Getting concessions

LAHORE: State owned enterprises mostly enjoy privileges that are not available to their privately-owned competitors; yet they fail to take advantage of these privileges.

The undue advantages enjoyed by SOEs negatively affect competition. It is therefore necessary to ensure to the greatest extent possible that these public owned enterprises are subject to similar competitive conditions as private enterprises.

Basic competitive advantages enjoyed by SOEs include; outright subsidisation, concessionary financing and guarantees, other preferential treatment by government, monopolies and advantages of incumbency, captive equity and exemption from bankruptcy rules and information advantages.

In such an overly protected environment, it is impossible for the private sector entities to compete with the SOEs. Private enterprises enjoy no such advantages and are subject to actions from the banks if they default on their payments.

One reason for forming SOEs is that they are expected to behave differently from what private entities might. For example, in the case of transportation the SEO is expected to on serve socio-economic routes and to ply on un-economic routes in order to serve Universal Service Obligation (USO).

The question, then, is whether the state’s objectives can be pursued in a manner that does not impair the competitive landscape. Certainly, the SOEs must operate in a regulatory environment where the subsidies on targeted routes are calculated and the general efficiencies of the entity are not compromised.

The problem with SOEs is that entire staff has no incentive to ensure that these entities grow in line with the private sector entities. This can only be possible if they operate efficiently. In private sector the inefficient companies automatically close.

Their sponsors and the employees have the vested interest that they operate efficiently or lose their capital and jobs. In SOEs the jobs are secure so much so that the employees of Pakistan Steel Mill continued to get salaries and perks even three years after the mill stopped production.

Similarly, one or two cement plants that could not be privatised burdened the state with the salary of their employees for decades. The appointments in SOEs are mostly made on political considerations and not on merit.

This is a recipe for disaster. There is nothing wrong with Pakistan’s economy; the main issue is that of governance.

For most of our history the SOEs in Pakistan were protected by law on uncompetitive practices.

Now the law is there but the state enterprises are still operated translucently.

It is indeed a matter of shame that we still have some state entities that are rich in basic infrastructure and required equipment but those managing it are not competent to take advantage of that wealth. Take for instance the Railways. It has a well-established rail track weaved around the country.

The track is operative from Karachi to Peshawar and Balochistan. We are using the Railway network to haul passengers to different parts of the country in the most inefficient way.

The main passenger trains connect mainly the large cities. The system in the Railway is such that it provides several free tickets yearly to its current and retired employees and their families.

The retired employees outnumber the exiting employees. Pakistan Railways also provides 50 percent concessions to the members of armed forces. It gives journalists almost 75 percent concession.

A major chunk of rail passengers belongs to these concessional classes. Its passenger train operations therefore run in loss.

The Railways has also privatised few of its trains that the private sector operate against guaranteed daily payment to the Railways. Whatever the state-owned entity gets daily from private operators is pure profit.

Still the present government has launched numerous new passenger trains as a public appeasing measure. The authorities boast the gross revenue of Railways has been greatly increased.

They never tell how much loss the Railways incurs on each new train as well as on old ones. Why can’t the entire passenger train operation be privatised?

It will save Railways from loss. It is worth mentioning that the private operators do not give any discount to any passenger be it Railway employees, armed forces personnel or the journalists.

It is perhaps the vested interest of those getting concessions (the existing employees are major beneficiary) that stops the entity from privatising the entire passenger operations.

There is a dire need to revitalise the Railways for transportation of goods. Railways is the cheapest mode of goods transportation in the world.

We are not dispatching even 10 percent of our goods through this mode. Our entrepreneurs pay extremely high transportation charges when they haul goods through trucks.

It is criminal that despite having an adequate rail line infrastructure Pakistan is still dependent on trucks for transportation of goods. One engine can pull 100 bogies (wagons) that could carry goods load equivalent to 300-400 trucks. The annual oil saving if this mode dominates (it can as it has the potential) would be in billions of dollars.