Govt to maintain the control of SOEs

ISLAMABAD: Even if a new Act of Parliament is approved, the federal government will have a powerful presence in state-owned enterprises (SOEs), which runs counter to the aim of maintaining productive and financially stable public sector companies by eliminating political intervention.

According to the proposed State-owned Enterprises (Governance and Management) Act 2021, the government also does not want these institutions to be completely free of political interference. However, the new legislation’s basic principles and aims suggest that the agencies could be resurrected with substantive autonomy.

As part of a provision of the International Monetary Fund (IMF) loan scheme, the federal cabinet has already approved the SOEs bill, which will now be presented to parliament for ratification. The SOEs bill is a positive move forward, but it will need major revisions.

While the federal government transferred almost all power to the State Bank of Pakistan (SBP) in the name of autonomy, it continued to maintain ownership of public sector enterprises that were causing huge losses to the public purse.

According to the measure, at least 85 companies will be managed as private corporations with no accountability for the public benefit. However, the bill’s myriad provisions greatly limit the sovereignty that a private company requires to remain financially viable.

The government, according to Clause 10 of the bill, proposes the formation of a Board Nomination Committee, which will be chaired by the minister in charge and comprise the concerned secretary and secretary finance, or his nominations, of at least BS-21.

The nominating committee will select and propose nominees for independent directors on SOE boards to the federal government. This has allowed political power to flourish, and it is therefore called bad corporate governance.

The bill also recommends the establishment of a Central Monitoring Unit (CMU) within the Finance Division, which would effectively supervise the work of SOEs by analyzing their financial, commercial, and organizational performance.

The Ministry of Finance lacks the resources to carry out such a mission, and its previous experience suggests that SOEs cannot be handled from the Q-block. The plan to report to the CMU would also jeopardize the freedom of boards that have been instructed to make policy recommendations to the CMU.

Surprisingly, the law also recommends that the federal government establish a corporation to carry out CMU’s functions. An organization would be formed to oversee and control the work of SOEs. The CMU would bring another layer of administration to the system.

The law also recommends that an SOE’s board of directors create a business strategy in collaboration with the division to which the SOE’s business has been assigned under the Rules of Business 1973.

According to the bill, whenever the federal government orders a commercial SOE to offer defined services by cross-subsidy, the government or other users can select the expense between various classes of users and the revenue received by the commercial federal government and commercial SOE.

The government has therefore maintained the discretionary authority to include or exclude any SOE from the scope of the new legislation, allowing it to control its decision-making.

The law requires the federal cabinet to approve policies and appointments, effectively micromanaging their operations.

Section 17 envisages that no regulatory or standing orders provided by any division of the federal government shall extend to SOE unless the federal government has granted its prior permission, opening the boards to political meddling.

With the approval of the federal government, the SOEs will maintain independent procurement policies and will only be responsible for complying with the provisions of the Public Procurement Regulatory Authority Ordinance to the extent that the federal government directs. The bill promises financial transparency and the publication of a summary of the government’s annual accounts.

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