20 June 2004	Sunday	01 Jamadi-ul-Awwal 1425

ISLAMABAD, June 19: The World Bank estimates Rs150 billion total losses of the public sector enterprises during 2004-07 due to continued mismanagement and slow reform process.

Informed sources told Dawn here on Saturday that now when the federal budget for 2004-05 had been presented, the World Bank had urged the government to effectively restrict losses of the state enterprises, mainly power utilities.

The government was told that even after taking into account privatization revenues, state sector's losses were likely to be drain on the budget. The bank underlined the need to vigorously pursue the privatization of the public enterprises in order to stop their huge annual losses.

With regard to contingent liabilities, the government was asked to assess the full impact on public finances beyond the budget and fiscal debt to include these extra budgetary items. The government was advised to calculate the potential budget cost in expected value terms and make the potential fiscal cost of off-budget items visible before hand to ensure a proper cost-benefit assessment of government support.

Historically, according the World Bank, the high-level of defence spending had contributed to build up of public debt in two ways. It had pre-empted public resources for development, and it had been a major factor in the government's inability to cover current expenditure from current revenues.

The impact of the financial problems in the power sector companies extends beyond the fiscal budget. These companies, the bank maintains, have under invested in power generation capacity for some time, and the country's investment needs in the power sector cannot be met without private sector participation.

In addition to the direct consequences for federal and provincial government finances, the power sector problems have a major impact on private sector competitiveness.

With privatization gains in operating efficiency, reduction in theft and expected low generation costs because of reduced payments to Independent Power Producers (IPPs), the large Ghazi Barotha project coming on-stream and hence increase in the share of the hydro power, it should realistically be possible to reduce the budgeted support to the Wapda and KESC from about Rs73 billion, or 1.8 per cent of GDP in 2002-03, to Rs13 billion over the medium term by 2006-07. The bank foresees net privatization revenues to the fiscal budget of only Rs54 billion over the four years, financial years 2004-07.

According to the World Bank the government needs to ensure, however, other public enterprises such as Pakistan Railways, Pakistan Steel, PIA and state owned banks do not fall back into deficit and the guarantee provided by government do not have a net cost to the budget. Meeting this goal will require the government to continue privatizing most commercial and industrial public enterprises, to restructure remaining public enterprises and subject them to hard budget constraints, and to restrain tendencies to set prices administratively in the public sector to protect the consumer.