PSEs and The Road to Profitability

February 1, 20210

by Aurangzeb Soharwardi

At present we see our country afflicted with ailments that has not only hampered the economy but also deepened the multitude of problems it faces. Pakistan faces many external threats and challenges along with having to deal with terrorism and political turmoil. The Economy is crippling with every passing day, law and order is in shambles and there is unprecedented inflation.

Disintegration of PSEs

Along with all these dilemmas we get to witness the systematic disintegration of State Owned Enterprises in the country. Although managing (SOEs) has always been a contentious issue in Pakistan , since its inception, however the recent past has been replete with serious concerns about planned mismanagement and patronized corruption in SOEs. An intricately entangled web of nepotism, political interference and vested interests has given an abrupt rise to inefficiencies and non productivity. Considering the inherent importance of these organizations it can logically be assumed that there has been a lot of debate on the causes behind the battered state of affairs of Public Sector Enterprises and it is therefore extremely disturbing to note that a final solution has neither been identified nor implemented, not at least in Pakistan. Resultant poor performance, commercial non viability and circular debt burden provides an opportunity to the Government to privatize these national assets. Since its birth in 1991, the Privatization Commission has so far privatised 167 State Owned Entities (SOEs) for $9 billion. Currently 58 SOEs approved by the Council of Common Interest (CCI) were on the Privatization Program while the privatization of 23 SOEs is being pursued on fast track basis. The purpose of privatization was to liberalize the economy, to make the entities efficient, increase their capacity and production and to make them profitable by involving private sector. The major single largest transaction i.e. Pakistan Telecommunication Company Limited (PTCL)’s 26 % shares were privatized with transfer of management control in 2006. This situation calls for a serious scrutiny as to why the public sector is synonymous with inefficiency. What are the reasons due to which SOEs transform into white elephants instead of becoming profit earning and efficient public service entities. Besides other factors the main reason is lack of political, public, administrative and organisational accountability.

Developing an accountability framework

Accountability is one of the most important components of state and community frame works. SOEs in Pakistan severely lack an accountability mechanism, which is the act of being accountable to the stakeholders of an organisation, including shareholders, employees, suppliers, customers, the local community, and even the particular country(s) that the firm operates in. In most jurisdictions, a body of corporate law has been developed in order to formalist these requirements, but without proper implantation it is like a rusty sword. By definition, accountability is being answerable or responsible for something. Holding people accountable is really about the distribution of power and choice. When people have more choice, they are more responsible. When they become more responsible, they can have more freedom. When they are more accountable, they understand their purpose and role within the organization and are committed to making things happen. Organizational accountability, the timely and consequential pursuit of mission goals, is driven by the ability of the organizations to quantifiable measure earned rewards and the culturally determined method of assessing and recognizing employee performance. When employees make clear and specific commitments for their own work, entire organizations become aligned and achieve specific measurable results. So what went drastically wrong with SOEs in Pakistan? In the recent past, the final nail in the coffin was hammered by placing incompetent , ill reputed friends and allies of the ruling party in the top slots of all the public enterprises, like WAPDA, NICL, Steel Mills, PIA, PEPCO, Sui Gas, National Bank, Railways etc, as ministers, ministers of state, MDs and chairmen.
This practice of nepotism and commercial bargaining with commissions and kickbacks for appointments on these lucrative posts has serious repercussions. Those at the helm of affairs, bring their own personally chosen people to run the affairs of these SOE’s often without any merit, competence, vision, modern strategic planning and contemporary management practices. They have their political and economic agendas to pursue within the shortest possible time, show allegiance and look after the interests of those sitting in the higher echelons of power before fleeing with their bags full. Well connected, politically affiliated people with questionable integrity and competence are at the helm of affairs in almost all PSEs. Honest officials with strong character, sound professional knowledge and experience have hence been cornered by such practices.

Corruption in PSE’s

Massive corruption in PSEs has disrupted the process of resource allocation, utilization, productivity and development. In most of the organizations only day to day support activities are being performed or bulk purchases from where, there are some chances of commissions coming directly in the pockets of people involved. No operations and maintenance activities are taking place. Training and motivation of employees is not even in the agenda list of the higher ups. The dilapidated condition of Railways, Steel Mill, PEPCO and PIA, particularly, is a matter of grave concern for the nation. The national flag carrier PIA has been made to fly with its wings broken due to blatant malpractices. Besides billions of rupees losses, a recent scam worth Rs150 million was recently unearthed by media. Since political, administrative and public accountability are inter-linked, the lack of these has damaged the institutional frame work, increasing the country’s domestic debt by $7.8 billion, in the first nine months of the last fiscal year, pushing it up to $5.5 trillion in total. In 2010-11, Pakistan’s trade deficit was recorded at $15.587 billion. Government has borrowed Rs28.64 billion during first 23 days of the current fiscal year from commercial banks. The stock of government borrowing from central bank stood at Rs1.239 trillion by end-june 2011.The menace of circular debt increased by as much as Rs780 billion in 2010 and is yet to be sorted out on a permanent basis, distorting the whole economic and operational cycle. News about massive irregularities in rental power plants are rampant. According to press reports Railways has accumulated Rs52.5 billion deficit due to gross mismanagement. Government announced a Rs10.1 billion breather for this cash-starved and loss making organization which itself is worth trillions of rupees. In the absence of effective accountability these such financial embezzlement and irregularities will become part of the system, that would eventually feed on the fundamental pillars of the state.

Effective administration

It needs to be understood that there should be accountability across the board for all Public Sector Organizations to ensure an effective functioning of these institutions. In the absence of such checks and balances, it would become very hard for these organizations to survive in the long run. The government with its dwindling tax revenues and reducing foreign investment is finding it increasingly hard to finance these loss making organizations. Effective administration can ensure that these institutions are transformed into profit making ones. There is immense potential for these enterprises to not only become profitable, but also play a significant role in national development. Millions of people rely on these organizations for employment, however it needs to be understood, that there is only so much workforce an organization can take, beyond which, not only the functioning will be hampered, but it will also not be efficient. Even if privatization is not pondered upon by the powers to be, what they can effectively do, is to transfer the authority of the functioning of these organizations to private entities, while the state can supervise the work being done and carry out a regular audit in this regard. There is therefore an urgent need to revamp these PSE’s in the larger interest of the nation, with accountability across the board an absolute necessity.

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