Redefining Perspectives on State-Owned Enterprises of Pakistan

Privatization has remained a controversial issue in least-developed countries. So is the case in Pakistan as the International Financial Institutions (IFIs) including the World Bank, and International Monetary Fund (IMF) repeatedly demand the government of Pakistan to privatize the loss-making State-Owned Enterprises (SOEs) so the financial burden on the annual budget is relieved.

The SOEs are underperforming in Pakistan due to multiple reasons. Political appointments, lack of modernization, overstaffing, and poor management have been cited as major reasons behind the poor performance and hence loss making of SOEs. Interestingly, majority of the SOEs in Pakistan were once profit-making and contributed to the economy through revenue generation and job creation. However, over the course of time, these profit-earning entities converted into the loss-making units.

Despite the popular discourse espousing SOEs as a burden on the national exchequer, Pakistan’s SOE’s landscape proves that there cannot be a one dimensional picture of the success or failure of SOEs

Pakistan’s SOEs mainly operate in power, oil and gas, infrastructure transport and communication, manufacturing, mining and engineering, finance; industrial estate development and management; and wholesale, retail and marketing. Out of these, power distribution companies, Pakistan Steel Mills, National Highway Authority and the Pakistan International Airline feature in top ten loss making entities (See “The Future Of State Owned Enterprises In Pakistan” by Dr Ishrat Husain). Incidentally, despite the popular discourse espousing SOEs as a burden on the national exchequer, Pakistan’s SOE’s landscape proves that there cannot be a one dimensional picture of the success or failure of SOEs. For example, in the financial sector, the SOE Zarai Taraqiati Bank features as one of the top ten loss making entities. However, the National Bank of Pakistan features in the list of top ten profit making entities. Similarly, the National Transmission and Distribution Company ranks as one of the top ten profit making SOEs, even when majority of the electricity supply companies feature in the loss making list.

Presently, Pakistan is at the crossroads of a financial crisis in which it has to pay off huge loans along with interest payments to international lenders to avoid default. The scenario demands a rationale to keep the SOEs in the government basket or privatize it.

The world has witnessed rapid advancement in technology, and management models over the last two decades. Businesses are increasingly adopting latest solutions for growth and progress. However, Pakistan’s SOEs are accused of following the same old model of governance and management since its inception while being unable to compete with the latest market practices. While the Government of Pakistan employs the typical neo-liberal argument of “It is not the business of the state to run a business” in favour of privatization, there have been vocal anti-privatization advocates that draw attention to the post privatization trajectory of former SOEs and the decay the privatized entities had to face at the hands of their new buyers. For example, the Pakistan Telecommunication Company Limited, after privatization, went on a selling spree of immovable assets that it acquired from privatization. The K-Electric, an electricity supply company, after privatization has not only failed to serve consumers by providing uninterrupted power supply, it is also forcing Karachi’s electricity consumers to pay the highest per unit electricity charges in the region. Economist Dr Kaiser Bengali also cites the case of Zeal-Pak Cement, which, privatized in early 2000s, was a profitable enterprise under the public sector, but went bankrupt within months of privatization.

Activists and experts critical of multilateral development banks’ role in Pakistan’s economy vehemently question the policy of privatization of energy sector, pushed by IMF and World Bank in the ’90s. The policy has led to expensive subsidies for the private power producers and reliance on expensive thermal power generation leading to environment degradation.

Despite strong evidence of poor results of privatization, the dominant narrative among the government circle remains in favour of privatization, especially focusing on the loss making entities. However, as mentioned earlier, privatization itself is a tricky and complex issue with political consequences. The SOEs of Pakistan have significant commercial market presence, especially in the energy and communication sectors. Both sectors are directly related to the public wellbeing. Move to privatize these entities may lead to higher price of services which is likely to affect citizens, already distressed by inflation and economic downturn.

A large segment of SOEs play a crucial role in providing essential services, such as energy, communication, and transportation with accessibility and affordability to the masses at large.

For instance, privatizing the Pakistan Railways (PR) or PIA will increase the cost of the services to the public as well. Besides, globally, Rail networks are strategically important for defence purposes. In the case of Pakistan which is a security state, will the privatization of the rail network be possible? Similarly, PSO is another strategically important SOE. The entire petroleum and energy sector of the country relies on it. What scenario of privatization could be adopted?

Since the SOEs play a crucial role in providing essential services, such as energy, communication, and transportation with accessibility and affordability to the masses at large, Pakistan needs a fair market practice to safeguard the public interest and retain relevant SOEs. Besides, the government needs to start strategic reforms, increase transparency, and adopt innovation in SOEs to enable them to function efficiently.

Redefining Perspectives on State-Owned Enterprises of Pakistan

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