Despite claims by the Cabinet Committee on Restructuring (CCOR), the government has failed to reform the Public Sector Enterprises (PSE) during 2011-12. The government had earlier announced the management would be replaced with professionals to make the entities profitable.
Prime Minister Yusuf Raza Gilani announced in December last year to form a task force headed by Finance Minister Dr Abdul Hafeez Sheikh, to address the issue of energy crisis and for the transformation of public sector entities, including Pakistan International Airline (PIA), Pakistan Railways and Pakistan Steel Mills (PSM).
According to Finance Minister, Hafeez Shaikh, the government spends an estimated Rs 250 billion as PSE bailout cost every year. A total of Rs 30 billion has already been doled out to the PSM to cover its financial losses. Much of the reduction in expenditures from 20.5 per cent of the GDP in 2010 to 18.9 in 2011, came at the expense of development expenditures, which will “dampen fixed investment” and lower future growth prospects. The federal subsidies were three times higher than envisaged in the budget leading to resource misallocation. Pakistan Railways, PIA and Pakistan Steel are classical examples of the heavy cost of poor governance to the economy.
Pakistan Railways, national passenger carrier is into ruin, ending all goods haulage, and leaving millions of passengers stranded. In the almost last four years since the current government took power, Pakistan railways has retired 64 of its 104 trains, leaving just 40 left for a country larger than Britain and Germany combined.
With expected losses of 35 billion rupees $390 million in fiscal year July 2011 to June 2012 the company relies on government handouts of 2.5 billion rupees $2.8 million a month to pay salaries and pensions. In 2007-08-Pakistan Railways have faced Rs16.9 billion, 2008-09, the loss went to Rs23 billion, in 2009-10, Rs25 billion while in 2010-11 the loss of national flag carrier went to Rs31.1 billion that makes the accumulated debt of Pakistan Railway to Rs 132 billion in last four years.
During first six months of current fiscal year; Pakistan International Airline (PIA) suffered a loss of Rs 10.7 billion. The Cabinet Committee on Restructuring (CCOR) has said that it might use 20 billion rupees on the condition of restructuring the airline. One of the main reasons why the debt is increasing every year for the national flag bearer is its Rs15 billion long term debt, on which it has had to pay billions of dollars of interest every year. Along with the long term debt, the short term liabilities for PIA are also increasing at an alarming rate and if not dealt with soon, will lead to more liquidity problems. In 2008, the airline’s accumulated losses stood as high as Rs73 billion and have risen to over Rs107 billion at present.
Financially, it is this long term debt, and the losses that are not dealt with which is causing most other problems for the airline. There are a number of varied opinions regarding why this does exist; politics, global economy and inefficiency are cited as a few, and they all hold true.
The Pakistan Steel with its prevailing inefficiencies is due to the centralized, bureaucratic structure with considerable government intervention. However, with elections just around the corner, privatization doesn’t top the list of solutions for saving PSM. PSEs like Pakistan Railways and PIA have social service provision responsibility and therefore privatization may not be a plausible solution for them. Steel Mills, on the other hand, is free from such restrictions but political hegemony comes in the way to make it a profit-making entity.
The solution to these problems is clearly missing in the announced plan, without which any action will fail to achieve the desired results. Even if the government opposes privatization, independent boards comprising of private sector experts who are credible and dedicated to work in the interest of the company are much needed.
With no government influence in the running of the entity, bureaucratic inefficiencies will cease to exist. Such plans, however, have seldom seen the light of the day. Action and implementation, the key to ensuring the success of such plans, is something that the government lacks. Whether this development will prove the general mindset wrong or will it strengthen our belief about the fate of the PSEs as a tool for political patronage remains to be seen.
