By Qamar Bashir
Since its inception, the new government has displayed a crucial optimism towards the prosperity and growth of the nation, characterized by an unparalleled determination labeled as ‘Iron determination’ (Fouladi Azm) by the Prime Minister. Backed by the strength and support of the establishment, the unelected finance team is poised to make fundamentally critical and highly challenging
decisions. These decisions, which even former dictators refrained from due to political ramifications, demonstrate a readiness to tackle obstacles that could deter progress.
The consistent backing from the establishment, which sustained the former
coalition government led by Shahbaz Sharif and the interim government led by
Anwar Kakar, has primed public sentiment to an extent where the time is now ripe
to confront challenges head-on and progress without hesitation. These imminent
decisions, projected to yield savings of PKR 6,828 billion per year, are poised to
significantly benefit the nation.
The digitalization of FBR is projected to generate over Rs. 3000 billion annually
by curbing pilferage and halting the distribution of illicit gains among tax officials.
Currently, a predetermined portion of tax evasion, with 50% going to the taxpayer
and their lawyer, while the remaining 50% is distributed from the lowest-ranking
peon to the regional commissioner. This same ratio is observed within the sales tax
and customs departments, from the bottom to the top echelons of the hierarchy.
The privatization of PIA, even if it doesn't generate a single penny, could result in
savings of over Rs. 800 billion in terms of debt and an annual subsidy of Rs. 294.5
billion allocated to sustain the inefficient, unprofessional, and sluggish airline.
Likewise, privatization or outsourcing airports could save the national treasury
approximately Rs. 21.4 billion annually.
The privatization of state-owned enterprises, despite potentially yielding no
revenue from their sale, would result in significant savings for the state. With
accumulated losses exceeding 500 billion, divesting these entities would save over
Rs. 500 billion annually in subsidies and transfer the entities' Rs. 1100 billion debt
burden to the purchaser.
Similarly, privatizing the Distribution Companies (DISCOs) nationwide, even if
they generate minimal proceeds from their sale, would yield substantial annual
savings for the public. This includes Rs. 500 billion annually in electricity theft
prevention and Rs. 639 billion in reduced line losses.
According to the Federal Footprint Consolidated SOE report for the fiscal years
2020-2022, published in December 2023, there are a total of 133 State-Owned
Enterprises (SOEs), consisting of 88 commercially operated and 45 non-
commercial entities. Remarkably, the commercial SOEs are making substantial
contributions to the national economy through corporate taxes, dividend payments,
and employment generation.
In the financial sector, which includes banks, insurance companies, Non-Banking
Financing Companies (NBFCs), and Development Financial Institutions (DFIs),
there has been significant growth and transformation since FY2022. The sector's
assets have surged to an impressive Rs. 8.9 trillion, indicating consistent growth
over the past four fiscal years. Revenues have also seen a remarkable increase,
reaching Rs. 614.648 billion, marking a 31% rise from the previous fiscal year.
Additionally, net profits have soared to Rs. 72.569 billion, demonstrating a
remarkable 46.5% year-on-year increase.
In the commercial sector, Infrastructure, Transport, and Communication (ITC)
emerge as significant players, boasting an asset base of Rs. 7.983 trillion. Led by
entities like the National Highway Authority and PIA, this sector experienced a
notable 38% revenue growth. However, despite these gains, challenges persist,
with PIA grappling with a substantial net loss of Rs. 294.500 billion. Nonetheless,
subsectors such as Ports & Shipping and Communication show promise for
sectoral recovery and efficiency improvements.
The Manufacturing, Mining, & Engineering sector showcased robust growth, with
assets soaring by 49% to Rs. 904.515 billion. Notably resilient, this sector posted a
significant net profit of Rs. 12.267 billion. Subsectors like Metals & Mining and
Printing played pivotal roles in this transformation, contributing substantial profits
and demonstrating operational stability. Such progress underscores the sector's
potential for sustained growth and profitability.
In the Oil and Gas sector, boasting assets worth Rs. 5.620 trillion, remarkable
revenue expansion of 82% was witnessed, fueled by increased energy prices post-
COVID. Despite challenges, SOEs in this sector exhibited operational excellence,
exemplified by PARCO's outstanding achievement of a 725% increase in net
profit. However, the sector faces ongoing struggles in balancing revenue growth
with operational efficiency, particularly in the Marketing & Distribution segment,
which remains susceptible to market risks due to high leverage and narrow profit
margins.
Even in the Power sector, substantial growth has been observed, with assets
climbing to Rs. 6.480 trillion and revenue reaching Rs. 3,000 billion in FY2022.
However, operational margins remain a concern, particularly for Electricity
Distribution Companies (DISCOs). Strategies must be devised to enhance revenue
collection and mitigate operational inefficiencies to address losses effectively.
The Estate Development and Management sector exhibited impressive growth,
with assets rising by 38% to Rs. 36.7 billion. Strong revenue growth of 57% to Rs.
6.256 billion and a robust profit margin of 36.8% underscored the sector's
resilience and profitability, positioning it well for sustained success.
In contrast, the Trading and Marketing sector saw a 47% increase in assets to Rs.
446.119 billion, largely driven by agricultural storage. However, challenges in
revenue and profitability persisted due to socio-economic obligations, such as
subsidized essential food commodities, necessitating a delicate balance between
commercial operations and broader strategic objectives.
Despite revenue growth in the Media and Entertainment sector, operational hurdles
led to a net loss in FY2022. Entities like PTV sustained losses of Rs. 2.72 billion,
while SRBC faced liabilities of Rs. 10 billion.
The commercial portfolio of SOEs plays a crucial role in driving economic
activity, contributing over Rs. 430 billion through corporate taxes and dividends.
However, from an accounting perspective, a net loss of Rs. 161.820 billion was
recorded, primarily due to significant depreciation charges and increased finance
costs associated with borrowing, despite the extensive asset size.
In contrast, the non-commercial portfolio of SOEs, comprising 45 entities,
including 39 independent companies, displayed a more positive economic outlook.
Total assets amounted to Rs. 224.762 billion, with total revenue generated during
the year reaching Rs. 34.420 billion and net profits standing at Rs. 8.313 billion.
However, to remain competitive and sustainable in the long run whether SOEs are
currency profit or loss making, they must continually enhance their capacity,
efficiency, and human resource productivity. This involves establishing a robust
framework for research and development, innovation, and product/service
enhancement. Regular upgrades to infrastructure, machinery, and technology,
including the integration of Artificial Intelligence, Internet of Things, big data
analytics, and computing power, are essential to stay ahead.
My own experience at the helm of State-Owned Shalimar Recording and
Broadcasting Corporation highlighted the challenges of bureaucratic hurdles and
resistance from worker unions, hindering the perpetual upgrades necessary for
competitiveness. In contrast, private sector TV channels, unencumbered by
bureaucratic red tape, have outpaced public broadcasters in various sectors and
disciplines.
Privatization is a strategic imperative, regardless of whether State-Owned
Enterprises (SOEs) are currently profitable or operating at a loss. Unlocking their
full potential through privatization can attract strategic investors, alleviate fiscal
burdens, and foster market competition in today's fiercely competitive
environment.
Hence, the government should prioritize full-throttle privatization of all SOEs,
irrespective of their profitability status. Profitable entities are attractive to investors
due to their strong financial performance, market presence, and potential for
returns. Conversely, privatizing loss-making enterprises presents an opportunity
for restructuring, reallocation of resources, and reducing fiscal liabilities.
While some SOEs are vital for national interests, such as those related to
infrastructure, national security, and social services, the decision to privatize
should be carefully weighed based on economic considerations and long-term
