KARACHI, Feb 22: With improved corporate governance, some major state enterprises, have achieved a turnaround.
These companies have acquired a reasonable degree of autonomy, vested in independent board of directors. They enjoy operational freedom within regulatory framework and official policy guidelines.
Corporate visions have changed from old perceptions about socio-economic objectives of state enterprises, to making state- run units commercially viable to facilitate their privatization. Gradually, the regulated economy is giving way to emerging market.
Given the right systems and improved corporate governance, the turnaround indicates that the much-maligned public sector organizations can also perform. But, according to free market concepts and principles, it is not the business of the government to be in business. So, they will be privatized. Since the locals do not have enough money to buy major state enterprises, like PSO, Habib Bank or PIA, they would be sold to foreigners or joint ventures with domestic strategic investors.
Within these autonomous performing organizations, departmental teams have been empowered to take decisions at their own levels. For this, professional skills have been upgraded. And the layers of hierarchical commands have been reduced to expedite decisions and improve performance.
Like in the PSO, corporate executives communicate more vigorously with staff on company’s business vision to bring about a change in outlook and work culture. The greatest and the most important is the human asset, says Tariq Kirmani, PSO managing director.
Through improved systems of governance, PSO has been able to compete successfully with multinationals. His company’s performance prompted last week the 21st Century Business Club to pick up the PSO’s turnaround as “a case study for contemporary business” and to subject it to a critical analysis by business executives at an exhaustive presentation by Mr Kirmani.
According to PSO’s annual report 2002, the company made an all time high record before-tax profit of Rs5.1 billion and paid highest ever dividend comprising 130 per cent cash and 20 per cent bonus shares. It contributed Rs50 billion to the national exchequer.
And despite the war clouds hovering over the Middle East, the state-run Kuwait Petroleum Corporation, the Saudi Arabian group MIDROC and a local business group participated in the second discussions held on February 19 and the bid for PSO sale was fixed for April 26. Meanwhile, the Privatization Commission is expected to get issues like PSO’s dues stuck up with WAPDA and KESC resolved. The company’s profits and potentials are keeping the buyers’ interest alive.
The list of state enterprises showing improved performance is expanding. These include two leading commercial banks, NBP and HBL, the Pakistan Steel Mills, PIA and the Railways. The upgrading of skills—induction of competent professionals and vigorous updated training programmes—have played a key role in improvement of corporate management and in the financial performance. The quality of professional bankers is as good as of civil servants, says Dr Ishrat Husain, governor of State Bank.
But there is some lurking fear that the quality of manpower is under threat from pressures to employ applicants of the choice of the ruling politicians. The SBP governor has advised commercial bankers to resist these pressures. The best way to do this, he said, is to subject the recommended candidates to the same processes for selection, as is applicable to others.
Addressing the 52nd annual general meeting of the Institute of Bankers on Thursday, Dr Ishrat said the appointments should be made on merit in a transparent way and not on the whims of the banks’ chief executives.
In the Central Bank, he said, free market practices have been introduced for recruitment, assignment and promotions. Applicants compete for jobs. Various departments are made to compete for best talents, recruited by the central bank, on the basis of their presentations. Promotions, from one grade to another, are subject to compulsory training programmes and refresher courses. Of course, the staff, whatever its technical qualification, is assigned to various departments, to acquire understanding of the key function of the central bank.
The State Bank and the Ministry of Finance support the independence of board of directors of the leading state-owned commercial banks that has helped improve the corporate governance and financial performance.
HBL president Zakir Mahmood says that HBL had reduced its non-performing loans by 50 per cent and its after-tax profit has soared to Rs2 billion in 2002 from Rs1.1 billion in 2001. In 1999, it suffered a loss of nearly Rs1 billion. The HBL is moving towards sustained growth.
Similarly, Pakistan Steel says that its productivity has gone up from 37 tons to 59 tons per employee. In 2000-2001, it made a profit of Rs552 million. PS chairman Lt-Col (Rtd) Mohammad Afzal Khan says that the steel plant was operating at 101 per cent capacity and his company is out of the debt trap. Now, the capacity of the plant is being enhanced from 1.1 million tons to 1.5 million tons with Russian assistance.
Of course, the losing utility companies like Wapda and KESC have not shown any worthwhile improvement. And they account for a lion’s share of Rs100 billion aggregate losses of public sector units.
In recent years, the National Bank of Pakistan, has also undergone major restructuring that has helped the bank improve its profitability and cut its operating expenses. Between 2000 and 2001, to quote a Taurus Securities analysis, the NBP’s profits went up by 149pc. Interest incomes grew by five per cent and interest expenses were down by nine per cent. The after-tax profits have risen to Rs2bn in 2002 as against Rs1.49 in the preceding year.