SOEs fail to deliver, hamper entrepreneurship | Business

LAHORE: Despite enjoying privileges not available to the private sector, the state owned enterprises (SOEs) have failed to deliver, are negatively affecting competition, and are also hampering entrepreneurship in the country.

Take for instance the power sector where state run power plants operate at half or even less efficiency than the privately operated plants. Still the government-owned power guzzling plants face no shortage of fuel.

The private power plants have the ability to produce two times more power than the public sector plants, but they cannot buy fuel because the power purchaser does not pay their genuine dues.

Basic competitive advantages enjoyed by SOEs include; outright subsidisation, concessionary financing and guarantees, other preferential treatment by government, monopolies and advantages of incumbency, captive equity and exemption from bankruptcy rules and information advantages.

In such overly protected environment, it is impossible for the private sector entities to compete with the SOEs. Private enterprises enjoy no such advantages and are subject to actions from the banks if they default on their payments.

One reason for forming SOEs is that they are expected to behave differently from private entities. For example, in the case of transportation, the SEO is expected to serve socio-economic routes and to ply government vehicles on un-economic routes in order to serve the Universal Service Obligation (USO).

The question, then, is whether the state’s objectives can be pursued in a manner that does not impair the competitive landscape. Certainly the SOEs have to operate in a regulatory environment where the subsidies on targeted routes are calculated and the general efficiencies of the entity are not compromised.

For most of our history, the SOEs in Pakistan were protected by law on uncompetitive practices. All this changed in theory when in 2010, the competition ordinance was enacted as Competition Act, it does not make any distinction between state-owned and privately owned enterprises.

Hence, the act applies to all undertakings impartially. However, there is one difference that the Competition Commission of Pakistan can simply issue an advisory note if it sees violation of competition by government owned companies.

It probably has no power to impose penalty in case its advice is not heeded by the government. In case of private sector, it can impose huge penalties for violating competition practices.

Pakistan International Airline is posting losses despite having monopolised success on the Hajj route. It charges higher fare because of this monopoly.

Pakistan Steel suffers huge losses despite protective duties on imports, while private steel mills prosper. National Bank of Pakistan (NBP) has exclusive access to huge government deposits. All taxes collected are deposited in NBP.

Still as far as profits are concerned it lags behind small banks like the United Bank or the MCB Bank. The government could get better profit rates if the government deposits are given to banks on competitive basis.

All these examples clearly show that additional incentives and even grant of monopoly does not result in robust growth of public sector entities. In contrast, the private sector companies whenever given exemptions and facilitation prosper.

In case of public sector enterprises, the cost of service increases for the consumer without any improvement in quality of service. We pay almost double the power tariff than its actual cost but the power sector still posts huge losses.

PIA and Railways have increased the uncertainty of transport while purely private airlines and trains operated by private sector provide better services. The privatisation of public sector enterprises is resisted by vested interests that benefit from these inefficiencies.

The best way is to stop pampering public sector enterprises from public money and let them die like inefficient private sector enterprises or privatise them at any price through a transparent procedure.

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