Replacing hopium with reality Part - IV

A report titled ‘Federal Footprint State-Owned Enterprises (SOEs) Consolidated Report FY2020-22’ released by the Ministry of Finance last month says that the cumulative losses of 31 entities totalled Rs730.26 billion in 2021 — an increase from the previous cumulative loss of Rs665 billion of 25 entities in 2021. This proves that profitable enterprises dropped from 56 in FY21 to 50 in FY22.

Reforms and restructuring have already started under the State-owned Enterprises (Ownership and Management) Policy 2023, which aims to enhance the governance and operations of SOEs by ensuring transparency, professionalism, and effective management, while also addressing concerns of political influence and inefficiencies in these entities, by April 2024.

The most pressing questions are: when will the board nomination committee (BNC) in the relevant ministry/division be activated? And when will the BNC ensure compliance with the policy guidelines by making a proposal for the boards governing SOEs?

As the country remains stuck in bureaucratic hurdles that impede the implementation of the SOE policy, it simultaneously continues to dream of stemming the rot in our DISCOs. The ambitious goals include: privatizing them, introducing changes to the board of directors, and empowering CEO/management.

The authorities concerned also aim at establishing performance management units in five high loss-making power distribution companies to improve operations. This is a home-grown solution to improve instead of going with privatization.

Privatization efforts — despite the fact that the government recently had a successful sale of its holding in the Heavy Electrical Complex (HEC) which is the first case of the privatization of an SOE since 2015 — are not helpful in rebuilding confidence. The privatization process was finalized in the fifth attempt after a 14-year-long process. The cabinet’s approval was finalized in December 2020, the bidding process started in February 2022, and the process was completed in January 2024 (after two years instead of 60 days).

Change through a wealth fund or a revived PIDC is a disruptive approach and is essential given our history of privatization and our unsuccessful efforts for reorganizing. By retaining SOEs and implementing strategic reforms — enhancing transparency, merger and fostering innovation — we can harness the potential of SOEs and ensure that they contribute significantly to national development.

This homegrown solution requires continued long-term efforts and commitment with a clear understanding that there is no shortcut to the desired results.

We also have a Pakistan development fund of $1.5 billion — set up in 2014 – which is being activated now. But why is it being revived when Pakistan already established a sovereign wealth fund last year, capitalizing it with $8 billion in shares in state-owned enterprises? Shouldn’t the two funds be merged?

Shareholder activism has commenced to protect minority shareholders with successes, resulting in management changes and improvement in the bottom line. This is a good step and will play a significant role in ensuring the satisfactory performance of listed companies.

Economic experts suggest to nationalize IPPs to manage circular debt. This comes at a time when Category III projects have still been pursued since 2018/19 by the Pakistan Foreign Renewable Energy Forum, requesting upfront tariff instead of participating in bidding for the ever-expanding 600MWp project or in the solarization of public-sector buildings on the own cost model.

This is contradictory and further emboldens the issues with the power policy of the past — need for competitive bidding, circular debt buildup due to nonutilization in winter, take or pay provisions, GOP guarantees and ROE linkages to the US dollar.

Publications like the Citizens’ Commission for Equality and Human Rights Report 2023 and others that relate to the oppressed, downtrodden and discriminated segments of our workforce have fallen on deaf ears. The Employer’s Federation of Pakistan and Minimum Wage Board’s opposition to increasing the minimum wage in 2020 is reflective of our priorities and intent whereby alternate studies highlight that increasing the living wage to Rs51,700 per month is the right choice.

A multinational firm in Pakistan has shifted 60 per cent of its outer core — which includes an indirect workforce of over 12,000 people in their business value chain — to an average living wage of Rs52,000 with the goal to transition the remaining by 2025.

Another cellular company has provided a one-time inflation adjustment payout of up to Rs50,000 for its frontline and contractual employees falling within a certain salary bracket and has set the minimum wage for its permanent employees to Rs62,000.

Why are the APTMA, provincial governments, PSMA, FPCCI and other trade and industry associations not taking measures to facilitate the living wage for their employees on priority while seeking subsidies, protection and exemptions?

The narrative has shifted from Bangladesh as a success example to power tariffs for industrial consumers containing a cross-subsidy ranging from Rs10.85/kWh to Rs16/kWh. This subsidy is justified by the exports of $2 billion per month by a dedicated RLNG-fired power plant and lower wheeling so that cheap electricity is provided to industry without much opposition. But no solutions are offered on the issue of the misuse of cheap electricity and gas by some APTMA units — which are also involved in selling their products in local markets — nor on captive plants to operate on RLNG pricing or lowering priority order of zero-rated industry.

A new report by the IMF has said that the PSDP has become “unaffordable” with approved projects likely to take a decade-and-a-half to complete before accounting for cost increases as the total cost to complete the already approved projects in the PSDP is Rs12 trillion, against the budget allocation of Rs727 billion for the outgoing fiscal year.

Our projects’ lifeline is unsustainable and needs judicious optimization in line with strategic priorities. Are we thus willing to improve our perspective plan — Visions, IGCEP, National Electricity Plan and Policy, Transmission Line Policy, 5-year plans, etc — to include accountability and performance measurement under focus by the Pakistan NDRC?

The UN expects “modest economic growth” of 2.0 per cent in Pakistan in 2024, which is expected to improve to 2.4 per cent in 2025 whereas growth in South Asia is projected to remain robust at 5.2 per cent in 2024.

But projections in the World Economic Situation and Prospects (WESP) 2024 do not cause any debate or ripples in the county. It says, “ the effects of higher interest rates will continue to weigh on investment, and weaker global demand will lead to slower export growth,” and this should be cause for proactive policy actions.

It is not that we do not know of solutions or have not undertaken policy measures to deal with them, but why have we let hopium continue to manage us by presenting old wine in new bottles with no monitoring? This is mindboggling.

It is probably because as a nation we are not demanding resolution or improvement to bring efficiency to our governance system. The only manifesto required for the next five years is to ensure a GDP growth of 7.0 per cent with empowered local bodies. Otherwise viva hopium.

Concluded

The writer is an experienced professional who has served as managing director of Pakistan State Oil (PSO) and chairman of the Petroleum Institute of Pakistan and OCAC. He can be reached at: ihaque58@gmail.com