The Asian Development Bank (ADB) has given a green light to provide the Pakistani government with technical assistance for the purpose of reforming state-owned enterprises as well as aiding the government in high priority projects comprising of draft SOE (Governance and Operations) Bill, 2021, and the still under development phase, SOE Ownership and Management Policy.
A document released by ADB on Saturday said that the technical assistance will promote corporate governance and the performance of the country’s 212 state-owned enterprises. ADB will assist via actions and initiatives developed to implement reforms in four areas.
The aforementioned four areas comprise of the following: improving the strategic policy framework for state-owned enterprises, improvement in the level and regulatory framework for SOE reforms, improvement in SOE corporate governance, and the improvement in institutional capacity for SOE reform implementation and ownership monitoring.
Earlier this year, the government had requested the bank to provide technical assistance to build on its early achievements in key areas and assist the government in implementing its reform policies. The government has been working on preparing a 2020 ADB-funded diagnostic study on the status of SOEs in the country, and ADP support for the development of the final SOE structural benchmark under the Extended Fund Facility (EFF) of IMF, which is essentially the development of a new SOE law.
The reform priorities comprise implementation and adoption of the new SOE law that is before Parliament; refining the SOE legal framework to expand the number of independent SOE directors; adopting and developing a skills-based hiring process for SOE directors; establishing well-defined roles and accountabilities for SOE directors; making sure that SOE boards are operating in adherence to a clear commercial mandate; developing a detailed community services obligation mechanism that would be applicable to all commercial SOEs; developing an effective forward-thinking business plan containing non-financial financial performance targets, and existing audited accounts; development and adoption of SOE ownership and reform policy that can guide future reform activities; and putting in place a central SOE ownership monitoring entity to allow for effective ownership monitoring, including making sure the SOE board is held accountable for its performance.
The SOE reform was categorized as a high priority area under the EFF and critical to the government’s plans to address structural impediments generation of jobs investments, stable economic growth, as well as human capital development. The government has reached an agreement to improve SOE governance via four initial structural benchmarks, transparency and efficiency: the privatization of seven SOEs; and more SOE transparency through new audits of PIA and PSM; a triage of SOEs that will designate them as either for sale, liquidation or retention under state ownership.
The finance ministry, in collaboration with the World Bank, commenced the triage which was finalized in April 2020; and developed an overarching SOE legal framework aimed at modernizing and defining the role of the state as owner, regulator, and shareholder and drawing from international best practices in principles of corporate governance.
Pakistan has 212 SOEs which are incorporated under a number of legal structures. Out of the total, around 186 SOEs, have been established in adherence to the Companies Act, 2017. 139 out of the 186 are considered commercial entities while 47 are listed as Section 42 companies. Section 42 companies are considered non-commercial enterprises. The remaining 20 SOEs include 11 statutory authorities and nine development financial institutions. The SOEs operate in economic sectors that include transport, power, ports, highways, heavy industries, and manufacturing, financial and postal; they are often either the dominant or monopoly service providers in their respective sectors.