatised entities and polarised general public perceptions instigate negative sentiments regarding privatisation policy. It also encumbers ultimate goal of good governance and to vanish loses in PSEs. In the persisting situation it is too questionable wither it is financially possible for any local or foreign business association to take liability of these national defaulting corporations. Obviously, existing outdated legal and regulatory infrastructure will not favour it. It is also unpredictable wither new guardians can get goals of good governance by promoting economic and social agenda of the government.
Absence of robust laws and regulations have always remained a major factor of poor governance in PSEs. In 2013, government introduced Public Sector Companies (Corporate Governance) Rules to make bleeding state owned entities more competitive, efficient and transparent. But presence of so many loop holes and major issues in these rules wiped out desired aspirations. Absence of independence boards, political and bureaucratic interference in governance, no policy of minority shareholders’ protection, managerial appointments in the hands of politically motivated government officials, no proper evaluation and remuneration of directors including chairman and chief executive officer, permission of non-audited services to external auditors made overall object of this piece of law controversial. In fact, these rules were issued in inspiration of OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOEs) 2005 but policy makers totally failed to follow true spirit of these guidelines. OECD guidelines stressed on co-ordinating entity or centralisation of ownership function, independence of board, forbid political interference in the governance of State Owned Entities (SOEs), recommend state as a responsible shareholder, propose participation of minority shareholders in the governance, advice road map for compliance, requires transparency and discloser, encourage fair decision making in the appointments of board of directors.
By revamping laws and following true spirt of OECD guidelines, governance of PSEs can be improved to achieve ultimate goal of development. In alternate course, by following cases of successful PSEs and bench marks around the world (like Temasek, Haier and Emirates Airlines) policy makers can think about national champions rather selling state assets to few hands. Pocketing the proceeds at throwaway prices and to plug the holes in the budget is not a right approach. Trends in emerging economies (like China, Brazil, India, South Korea and Turkey) also depict that privatisation is not only a driving force behind development. In the presence of basic legal issues, it seems very difficult to make PSEs more competitive, efficient, transparent and well-performing in Pakistan because government directly control the management and perform regulatory functions side by side, which is clear conflict of interests. In order to get goals of well performing PSEs and turn dreams into reality, it is necessary to redesign corporate-legal approach to make PSEs independent from the influence of politically motivated leaders. To increase the performance of PSEs, restructuring should be done in such a way that majority of shareholding should be given to general public and management control also be relinquished. China can be a right choice to follow where government does not directly participate in daily management of SOEs. It indirectly handles PSEs through central authority, State Owned Assets Supervision and Administration Commission (SASAC), which is an independent institution to measure political economic goals and regulatory policy standards.
The writer is an Advocate in High Court and a law expert in Corporate and Financial Law from University of Liverpool, UK. Currently, he is teaching in COMSATS University Islamabad (Lahore Campus). E-Mail: [email protected]
Published in Daily Times, December 14th 2018.