State-Run Companies Express Apprehension Over Significant Financial Losses

State-Run Companies Express Apprehension Over Significant Financial Losses

ISLAMABAD: Staggering SOE Losses and Urgent Reforms

Grab a seat, folks, because Pakistan's state-owned enterprises (SOEs) are in a real pickle. The Cabinet Committee on State-Owned Enterprises (CCoSOEs) recently discussed the jaw-dropping Rs5.8 trillion losses of SOEs, with an Additional Rs342 billion added just in the last half-year — averaging a daily loss of about Rs1.9 billion.

As Finance Minister Aurangzeb moderated, he emphasized the persistent issues plaguing SOEs like inefficiencies in power distribution companies, slow network modernization, unfunded pension liabilities, and poor governance standards. These issues are eroding the fiscal space, undermining investor confidence, and jeopardizing the nation's purse strings.

To address these issues head-on, timely reforms — particularly in the power and energy sectors — are a must. The circular debt in these sectors has skyrocketed to an alarming Rs4.9 trillion, making a significant dent in cash flows and asset valuations. To alleviate the strain on the government's pockets, fiscal support to SOEs — granted through grants, subsidies, loans, and financial injections — has jumped to about Rs600 billion in just six months. Unfunded pension liabilities are another financial burden at an estimated Rs1.7 trillion for power distribution companies and other SOEs, with similar obligations lingering for Pakistan Railways. Combined, government guarantees currently stand at Rs2.2 trillion, further compounding financial pressures.

Transparency concerns persist, with inadequate beneficial interest disclosures under IFRS Section 30 and other regulatory gaps. The lack of strategic alignment in business plans and operational inefficiencies across SOEs have been identified as critical areas requiring immediate reform.

The minister also highlighted the importance of directors representing the government on the boards of SOEs diligently safeguarding the financial health and operational performance of these entities through informed and responsible input.

During the meeting, the Power Division discussed significant matters such as appointing a chairman on the Quetta Electric Supply Company board, constituting the Board of Directors of the Independent System Market Operator, the appointment of an independent director/chairman on the Gujranwala Electric Supply Company and independent director on GENCO Holding Company Limited, independent directors on the Multan Electric Power Company board, Power Information Technology Company, and the constitution of the Board of Energy Infrastructure Development and Management Company, among others.

Moreover, the Ministry of Railways moved forward with plans to wind down three railway companies: RAILCOP, PRACS, and PRFTC.

Minister Aurangzeb placed a premium on aligning business plans with national priorities and tackling operational challenges in a timely and coordinated manner. The government's commitment to fortifying governance, boosting operational efficiency, and promoting financial sustainability in key public-sector entities was reaffirmed.

Put simply, Pakistan’s SOEs — particularly in the power and energy sectors — face colossal challenges, including massive financial losses, circular debt, governance weaknesses, and operational inefficiencies. To achieve long-term financial sustainability and improved performance, urgent reforms must focus on strengthening governance, fostering transparency, enforcing financial discipline, eliminating circular debt, upgrading infrastructure, and implementing risk management frameworks.

1. The staggering losses of Pakistan's state-owned enterprises (SOEs) have been exacerbated by unfunded pension liabilities and poor governance standards, which are eroding the fiscal space and undermining investor confidence.
2. To address these issues, the government has emphasized the need for timely reforms, particularly in the power and energy sectors, focusing on strengthening governance, fostering transparency, and eliminating circular debt.
3. The Finance Minister also highlighted the importance of directors representing the government on the boards of SOEs diligently safeguarding the financial health and operational performance of these entities.
4. In an effort to alleviate financial pressures, the government is moving forward with plans to wind down three railway companies, while placing a premium on aligning business plans with national priorities and tackling operational challenges in a timely and coordinated manner.

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