Why state should not be in business: A case of Pakistan Steel Mills

by admin

State-Owned Enterprises (SOEs) are used globally by governments for venturing into commercial activities. In Pakistan, there are 204 SOEs categorized into Public Sector Companies (186), Development Finance Institutions (8) and Federal Authorities (10). The Public Sector Companies are further classified as commercial (138) and non-commercial (48)1 . A significant number of SOEs fall in the promotional and advocacy sector followed by energy, transportation and financial sector.

Out of the 204 SOEs, 177 have been incorporated under Companies Ordinance 1984, 20 by enactment and 7 by incorporating foreign entities. Under the nationalization Programme of 1972-77, 30 firms2 were nationalised in the category of iron and steel, basic metals, heavy engineering, heavy electrical equipment, motor vehicles, tractors, petrochemical industries, electricity, gas and oil refinery and cement. In addition, vegetable oil, insurance and banking companies were also included under public ownership. Despite continuous support from the government, many SOEs continue to operate losses. During FY17, the cumulative loss of all the SOEs exceeded the cumulative profit. Precisely, 77 SOEs were making a total loss of Rs. 453 bn while 99 SOEs were making profit worth Rs. 262 bn3 . Oil and Gas Development Company (OGDCL) and National Highway Authority (NHA) were the top profit- and loss-making entities respectively. Other major loss-making public enterprises during FY17 included the Pakistan Railways, Pakistan International Airlines and Pakistan Steel Mills, the latter despite being non-operational since 2015 accrued Rs. 14.8 bn worth of loss.

At a cost of providing employment to approximately half a million people, these SOEs add on average a burden of Rs. 400 bn4 on the national exchequer each year causing a rise in fiscal deficit. Moreover, the excessive commercial lending guaranteed by the government to the SOEs crowds out private investment.

To read more, download the file:

Why state should not be in business: A case of Pakistan Steel Mills

0

Policy Research Institute of Market Economy

آزاد معیشت – خوشحال پاکستان