ISLAMABAD, Jan 31: The code of corporate governance for state-owned commercial entities has been approved by the SECP Policy Board.
It is expected to bring more transparency in the operational matters of the Public Sector Enterprises (PSEs) and plug their huge losses.
The Public Sector Companies (Corporate Governance) Rules were approved by the SECP Policy Board, chaired by Wajid Rana, secretary of finance here on Thursday at the SECP head office. The rules which are expected to be implemented in three months are aimed at improving governance framework of public sector companies (PSCs) to bring about greater transparency and plugging huge losses in public sector enterprises, which are estimated to be around Rs400 billion per year.
The rules have specifically been designed for those PSEs which are not listed on any stock exchange, but they will not apply as entities that are not companies.
“Around 130 PSEs are in the companies form and these rules will apply on them,” SECP Chairman Mohammad Ali told Dawn after the meeting. He said that major impact of these stringent corporate structuring rules would be visible in the energy sector and the government would have to improve structures and operational matters of electricity generation companies (Gencos) and the electricity distribution companies (Discos).
The other main PSEs falling under this category are steel mills and NICL.
For PSEs already listed, two sets of rules would apply: Public Sector Companies (Corporate Governance) Rules after their notification and Code of Corporate Governance for the listed companies which have already been approved.
The Corporate Governance Rules for PSEs would not be applicable to PSEs that are not in the company structure or have been formed under statuary order.
“There are less than 25 such PSEs which are not in a company form and apart from Pakistan Railways the financial impact of losses made by these commercial entities is very small,” said the SECP chairman. These rules have been designed in view of distinct governance challenges faced by the PSEs.
The summary presented to the policy board by the SECP said that there was an urgent need for turning around the performance of PSEs, minimising political interference in their management and ensuring effective use of public assets and resources.
Now rules shall be forwarded to the Ministry of Law and Justice through the Ministry of Finance for vetting and approval as required under the law.
After 90 days of their promulgation, the rules would apply to all public sector companies which are directly or indirectly controlled, beneficially owned or in which government holds not less than 50 per cent of voting securities.
The SECP worked on the project for almost two years after directives from the Cabinet Committee on Restructuring of State Owned Enterprises (CCOR).
However, a major challenge for the SECP and the government in coming months would be the expected resistance from ministries concerned in the implementation of the Rules.
The rules would reduce interference and influence of concerned ministries in operational matters, besides the appointment of board members and the CEO would be subject to fit and proper criteria laid down by the SECP, including person’s qualifications, experience and business expertise.
“It is clearly laid down in the Rules that the board shall have 40 per cent of its total members as independent directors within two years of the notification of the rules, and a majority of independent directors within four years,” the chairman said, adding that it would eventually make entities work in a professional and competitive manner without dependency on the ministry for decision-making.
The CEO will be appointed on the recommendation of the board of directors, and the board would recommend three names and the government will appoint one of them.