Privatisation of Institutions?

 Privatization of Public Enterprises:

According to a World Bank report, state-owned enterprises (SOEs) in Pakistan are among the worst-performing in South Asia. The Ministry of Finance reports that, as of now, there are 212 SOEs operating in various sectors across the country, of which 197 are running at a loss. In 2016, losses from these entities accounted for 0.5% of GDP, which has since surged to over 4% of GDP annually by 2021. Nearly 450,000 employees are associated with these loss-making organizations, costing the government approximately PKR 458 billion annually in salaries and benefits alone.

 

A closer examination of profit and loss across these public entities reveals a troubling pattern: where government interference is excessive, employees are recruited based on political favoritism, inexperienced retired bureaucrats are appointed as heads instead of skilled CEOs, overstaffing is rampant, and corruption and nepotism are prevalent. These institutions have continued to run deficits, becoming unsustainable burdens on the national treasury.

 

The Top 10 Loss-Making SOEs:

1. Quetta Electric Supply Company: PKR 108.5 billion

2. National Highway Authority: PKR 94.3 billion

3. Pakistan Railways: PKR 50.2 billion

4. Sukkur Electric Power Company: PKR 40.8 billion

5. Pakistan International Airlines (PIA): PKR 36.7 billion

6. Sui Southern Gas Company: PKR 21.4 billion

7. Pakistan Steel Mills: PKR 20.6 billion

8. Hyderabad Electric Supply Company (HESCO): PKR 17.7 billion

9. Pakistan State Oil (PSO): PKR 14.8 billion

10. Peshawar Electric Supply Company: PKR 14.6 billion

 PIA Privatization: A Test Case for Pakistan

Founded as Orient Airways in Kolkata, British India, on October 29, 1946, PIA has had a historic journey marked by innovation and growth. By 1949, Orient had acquired three Convair CV-240s and was the first Asian airline to operate this aircraft. In 1953, the Government of Pakistan merged Orient into Pakistan International Airlines Corporation, which inaugurated its first international service to London in 1955 and became the first Asian airline to commercially operate the Boeing 707 in 1960. By 1985, PIA helped establish Emirates, and in 2004, it became the launch customer for the Boeing 777-200LR, setting a world record for the longest non-stop flight in 2005.

Despite this legacy, PIA's current performance pales compared to private competitors in Pakistan. Private airlines operate profitably and contribute taxes, while PIA incurred an annual loss of PKR 88 billion on sales of PKR 172 billion last year—a 51% loss ratio. To date, PIA's accumulated losses total PKR 717 billion, with its current liabilities exceeding PKR 900 billion.

For context, during the time it took to read this, PIA has incurred a further loss of PKR 234,000—an amount equivalent to seven minimum wages in Pakistan.

The Staffing and Fleet Imbalance of PIA

The employee-to-aircraft ratio in PIA is vastly disproportionate. Each PIA aircraft is supported by 600-700 staff members, far above global standards. Leading international airlines maintain ratios between 200-220 employees per aircraft, whereas PIA exceeds 500 employees per aircraft. By comparison, Qatar Airways has 133 employees per aircraft, Emirates has 231, Turkish Airlines has 94, and Etihad Airways has 211. PIA’s fleet comprises 31 aircraft, of which about 15 are leased, with revenue in rupees but repayments due in U.S. dollars.

 

The PKR 900 billion debt could fund the construction of 15 Aga Khan University Hospitals, 60 campuses of LUMS, or 18,000 schools across Pakistan.

 

The Deteriorating Condition of Pakistan Railways

 

Over the last 15 years alone, taxpayers have subsidized Pakistan Railways by PKR 783 billion, with its current liabilities estimated at approximately PKR 1 trillion. With 65,000 employees and a pension responsibility for 132,000 retirees, the financial strain is significant. Once a profitable entity focused on cargo transportation, the shift of this business to the private sector has severely impacted the railway’s revenues.

 

Pakistan Steel Mills: From Asset to Liability

Established in 1973 at a cost of PKR 25 billion, Pakistan Steel Mills (PSM) once operated as a profitable entity, meeting domestic needs and even exporting its products. But since 2007, it has consistently incurred losses, culminating in a halt in production in 2015. Between 2008 and 2023, operational losses have exceeded PKR 206 billion, and much of the equipment has become obsolete. From 2015 to 2022, Pakistan imported $18 billion worth of steel—funds that could have been invested to revitalize PSM. The Sindh government has expressed interest in purchasing PSM but opposes layoffs of the workforce.

 

Power Sector Losses and the Privatization Commission’s Role

Pakistan’s energy sector, particularly WAPDA’s subsidiaries, poses a growing threat to economic stability. Circular debt in the power sector has ballooned to PKR 2.5 trillion, leading to ongoing increases in electricity tariffs. Immediate reforms are necessary to curb theft, reduce transmission and distribution losses, and mitigate circular debt.

 

The Privatization Commission, established on January 22, 1991, was further strengthened in 2000 under the Privatization Commission Ordinance. From 1991 to June 2022, 178 SOEs were privatized, contributing PKR 649.11 billion to the national treasury. However, despite an allocation of PKR 1.09 billion for expenses from FY 2018 to FY 2023, the ministry managed only PKR 2 billion in privatizations.

 

As Pakistan faces an ongoing fiscal crisis, comprehensive reforms and effective privatization strategies are essential to alleviate the burden these failing state-owned enterprises impose on the economy. 

Reference:

PIA goes from being a success story to the brink of collapse

Eye-watering losses