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Public Private Partnership

Published on 12th May, Edition 19, 2014

 

Many of the policy planners have the consensus is that the time has come for public-private partnership. It is on record that many of the state owned enterprises (SoEs) have been working very efficiently. It is also known that in some of the businesses, private sector is rather shy to invest because of: 1) huge capital outlay, 2) long gestation period, 3) lower return during the early years and 4) often high risk. If one peeps into the historic creation of the Pakistan Industrial Development Corporation (PIDC), it was the driving engine of Pakistan’s industrial sector. However, nationalization of banks, insurance companies, shipping companies, cement manufacturing units and even educational institutions forced the public sector to stay away from establishing units requiring huge capital outlay.

Though, the efforts were made to convince the private sector to acquire the nationalized entities, through privatization process, but by that time, many of the SoEs had gone virtually bankrupt or became technologically obsolete due to the lack of BMR, inefficiencies and massive corruption. Though, the successive governments succeeded in privatizing commercial banks and cement plants, some of the privatized units closed soon after privatization, one such example is National Fiber. During this period two of the leading DFIs: 1) Pakistan Industrial Credit and Investment Corporation (PICIC) and 2) National Development Finance Corporation (NDFC) also became virtually bankrupt. Industrial Development Bank of Pakistan (IDBP) was also ruined because it lent funds rather recklessly and then also failed in recovering the loans disbursed. It may be said that the government in the past used these financial institutions to buy out ‘political loyalty’ which evident from huge load of NPLs. Those who were dished out money had hardly any experience of managing sugar mills and running spinning units. Therefore, it is correct to say that these units failed because of being SoEs but massive corruption and inefficiencies.

As against these, enterprises like PSO, PPL, OGDC, SSGC, SNGPL, to name a few, emerged as some of the most efficient entities. One of the factors common among all these entities was listed on the local stock exchanges. This factor alone forced these enterprises to release annual accounts, make adequate disclosures and also pay dividends regularly. As against these annual accounts of unlisted entities like WAPDA, Pakistan Steel Mills were never released. It may also be correct that entities like KESC had attracted criticism only because they have been releasing their accounts. Even if anyone tries to find details about DISCOs and GENCOs hardly any detail is available.

 

This could be understood if one looks at the public sector power generation companies. Details about installed and dependable capacities are unknown. It is almost impossible to determine the cost of generation. That is the reason that even the government does not know the exact dependable generation capacity. While many of the independent analysts say that the country has an aggregate installed capacity of over 28,000MW, Ministry of water and power still claims that generation capacity is around 18,000MW. This is only to cover up the inefficiency because the actual generation ranges from 12,000MW to 15,000MW and the difference is mostly attributed to levels of water in dams, which varies during winter, summer and monsoon season.

Many of the SoEs have not been working efficiently because the positions of Chairman/Managing Directors of these entities remain vacant for years. Lately, the GoP has announced ‘Roadmap’ for the insurance sector but three of the public sector insurance companies, namely NIC, PRC and SLIC are without the chairmen for years. The largest public sector commercial bank, NBP remained without a president for months. It is also on record that the acting governor of the State Bank of Pakistan was formally designated Governor a few days before the expiry of his acting governorship. All these examples clearly establishes one point that the rulers are not really concerned about these entities. The other SoEs that have remained without function head for a long time include TCP and TDAP.

Therefore, it is right to say that being in public or private sector is not the point of concern, but the actual problem is mismanagement, inefficiencies and corruption. Many of the heads of SoEs are appointed in complete violation of selection criteria. The result is that the appointment of incapable persons initiates the process of decay and sooner than later, these entities become virtually bankrupt, the most obvious names include PIA and Pakistan Steel Mills. Entities like SSGC and SNGPL are also heading towards doomsday because of mounting receivables, failure to revamp their transmission and distribution networks (resulting in huge UFG).

It is never too late to mend. In the incumbent government is serious in containing losses of SoEs, the first step is to appoint ‘right’ heads with the authority to weed out inefficient workers, most of the SoEs suffer due to over employment and appointment of ‘political activists’. The SoEs are not the ‘orphanages’ to provide food and shelter for political activists. Even if they are appointed on the recommendation the only factor to measure their output is efficiency. If the private sector is brutal enough to keep efficient people why should inefficient live on public money. Half a trillion rupees swallowed by the SoEs is not a small amount. In this amount better education and health care to the masses can be provided. The SoEs should be the role model for the private sector.

It is absolutely incorrect to say that good people are not ready to work for SoEs. The only authority these people demand is right to ‘hire and fire’. Unless performance becomes the hallmark of SoEs these will continue to incur losses. Injection of fresh liquidity or bailout packages is total loss of tax payers money. Therefore, appointment of directors and functional head from the private sector should be the name of game.

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