KARACHI: Priviledge problems continue to plague state-owned companies (SOEs), both those that have been privatized and those that still operate. This suggests that the intended results of the reforms have not been realized.
A 40-page research titled “Reforming State-owned Enterprises in Pakistan” was also included by the State Bank of Pakistan (SBP) in its Annual Report 2023–2024. The study listed a number of reasons for the failure of SOE reforms, chief among them being a lack of political will.
For example, the report claimed that increases in service performance and profitability were demonstrated by the privatization of Karachi Electric Supply Corporation (now K-Electric). “Nevertheless, due to numerous unresolved sectoral policy and governance issues, its consumers continue to face high electricity costs and frequent power outages,” the report continued.
In a similar vein, the government raised non-tax revenues through the capital market transactions of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL), with the expectation that stock market listing would allow for stricter corporate governance and more robust checks and balances.
The study identifies the main problems as a lack of political will, a sluggish process, and legal obstacles.
The research noted that, in contrast to the banking and telecom industries, where SOE privatization was accompanied by a number of policy and governance reforms, “the unresolved sectoral and business policy issues continue to be a burden on these SOEs’ operations and finances.”
A analysis of privatization agreements broken down by sector shows that even in smaller, less complex organizations like Roti plants, the process has been drawn out, taking anything from six to sixteen years to finish.
Furthermore, starting in 2001, the capital market was used to carry out significant transactions, most of which had to do with the banking, telecom, and energy industries.
The report stated that “public confidence in the process waned as a result of several legal and institutional weaknesses, as well as transparency and procedural issues in some privatization deals.”
In an effort to revitalize them, certain SOE reform initiatives focused on enhancing the internal operations of specific SOEs. The report stated that the lack of sound corporate governance and other supporting reforms caused SOEs’ business operations, profitability, assets, and service delivery to deteriorate even when such attempts were made with full governmental support, as in the cases of PIA and Pakistan Railways. “Boilout packages were consequently offered, and a vicious cycle developed.”
There were 121 federally-owned SOEs at the end of FY23; 73% of them were for commercial purposes, with the remaining portion being non-commercial due to various sectors development requirements. The primary sectors into which the federal commercial SOEs are divided are finance, manufacturing, trading and marketing, infrastructure, oil and gas, power, and information technology and communication (ITC).
“These organizations provide jobs and bring in money for the government, but they also frequently need support from the government, which has an impact on the government’s capacity to maintain fiscal stability. According to the analysis, these SOEs consistently reported losses on a net basis between FY16 and FY23.
