World Bank concerned over obstacles in privatization of Pakistan’s State Owned Entities (SOEs)
The World Bank has expressed concerns regarding Pakistan's
strategy for privatizing its state-owned entities (SOEs), citing political
obstacles and judicial activism as hindrances to this effort. The bank has
noted a decade-long decline in the profitability of SOEs, resulting in
financial losses and placing Pakistan's federal SOEs among the least profitable
in
South Asia.
According to a report by a local media outlet, the World
Bank recommends that the government consider a two-step approach. First, it
suggests public offerings through stock exchanges, followed by privatization
overseen by a special joint committee of the parliament. This approach aims to
enhance transparency and reduce the risk of legal challenges stemming from
government-to-government contracts with foreign states.
World
Bank expresses disappointment over Pakistan’s tax collection efforts
The World Bank's Public Expenditure Review for 2023
specifically highlights the Inter-Governmental Commercial Transactions Act of
2022, which allows the government to offer SOE shares to foreign governments.
The bank has cautioned against this approach, citing concerns about potential
legal disputes, transparency issues, and delays in the privatization process.
The World Bank attributes the difficulties in privatization
efforts to various factors, including economic volatility, judicial activism,
litigation, weak political commitment, and concerns about corruption. Some
political parties oppose privatization regardless of SOEs' performance and
advocate for alternative schemes. Furthermore, certain judicial decisions have
negatively impacted Pakistan's international reputation as a reliable business
partner, potentially discouraging foreign investment.
The bank also notes that Pakistan's failures in
international arbitrations have discouraged government decision-makers from
pursuing further privatization or seeking foreign direct investment without a
comprehensive assessment of associated risks.
World
Bank recommends establishment of a 'National Council of Ministers' in Pakistan
The World Bank points out challenges in privatizing the
power sector, such as resistance from trade unions and vested interests, fears
of a private sector monopoly, previous difficulties with privatizing
distribution companies, circular debt issues, and management problems.
Additionally, the World Bank highlights the unsatisfactory
performance of K-Electric even after privatization. Despite tariff hikes,
issues like weak financial management, governance problems, operational
inefficiencies, commercial inefficiencies, and unscheduled power outages
persisted. These ongoing concerns cast doubt on the benefits of privatizing
other distribution companies (Discos).
The bank recommends that Pakistan consider a gradual
divestment and potential privatization approach through public offerings of SOE
shares, a model proven successful in the banking and telecommunications
sectors. It also urges the government to restructure loss-making Discos,
focusing on improving financial health and rationalizing human resources. If
involving the private sector through a management concessionaire model,
precautions should be taken to prevent asset concentration and the creation of
private sector monopolies.
The World Bank advocates a phased approach to divest
government shares by initiating public offerings of Discos' shares, emphasizing
procedural and process transparency. The ultimate goal is to gradually reduce
government ownership. However, this transition requires an effective regulatory
framework to promote efficiency, attract investment for improved service
delivery, and foster healthy competition.
Source: Profit Pakistan