The Cabinet Committee on State-Owner Enterprises was told that the SOEs had run up an accumulated loss of Rs 5.8 trillion, of which Rs 342 billion were lost from July to December 2024. The CCoSOEs was considering a report of SOE performance up to December in its meeting on Friday. The SOEs are known to be a burden on the government for a long time, but the state has only now acknowledged that this is the result of poor governance, unfunded pension liabilities, thus eroding fiscal space and undermining business confidence. Attention seemed focused on the power sector, with the CCSOEs meeting being informed that cumulative power sector circular debt, oil and gas combined, had crossed Rs 4.9 trillion. It must not be forgotten that these losses have to be picked up by the federal government, in other words the taxpayer.
The problem is one of management, of the callousness of the government. Seats on the boards of directors of SOEs are not regarded as vital positions, but as sinecures for bureaucrats, who will earn generous travel allowances for attending board meetings, while towing the government’s line. Competence apart, these people are outsiders, and do not provide the kind of direction to the company that a business enterprise should get. The appointments they make of the managers to run the enterprise on a day-to-day basis are based either on seniority or influence, neither of which makes for good business leaders. The result is before us all: SOEs are a burden on the budget. The justifications for SOEs; that they provide employment; that they allow the government to provide services which private enterprise might not; that they provide import substitution; all do not wash when they meet the inexorable argument of affordability.
Indeed, the CCSOEs is paying such close attention because they form the core of the government’s commitments to the IMF about privatisation. One of the IMF’s major concerns is about the power sector and the circular debt owed by the SOEs involved. Some of its concerns may be met by the Rs 3.69 trillion struck with the IPPs, and the recent trillion-rupee deal with the banks, but while power sector reforms have been accelerated, they have not been completed. The sector still has the capacity to pull down the whole edific of government finance. The other SOEs are now part of the problem, not the solution, which is for government to get out of the business of business, where it has no business.
