Our white elephants

Reducing losses of state enterprises

It is estimated that State Owned Enterprises (SOEs) are collectively incurring an annual loss of between Rs.400-500 billion; more than 25% of the total revenue receipts of the government in a fiscal year. Keeping them afloat, therefore constitutes a huge drain on our precious national resources which could have been invested in vitally needed projects of socio-economic development. The government, presently, is running 126 such entities including big money guzzlers like Pakistan Steel Mills PSM), PIA, PSO and Railways among others. Pakistan Steel Mills alone suffered losses to the tune of Rs.200 billion during the last five years and the government had to give four bail-out packages amounting to Rs.40 billion to keep it on the ventilator. There are no two opinions about the fact that these entities owe the current state of affairs to inefficient management, corruption, political interference by successive regimes and recruitment of excessive personnel on the basis of political affiliations rather than actual needs of the organizations.

No developing country like Pakistan faced with a perennial scarcity of resources can afford the luxury of feeding these white elephants indefinitely. Therefore something needed to be done and in the early nineties when the PM(N) government was in power, an initiative was taken to disinvest the sick unit and sell them to the private sector. Over the years some progress was made in certain areas but it could not be accelerated due to a number of factors including political opposition to such a move.

Privatization of some of the major loss incurring units and restructuring of others to turn them into profitable entities is an integral part of the economic agenda of the present PM (N) government. It has already decided to privatize PSM (in spite of the fact that major political parties including PPP are deadly against this move) Pakistan State Oil and a number of power producing and distribution companies. Privatization of the SOEs is also a conditionality of the IMF. According to Chairman Board of Investment (BOI) the policy of privatization of SOEs is aimed at reducing state losses and attracting foreign investment in the crucial sectors of the economy. The successful implementation of the policy of privatization and restructuring, he believes, will reduce national losses by Rs.500 billion. On the face of it, the proposition sounds very encouraging and needs to be pursued with a missionary zeal. It is indeed hard to take an issue with the concept of privatization in the backdrop of the prevailing economic situation. Further it is not the job of the governments to run commercial concerns. It only has a regulatory role to ensure that there prevails a healthy competition in the market. Many other countries including Britain have taken such decisions to rectify the economic maladies and improving the health of the economy.

However while deciding which units need to be privatized and which will be retained and made profitable through restructuring, utmost prudence and transparency needs to be exercised to ensure that the apprehensions of the opponents of this policy are properly addressed. There are certain state organizations like Railways which still have the potential to bounce back and regain their profit making status through restructuring and scientific and honest management.

Railways, which incurred losses of Rs.35 billion during the financial year 2012 and due to the paucity of funds and the dilapidated conditions of its locomotives, perforce had to discontinue a number of trains including goods trains—the most profitable of its operations— and had to seek a bailout package from the government, has finally started showing signs of revival. According to the Railway authorities 6.12 million passengers traveled on trains during August to October as compared 4.63 million during the corresponding period last year. The revenues earned during this period amounted to Rs.5.319 billion as compared to Rs.3.954 billion during the same period last year. The trend is really encouraging as more and more people are now coming back to travel by train. The improvement in standard of the services, public facilitation and punctuality of trains is also quite visible. I am a regular traveler between Lahore and Rawalpindi by Rail Car and have felt the transformation that is taking place in Railways. This undoubtedly is a result of the imaginative and commercial-oriented approach adopted by the Railways under guidance from the Railway minister and proves what impact the honesty of purpose and determination can create on the performance of an organization. The job is not done yet. There is a need to keep up the good work, through an efficient and corruption free management and closing the avenues of political interference in running of the affairs of the entity. Railways with its vast network is not only a public utility of immense value to the traveling public but is also a vital ingredient of economic change and national prestige. Railways used to be a profitable entity and I remember those days when it had its own separate budget which was announced on the national TV and Radio network by the Railway minister every year. People would certainly like to see the return of those days. There is no reason to believe that it cannot be done provided there is a will and honesty of purpose to do it.

Apart from Railways there are many other commercial concerns that can be revived and made profitable through sagacious policies and initiatives such as injecting required resources for their revival and running them on purely commercial lines by employing competent and truly professional persons with proven expertise and track record in those particular fields.

Malik Muhammad Ashraf is an academic. He can be contacted at: [email protected].