Pointing out that two main regulations of the Securities and Exchange Commission of Pakistan (SECP) relating to developing corporate governance were not applicable on most of the Public Sector enterprises (PSEs), which were utmost required to bring them out of the massive losses being inflicted year after year to the exchequer.
This was stated by experts at a round table meeting to deliberate on the draft regulations for public sector companies, organized by the SECP, Economic Reforms Unit of the Ministry of Finance, the Center for International Private Enterprise (CIPE) and the Pakistan Institute of Corporate Governance (PICG). The speakers stressed for imparting corporate governance in PSEs, as large number of PSEs have legal protection, enabling their line ministries to supersede the Companies Ordinance and the Code of Corporate Governance for listed companies. The draft regulations for PSEs have been formulated by SECP, with the view to improve efficiency of the government owned enterprises and reducing the burden on national exchequer incurred annually to maintain these commercial entities in operating conditions.
Finance Minister, Dr Hafeez Shaikh, said that one of the most difficult task was to bring all the PSEs under similar legal ambit. He noted that altering the legal structure of these PSEs was a serious task. It is a complicated matter as many entities were companies but have legal protection against complete implementation of the companies ordinance, some were companies but the role of line ministry is too strong in their affairs whereas some like the Pakistan Railways and the NHA did not even have any company status.
It was noted in the roundtable that the line ministries were resisting the change. Finance Minister, who is also the chairman Cabinet Committee on Restructuring of PSEs agreed that the line ministries were still involved in short listing and appointments of the MDs and the CEOs of these PSEs.
The line ministries are policy makers as well as the operators of these commercial entities- the managements are heavily influenced by bureaucrats and the decision making is either too slow or not in right direction to make profits, he said adding that the general trend is that someone who is a secretary of any social sector ministry would be operating a production. He said the new regulation on PSE would be the first step in breaking the ground. He said PSEs have a structural problem, making them uncompetitive in an open market scenario, as a result government has to inject finances to reduce losses and eventually the loss making cycle continue to increase. The draft regulation to bring corporate governance in the PSEs highlights that entities be organised on corporate lines, where the boards would have independent and professional directors while the chairman of the board would be elected from within the board. Other speakers at the roundtable said that the issue of PSEs is a global trend and almost every country has faced this problem when the government owned businesses become heavy financial burden.
Former governor SBP Dr Shamshad Akhtar said that strong regulators can resolve the problems related to mismanagement and operational flaws in the PSEs. She highlighted the case of Temsek Holding Company of Singapore, which is a subsidiary of their ministry of finance, but neither the president nor the government of Singapore can interfere in the affairs of the Temasek Holding. The board is autonomous but there is very strong accountability and audit of the company. International experts the participants about Finland where PSEs accounted for major share of government financing up to early 1980s but after corporate restructuring more sector have been opened to competitive businesses. It was informed that in Finland a maximum of one government official can be in the board of a PSE, while the role of politicians has been nullified, the government being the majority share holder makes policy decisions and sets targets the operational matters are decided by the boards.
Chairman SECP Muhammad Ali said that it was unrealistic for Pakistan to have situation like Singapore but with constant up-gradation of laws would help bring more transparency and competition in the PSEs. Pakistan has around 114 PSEs and 23 of them are listed in stock exchanges of the country, though not all the PSEs are loss making but only the top eight make an annual burden of Rs 300 to 400 billion on the national exchequer, the corporate structuring is expected to steer out these PSEs out of loss making cycle and enhance the inflows if profit making PSEs.
Around 120 participants from various ministries and public sector companies, including senior bureaucrats, key executives, CEOs, accountants, professionals and lawyers attended the roundtable. During the session, highly interactive and detailed deliberations were made on the draft regulations.
