Privatization of the State Owned Enterprises in Pakistan – Public Private Partnership Model

By: Goher Raza Khuwahar

In the context of privatization of underperforming or loss making public enterprises of Pakistan, there has been an attempt to understand the overall impact of the privatization on both Government Balance sheet and on people. The privatization of SOEs (State Owned Enterprises) was started during first term of PML-N. Success of the initiative is supported by the fact that privatization strategy was adopted by all governments since 1991 with a goal to reduce the burden on public spending, improve efficiency of SOE’s and transfer benefits of privatization to the people in terms of better quality, service and reach. Ever since 167[1] SOEs of various sectors have been privatized generating over 476 Billion Rupees to national exchequer.

What concerned me was question of why the SOES are performing poorly? Being a student of public administration, the answer was quite obvious: the role of the government should be focused to govern and not to engage in other activities. According to Dr. Ishrat Hussain, two main reasons for the underperformance of SOE’s are questions of agency, as the oversight board has no direct personal stake in the performance of the enterprises and therefore there is little interest in improving the profitability. Secondly top management lacks technical and managerial expertise to turn around the companies into profitable organizations. As a result users or consumers receive very poor service or no service at all at times from SOEs raising doubt among citizens on the expensive existence of these enterprises.

Going back to the roots of the governance, the primary function of the Government is to provide wellbeing to its citizens. Historically, the nationalization policies of past governments although with all the good intentions have been beneficial for only short term and added burden to government in a long run due to their performance. On contrary, performance of public enterprises has stigmatized the image of the Government. It is surprising fact that government is injecting between 400 to 500[2] billion rupees annually on 35 public enterprises to keep them running and has inserted 1.5 trillion rupees over past five years in form of subsidies. The PIA success model adopted by others in 70s has now become worlds one of the least efficient airline with 742 employees per each of its 26 operational airplanes,[3] losing estimated 100[4]million rupees per day. Seven billion rupees were given to PIA to maintain its operations in 2013 alone. It’s also a fact that Pakistan is a poor country and airline is for privilege class of the society.

Pakistan is not unique with this problem of poor performing government enterprises. All over the world SOES are either performing badly or their performance have remained constant. Privatization or Public Private Partnership has indicated impressive results, such as in the case of PTCL and KESC. Both the organizations have turned around their accounting sheets. Even the proponent of communism, China is transforming its SOE ownership structure, to mixed ownership of public private partnership so their performance can be improved.

In the light of discussion, a viable option for a developing nation like Pakistan is privatization of all such inefficient enterprises by restructuring their ownership. Some of the proposed benefits of the privatization on the national economy are generation of funds, creating employability in a long run, improving productivity, more savings, controlling inflation, improving the efficiency through private ownership, FDI. All the benefits when combined together will positively add to the GDP. The opponents of this view may argue that poor will pay the high price due to privatization of strategic resources such as railways, steel mills, financial institutions and airline. However, the government should be concerned with raising the standard of living of its people so that accessibility of services is within their reach. This can only be achieved by improving the economic conditions and not through subsidizing the mismanaged SOEs. Secondly, the good service comes with good price, and lastly it’s better to have a service than having no service at all. If the structure of SOEs is unchanged, their performance will continue to deteriorate having trickledown effect on government’s performance.

From 1991 till 2011 over 167 SOE were privatized generating 476.4 billion rupees. Most of the sectors were telecommunication, banking followed by industries and energy Fig 1

In this difficult time we all should support the cause of privatization in the greater benefit of Pakistan. The success of the only solution of adopted post privatization/semi-privatized structure is also highly dependent on transparency of the process, conditional to clear economic patterns and political certainty in a long run.

[1] Source: Privatization Commission of Pakistan

[2]http://online.wsj.com/news/articles/SB10001424052702303796404579096762637188256

[3] http://www.dawn.com/news/1045341/privatise-pia-to-save-it

[4] http://www.nation.com.pk/islamabad/31-Aug-2013/pia-facing-rs-100m-loss-daily

Pakistan’s Planning Machinery in a Limbo

Written by: Muhammad Saqib Tanveer

There are certain things for which you can’t legislate. You can’t legislate for or avert an earthquake, Katrina or aridity. What you can do is, you can plan and install necessary checks to limit the damage. Fortunately, in Pakistan, we have laws for almost everything. We have requisite organizations like Planning Commission to plan and forecast, NDMA, ERRA and several other organizations for damage limitation but their performance can be measured from the current state of Pakistan. Dismal it is.

