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The Great Garage Sale

by Farrukh Saleem
Behrouz Mehri—AFP

Behrouz Mehri—AFP

Privatization isn’t the panacea.

In trying to prove that there’s nothing the state cannot do, it has ended up proving that there’s nothing it can do well. Pakistan’s public sector is an alphabet soup of companies circling the drain. The state is into everything, from the energy sector to transportation (PIA, Pakistan Railways) to media (PTV, Pakistan Radio) to food (besides the Roti Corporation and Ghee Corporation, it also owns a tomato paste plant). And all of these 200-odd companies are either bleeding money or can stand to perform better, much better.

Prime Minister Nawaz Sharif’s government recognizes this. He has bemoaned the cost of keeping these white elephants alive—some Rs. 500 billion is spent on them every year, according to him. Sharif says the only solution is to sell everything in the shortest possible time. But the fact is that privatization, hasty or deliberate, is not the only option available here.

Let’s start with the prime minister’s figure. The annual bill that we, the taxpayers, foot is Rs. 500 billion or roughly $5 billion. Why is this happening? Because our democracy loving politicians whose electoral (and other) fortunes rely firmly on patronage ensure that our country’s economy remains deeply politicized. (This reliance affects not only the running of state-owned companies but their sale process too.)

Sui Southern Gas Company Limited, one of the country’s two gas utility companies, has equity of Rs. 18 billion and an unsecured debt of Rs. 66 billion; it is technically bankrupt. Its larger counterpart, Sui Northern Gas Pipelines Limited, isn’t doing much better. Last month, its managing-director was sacked by the government, restored by the Lahore High Court, and then forced to resign under government pressure. He apparently displeased Islamabad by refusing to burden SNGPL with additional liability on account of the privately owned LNG import project that was commissioned in March.

Then there’s Pakistan State Oil Company Limited. As of Sept. 17, PSO had receivables of Rs. 232 billion, including the brand new LNG-related circular debt of Rs. 17 billion. Sharif summarily dismissed PSO’s board of directors in February and it’s continuing to function without one. What’s more, the man who set up the privately owned LNG project has been put in charge of PSO, through which the state imports LNG using that project. These are just recent examples from one sector.

In Singapore, state-owned companies account for 60 percent of its GDP. The city-state’s example establishes that wholesale privatization isn’t the only answer and that public sector companies can become titans. Its Temasek Holdings Private Limited manages a portfolio worth $266 billion, including stakes in Singapore Airlines, BG Group, Alibaba Group, Singtel, Bank of China, and Standard Chartered. What’s the secret of its success? According to its website, “MERITT.” That’s its acronym for its core values: “meritocracy, excellence, respect, integrity, teamwork and trust.” It continues: “Under Singapore’s Constitution and laws, neither the President of the Republic of Singapore nor the Singapore Minister for Finance … is involved in our investment, divestment or other business decisions.”

Pakistan cannot have its own Temasek because any public sector company with a decent shot of thriving is rapidly milked into bankruptcy by our politicians. Surprisingly, the federal government enacted a fine piece of legislation to make things right. But the Public Sector Corporate Governance Rules, 2013, are not worth the paper they are printed on because they are being flagrantly ignored. If the Pakistani state restricts itself to nominating directors to the boards of public sector companies under the rules, on merit, and sets key performance indicators and targets without meddling or micromanaging, we can sow the seeds for a Temasek. During the last financial year, Temasek made $12 billion. And we lost another Rs. 500 billion.

Saleem is co-host of Ho Kya Raha Hai on 92 News. From our Oct. 10-17, 2015, issue.

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