ISLAMABAD, Aug 31: The Employees Old Age Benefit Institution (EOBI) has invested Rs3 billion of worker's pension fund in the stock market on the directives of finance ministry without any sovereign guarantees of the government to compensate the people in case of a loss.

The information was revealed to the Senate Standing Committee on Labour, Manpower and Overseas Pakistanis here on Tuesday by labour ministry secretary Hamayoun Farshori, and the EOBI chairman, Mohammad Shafi, as the senators questioned the rationale of what they said was a risky and faulty policy.

Secretary labour and the EOBI chairman told the Senate committee the decision was taken despite their initial objections to investing people's savings for the old age in the stock market.

The officials could not give any reply when Senator Enver Baig repeatedly asked them to explain as to "who would be responsible for loss of people's money if the stock market goes bust".

Replying to a question by Senator Baig that if the government or the ministry of finance would compensate the people in the eventuality of a loss in the stock market, the officials said no sovereign guarantees of the government were available to compensate the loss.

Pointing out the risks, Senator Baig said stock exchanges throughout the world, including the New York stock exchange, were vulnerable to crash, and it was wrong on part of the EOBI to play with people's trust and money.

He said the Karachi Stock Exchange was manipulated by 10-12 people, who would be getting the profit out of people's investments, but they would not share the losses of the EOBI.

When Senator Tariq Azeem sought a written report on the investment of pension funds in the stock market, chairman of the committee, Senator Naseer Mengal, directed the officials to submit a detailed report on the issue.

EOBI chairman Mohammad Shafi gave an account of the steps taken by the department to reduce the risk of loss and the reasons which led to investment in the stock market.

He said he was also reluctant to invest EOBI funds in the stock market because of the risk of loss, but was directed to do so by the finance ministry. Mr Shafi said the then finance minister, Shaukat Aziz, was informed that government's sovereign guarantee should be there to pay the people if a loss occurred, but till date no such measures had been taken.

However, he said the EOBI had appointed consultants at Rs40,000 per month, who submitted weekly advice to invest in the stocks, but the institute could not guarantee security of the invested amount.

Mr Shafi said the results (returns on stock market investment) were in the "hands of Allah," and the amount had been invested in blue chip companies, including the OGDC, PPL, Hub Power and a few others on government's privatization list.

He said there was no alternative except to invest people's pension funds in the stock market as the interest rates given by the banks had reduced drastically.

Mr Shafi said limited investment opportunities, arrears of public companies and lack of cooperation by provincial governments to recover contributions from public sector enterprises were some of the major problems confronting the EOBI.

He informed the committee that a total amount of Rs666.69 million was outstanding against different public organizations. Responding to a question by Senator Naseer Mengal about strengthening of audit mechanisms in the EOBI, Mr Shafi said after the Rs1 billion scam, the organization had taken steps to appoint A-class auditors.

Replying to a question by Senator Tariq Azeem, he said the operational manual was not followed by the previous management which resulted in the scam. Secretary labour Hamayoun Farshori said the government had recovered a major chunk of the embezzled amount even though the former chairman, Barkatullah Sheikh, moved abroad.

The EOBI chairman said 11 officials were involved in the scam and Rs903.281 million, constituting 87 per cent of the total embezzled amount, had been recovered through National Accountability Bureau.

The committee, on the intervention of Senator Enver Baig, asked the officials to provide the details of the plea bargain with NAB and any steps taken by the government to contact Interpol to bring the absconding former EOBI chairman, Barkatullah Sheikh, back to Pakistan.

Earlier, when the proceedings of the committee started, the chairman pointed out some factual mistakes in the documents submitted by the bureaucrats. When Senator Prof Saeed Siddiqui pointed out that the ministry did not provide the relevant documents to the committee members on time, secretary labour assured the committee that measures would be taken in this regard in future.

Senator Siddiqui, who is also chairman of the Senate Standing Committee on Privileges, said most of the bureaucrats were not giving the required information to the committees in time.