Unfortunately, in Pakistan, you don’t have the mechanism to repair the damage, let alone the damage limitation phenomenon.

Every year we know there will be floods. Every year we know there will be water scarcity. But what do we do to tackle these issues? Nothing, literally NOTHING. We know our foreign reserves are dwindling on a daily basis but what concrete steps are we taking to solve the issue? Ah yes, 3G auction and money from Etisalat is yet to fill our coffers. Good luck with that.

People talk about planning and Pakistani government trying to move ahead and plan for the future. But we have been hearing this mantra for the last 6 decades. Pakistan’s planning machinery is in a complete shambles.

Planning, in essence, is the name of being proactive and being ready for the future. Instead of being proactive, we are totally reactive. We take actions when the thing has actually happened and then give our expert opinion in hindsight.

Our planning machinery i.e. Planning Commission of Pakistan (apex planning body of Government of Pakistan), has been an experiment lab since its birth in 1950s. We have tried to implement every available economic policy on the face of earth to kick start development in the country. Our economic policies are based on individuals, not on ideas. With the departure of that policy formulator, his policy and all his 3-5 year work goes down the drain.

We have never been able to find that consistency. A plan always seems romantic and beautiful on paper and we have been doing that ‘romantic and beautiful’ stuff all our lives. How many times have we focused on actually implementing those plans? Once, maybe twice – not more than that. And those efforts were always disrupted by military coups.

How to find that ‘consistency’? Planning Commission should never be like any other bureaucratic ministry where it takes weeks for you to get a file approved. But this is how it is. To make sure, we have consistency and sound plans, we must make the commission apolitical. There should be a Minister to guide and oversee the policy but the role of Deputy Chairman Planning Commission must be an apolitical one and, if possible, a constitutional one. Making the Deputy Chairman Planning Commission a constitutional post will allow the incumbent to operate for 4 or 5 years without a disruption and implement or plan with full efficacy. This is how you find consistency.

Then there are structural problems. As Commissioner Gordon says in The Dark Knight Rises, “Structures can become shackles.” Indeed, the structures have become shackles. These very structures, that were supposed to strengthen the foundation of this system, are acting as termites. Problems are countless and we need vigilantism (sort of) to get rid of these shackles. Textbook rules and procedures have become redundant. Problems are massive and we need to go out of the box to find solutions to these gigantic self-crafted problems.

Government organizations have carried massive studies to bring reforms and restructuring but we haven’t yet witnessed any notable change. There is a dire need to restructure the Planning Commission and tailor it to our needs. Planning Commission does have a technical section to cater ‘almost’ every sector. But does it have the necessary manpower?

There are guys who can (that ‘can’ is also debatable) evaluate/appraise an information technology project but are these very guys using IT as a tool themselves? The answer is a clear NO. How can you bring a change in the system when you aren’t practicing it yourself?

We have this conventional knowledge bin, where you have a simple textbook answer to each complex and different question. There is no coordination among government agencies. A glaring example is construction of a five star hotel in Islamabad. The project and construction of that hotel was approved by CDA but no one asked or cared to see if Civil Aviation Authority laws permit construction of sky-high building within 50 kilometer radius of an international airport. As it stands, the three towers (shopping mall, residence and office) are there but the fourth giant hotel building is still awaiting approval for construction. Same was the case with another hotel near the red zone in Islamabad. How could authorities allow another sky-high private sector hotel, giving a clear aerial view of red zone to any potential miscreant? List of our incompetency is endless. We have never planned.

It is about time, we gather our resources, coordinate and come up with a planning body that can actually plan and forecast and has the teeth to say no or yes to any project that serves the national agenda, not some blue-eyed crony.