IN a bid to streamline the administrative structure and decision-making mechanism in the public sector enterprises, the Securities and Exchange Commission of Pakistan is seeking feedback from all concerned including relevant experts.

The new draft regulation titled ‘Corporate Governance Regulation for the Public Sector Enterprises’ (PSEs) is designed to improve efficiency of the commercial functionaries so that the financial haemorrhage may be contained.

Of around 114 PSEs, 23 are listed in stock exchanges. Not all the PSEs are loss making and only the top eight firms account for an annual burden of Rs300 billion - Rs400 billion on the national exchequer for keeping them afloat. The initiative to devise a corporate code was taken by former finance minister Shaukat Tarin and pushed forward by the incumbent finance minister Senator Dr Hafeez Shaikh, who heads the Cabinet Committee on Restructuring of State Owned Enterprises.

The Committee has identified eight PSEs which need a road map for revival. These include Pakistan International Airlines, Pakistan Steel Mills, Pakistan Electric Power Company, Pakistan Railways , National Highway Authority, Pakistan Agriculture Storage and Services Corporation and Utility Stores Corporation.

The corporate structuring of profit making PSEs is also expected to improve their financial performance. Thee professional capacity of the board of directors of the PSEs will be strengthened. The draft envisages appointment of professional and independent CEOs and CFOs in these PSEs.

Apart from various other measures the code provides for strict internal audit mechanisms to prevent misappropriations and loopholes in the system.

The role of bureaucrats and the politicians — mainly the relevant ministers — will be reduced in the operational matters of the PSEs.

Currently the secretary of a social sector ministry can become a senior manager of any production unit without relevant background.

Due to these structural problems, the PSEs have been rendered uncompetitive and the government has to inject funds for reducing continuing losses. The draft regulation contains a clause that chairman of the board would only be elected by the board.

However, the most serious challenge to the SECP would be to implement the code of Corporate Governance in the PSEs as a large number of these entities enjoy legal protection under an act of parliament, that is contrary to the corporate code draft.

“This enactment will enable their line ministries to supersede the SECP regulations,” said an official of the SECP.

Currently, the corporate sector regulator is in the process of gathering feedback from all concerned and after Islamabad, two more roundtables will be held in Lahore and Karachi for intensive consultations. Experts say that PSEs face similar problems worldwide.

However, former governor State Bank, Dr Shamshad Akhtar said that strong regulators can help resolve mismanagement and operational flaws in the PSEs.

She highlighted the case of Temsek Holding Company, Singapore, which is a subsidiary of their ministry of finance, where neither the president of the country nor the government of Singapore can interfere in the company’s affairs.

“The board is autonomous but there is very strong accountability and audit of the company,” Dr Shamshad Akhtar said.

Similarly, 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 shareholder, takes policy decisions and sets targets, whereas the operational matters are decided by the boards.

Even the finance minister, Dr Hafeez Shaikh, has acknowledged that it was one of the most difficult task to bring all the SOEs under a similar legal ambit.

“It is a complicated matter - some PSEs are companies but the role of line ministry is too strong in their affairs whereas some like railways and the NHA do not even have any company status,” Dr Hafeez Shaikh said, adding “Altering the legal structure of these PSEs is a serious task.”

Official in the finance ministry confirmed that the line ministries were resisting the change and if the code is implemented in letter and sprit the ministries will lose the powers to short listing and appointments of the MDs and the CEOs of these PSEs.

However, Chairman SECP Muhammad Ali was optimistic. “This is the firs step towards achieving a gigantic task,” he said, adding that it was unrealistic for Pakistan to have situation like Singapore or Western Europe but constant up-gradation of laws would help bring more transparency and competition in the PSEs.

However, if the government is serious in improving the administrative and operational structure of the PSEs, their legal status has to be altered.

Only that will allow all the relevant regulations of the SECP — the Companies Ordinance and Code of Corporate Governance for listed companies and the Corporate Governance Regulation for the Public Sector Enterprises — to be implemented fully in the PSEs.