KARACHI: The state-owned enterprises (SOEs), both existing and the privatised ones, are still facing pinching issues, indicating that the reforms have not achieved the desired outcomes.

The State Bank of Pakistan (SBP), in its Annual Report 2023-24, also included a 40-page study, “Reforming State-owned Enterprises in Pakistan”, and cited several reasons, mainly a lack of political will, for the failure of SOE reforms.

For instance, the study said that the privatisation of Karachi Electric Supply Corporation (now K-Electric) showed improvements in service delivery and profitability. “However, its consumers still face high cost of electricity and frequent power outages because of a host of unresolved sectoral policy and governance issues,” added the study.

Similarly, the capital market transactions of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL) helped the government to raise non-tax revenues amid hopes that stock market listing would enable more vigorous checks and balances through stringent corporate governance.

Study lists lack of political will, slow process and legal hitches as key issues

“However, the unresolved sectoral and business policy issues continue to be a burden on these SOEs’ operations and finances,” observed the study, adding that this is unlike the banking and telecom sectors, where privatisation of SOEs came alongside a series of policy and governance reforms.

Sector-wise review of privatisation transactions reveals that the process has been prolonged — taking about 6 to 16 years to complete — even in small-sized and less complicated entities such as Roti plants.

Further, large-size transactions, mainly related to banks, telecom and energy sectors, were executed through the capital market after 2001 and onwards.

“Moreover, the privatisation process was marked by several legal and institutional weaknesses, whereas some privatisation deals also faced transparency and procedural issues due to which public confidence in the process waned,” said the report.

Some attempts at SOE reforms involved improving the business operations of individual SOEs to revive them. Even when such efforts were undertaken with full political support, the lack of good corporate governance and other enabling reforms led to a deterioration of SOEs’ business operations, profitability, assets and service delivery, such as in PIA and Pakistan Railways, said the study. “As a result, bailout packages were provided, and a vicious cycle ensued.”

By the end of FY23, there were 121 federally-owned SOEs, of which 73 per cent were commercial, and the rest were non-commercial for various sectoral development needs. The federal commercial SOEs are mainly categorised into the finance, oil and gas, power, infrastructure, transport and Information Technology & Communication (ITC), manufacturing, and trading and marketing sectors.

“While these entities contribute to the government’s revenues and generate employment, they also require frequent government assistance, affecting fiscal sustainability. On a net basis, these SOEs had posted consistent losses between FY16 and FY23,” said the study.

Published in Dawn, October 20th, 2024