ISLAMABAD:The Pakistan Tehreek-e-Insaf (PTI) government remains indecisive about the critical issue of whether to restructure the loss-making state-owned companies or privatise them as it is now moving a new summary to complete the board of Sarmaya-e-Pakistan Limited (SPL).
The Ministry of Finance has sent the summary for consideration of the Cabinet Committee on State-Owned Enterprises for completing the board of SPL that has remained dormant for the last many months.
A year ago, six directors of SPL, including its chairman, had resigned from their positions while complaining about lack of legitimacy and empowerment of the board, according to the Resources.
Four new names have been proposed for appointment as directors without first addressing the issues that became the reason for the other directors to quit the company that was considered a solution to ills of government-owned entities.
“The company has no funds, employees or office at present, neither has it started functioning. Yet the expectations from it are high,” wrote Ehsan Malik, then chairman of SPL in his resignation letter addressed to Adviser to PM on Finance Dr Abdul Hafeez Shaikh. “The way things stand today it seems that privatisation of SOEs may just be the route now under consideration of the government rather than adopting the policy objectives of SPL,” according to Babar Badat’s resignation letter – another former board member.
After Asad Umar’s exit as finance minister, SPL became dormant and out of eight, six members resigned from their positions. Those who had resigned included Kamran Y Mirza, Musharraf Hai, Babar Badat, Nadeem Babar, Ehsan Malik (chairman) and Waqar A Malik.
Umar wanted to restructure the loss-making enterprises but the government took a U-turn after Shaikh became the finance adviser. Shaikh revived the stalled privatisation programme but in the past one year nothing moved forward.
Now, the finance ministry wants to complete the SPL board while the cabinet committee on SOEs in its last meeting also set up a committee under Hammad Azhar, Industries Minister, to find a way to restructure these enterprises. In November 2019, the board of directors of SPL had recommended six names for appointment as directors but two of them refused to accept the positions.
Those who have accepted the position included Ali Jameel, Aamir Qawi, Navaid Malik and Aamir Ibrahim, according to a summary of the Ministry of Finance that it forwarded on June 23.
According to the company’s documents, the board should comprise 11 members, including eight independent directors. The new four names were not in the list of 21 individuals that Asad Umar-led finance ministry proposed in January 2019 for consideration of the federal cabinet.
The Cabinet Committee on State-Owned Enterprises had recommended that the board should form a conflict of interest policy under corporate governance rules.
The PTI government had incorporated SPL in February 2019 to restructure and revive the loss making enterprises. Its TORs included “direct, supervise, oversee and coordinate the management of the subsidiary companies”. The Cabinet Committee on SOEs has been tasked to oversee the work of the SPL, which is headed by Shaikh.
Kamran Mirza had resigned in July last year, Musharaf Hai tendered resignation in June last year. In his resignation letter, Hai had raised the question of legitimacy and empowerment of the company to deliver the intended objectives. Former board members had demanded that the company can only be given legitimacy through an Act of the Parliament. They had also sought indemnity for decisions taken in good faith.
While referring to the chairman SPL’s conversations, Hai wrote in his letter, “he (chairman) had cautioned against unrealistic and premature expectations premised on unsustainable short-term, quick fix solutions”.
“It seems that the commitment and/or the capability is lacking presently to empower SPL to act as an effective restructuring and reform vehicle originally envisaged,” according to Hai’s resignation letter addressed to the finance adviser.
Hai had also raised the issue of giving preference to privatisation over restructuring of the enterprises.
In its previous meetings, the SPL board had considered various options to take control of the loss making entities. These included transfer of ownership in the name of the SPL through a legislative framework. But certain members objected that this cannot be done without legal structure. The second option was to take control of the enterprises through proxies but the board members said that this path too was risky and unclear, according to the finance ministry documents.
The last option was transfer of ownerships of SOEs from line ministries to the SPL through amendments in the rules of business of 1973. The board had recommended to the government for transfer of ownership of SOEs from line ministries to the SPL through transfer of shares and also sought clarification from the Law Division for amendment in the rules.
Around 85 commercial SOEs were working under the administrative control of 19 federal ministries but the overall performance of SOEs had remained unsatisfactory despite a considerable financial support provided by the federal government from time to time. During fiscal year 2017-18, an amount of Rs143 billion was provided to various SOEs in subsidy, Rs204 billion in cash development loan, Rs27 billion in equity injection and Rs318 billion in sovereign guarantees, bringing total support to Rs692 billion in just one year.
Despite such a large support amounting to Rs692 billion in a single year, the SOE sector, as a whole, registered net losses of Rs265 billion in 2017-18, according to the finance ministry.