ISLAMABAD: The Asian Development Bank (ADB) has approved technical assistance to Pakistan for reforming state-owned enterprises and supporting the government in high priority areas included in the draft SOE (Governance and Operations) Bill, 2021, and the new SOE Ownership and Management Policy currently being developed.

The ADB technical assistance will help improve the corporate governance and performance of 212 state-owned enterprises in the country. The assistance contains actions and initiatives in support of reforms in four areas, according to an ADB document reviewed by Dawn on Saturday.

The three areas are: the strategic policy framework for state-owned enterprises improved; the level and regulatory framework for SOE reform improved; SOE corporate governance improved; and institutional capacity for SOE reform implementation and ownership monitoring improved.

Govt to get support for reforming state-owned enterprises and in areas included in SOE (Governance and Operations) Bill

Early this year, following the preparation of a 2020 ADB-funded diagnostic study on the status of SOEs in Pakistan, and ADP support for the development of the final SOE structural benchmark under the Extended Fund Facility (EFF) of IMF, which is the development of a new SOE law, the government requested follow-on ADB technical assistance support to build on these early achievements and help it progressively implement its reform priorities.

The reform priorities included: adopting and implementing the new SOE law that is before Parliament; improving the SOE legal framework to increase the number of independent SOE directors; developing and adopting a skills-based selection process for all SOE directors; establishing clear roles and accountabilities for SOE directors; ensuring that SOE boards operate under a clear commercial mandate; developing a comprehensive community services obligation framework that would apply to all commercial SOEs; developing an effective forward-looking business plan containing financial and non-financial performance targets, and current audited accounts; developing and adopting a SOE ownership and reform policy that would guide future reform activities; and establishing a central SOE ownership monitoring entity to enable effective ownership monitoring, including ensuring the SOE board is held accountable for performance.

The SOE reform was identified as a high priority area under the EFF and central to the government’s plans to address structural impediments to investment and job creation, balanced economic growth, and human capital development. The government agreed to four initial structural benchmarks to improve SOE governance, transparency and efficiency: the privatisation of seven SOEs; and increased 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, with support from the World Bank, undertook the triage which was completed in April 2020; and development of an overarching SOE legal framework aimed at modernising and clearly 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 various legal structures. The majority of the SOEs — 186 in total, have been established under the Companies Act, 2017. Of these 139 are deemed commercial entities while 47 are registered as Section 42 companies. Section 42 companies are deemed non-commercial enterprises. The remaining 20 SOEs comprise 11 statutory authorities and nine development financial institutions. The SOEs operate in most economic sectors, including transport, ports, power, highways, manufacturing and heavy industries, postal and financial; they are often either the dominant or monopoly service providers in their respective sectors.

Published in Dawn, October 11th, 2021