ISLAMABAD: The government has finalised a triage of 84 out of a total of 212 public sector companies for their ultimate privatisation, liquidation or retention in the public sector to meet a structural benchmark of the International Monetary Fund (IMF) programme.

The overall revenues of all these 84 state-owned entities (SOEs) in 2018-19 amounted to about Rs4 trillion while the book value of their assets stood at Rs19 trillion. The revenues in 2018-19 were roughly 10pc of nominal GDP, provided employment to more than 450,000 people (0.8pc of the total workforce), according to the Ministry of Finance.

In a report released on Thursday, the Ministry of Finance said a total of 25 SOEs which together earned a cumulative profitability of Rs107bn in 2018-19 would be retained by the government.

Another 14 companies are retained in the public sector and would be restructured while 10 other companies were already under the privatisation programme and yet another 24 companies would be privatised in the next phase between 2023 and 2024. There are about 10 other companies which have been described as potential candidates for privatisation while one entity — Industrial Development Bank Ltd — is currently under liquidation.

Overall revenues of these entities in 2018-19 amounted to around Rs4 trillion

The ministry said that four companies having total profitability of Rs51.4bn were financially viable and would be retained in the government hands. These include Government Holding Private Ltd (Rs34bn profit), Pak Arab Refinery Ltd (Rs12.3bn), Pak-Kuwait Investment Company (Rs4.7bn) and Pakistan Revenue Automation Ltd (Rs146m).

The ministry said as part of the Extended Fund Facility with IMF, the government has agreed to address the long-overdue need of a comprehensive review of SOEs for their continued ownership and control by the government through a well-defined ownership rationale. “Concurrently, Finance Division has been working closely with IMF and the Asian Development Bank to draft an SOE Bill and an SOE Ownership and Management Policy to fill the gaps in the existing SOEs governance structure and help the government in well-informed performance evaluation and oversight of SOEs.

The report said that despite their important role in providing essential public goods and services, the financial performance of several SOEs has remained unsatisfactory. In 2018-19, these 84 commercial SOEs collectively recorded net losses of Rs143bn, down from Rs287bn in 2017-18. The improvement in SOEs performance was driven by government policies including robust business growth in local upstream oil and gas markets translating into significant gains for oil and gas companies and policy reforms and operational improvements in the power sector leading to timely tariff notifications in the power sector.

The report said that over past six years, one-third of the commercial SOEs experienced losses intermittently. Moreover, the sum of the losses of top-10 loss-making SOEs contributed around 90pc to the total losses of SOEs portfolio each year. National Highway Authority (NHA), Pakistan Railways, PIA and power sector Discos had been among the major, top 10 loss-making SOEs.

Among the SOEs performing core functions, 25 SOEs were profitable in 2018-19. Another 19 entities had been consistently profit-making during the last three years -- FY17, FY18 and FY19 -- however, their return on assets (ROA) had been lower than the threshold required. Another two SOEs -- Central Power Purchasing Agency (CPPA) and Pak-Iran Investment Company – have positive equity and were profitable in FY17 and FY19.

Although these SOEs are financially self-sustaining their financial performance needs improvement which shall be addressed through institutional reforms to be undertaken including governance improvement through an SOE Ownership and Management Policy, operationalisation of the Central Monitoring Unit in Finance Division and the introduction of an SOE Bill in the parliament.

Apart from sector-specific reforms that will be undertaken from time to time, a well-structured and institutionalised mechanism of performance monitoring and reporting of SOEs shall be put in place through the SOE Ownership and Management Policy with the objective of improving the financial outcomes of these SOEs to the desired level.

There are 14 entities which are planned to be retained under government ownership but require immediate reforms and possible restructuring. Among them Pakistan Railways and Pakistan International Airlines, which collectively incurred a loss of Rs88bn in FY19, are already under active restructuring and reform process.

During FY19, collective losses of rest of the SOEs in this sub-category (to be retained in public hands) were around Rs17bn out of which Pakistan Post Office (PPO) had the largest losses of over Rs9bn.

Published in Dawn, March 5th, 2021