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Regulation or Business

Shall Govt be engaged in business? Is the question I been thinking about lately. I have reached to a conclusion that YES – yes Govt shall do business and as such that business profits can supplement its expenditures and in proportion reduce the tax collection from the lower income people currently in tax net. The more govt grow its business the more it can raise the bar of taxable income. I believe that Govt’s primary job is, and shall be, regulation/administration and not the business. Then how shall govt do the business?  – Singapore Model. Pakistan Govt shall follow the Singapore Model. PTI’s Asad Umar, in PTI’s Economic Policy – GE 2013, has highlighted a similar intention under “Institution Reform Emergency” for Govt businesses if PTI forms the Federal Govt.  In his TV talk he referred to Singapore’s Temasek & Malaysia’s Khazanah as an example.

Temasek Holdings is a Singapore Govt’s Holding & investment company managing companies & businesses of the govt with current net portfolio value of S$ 242 billion. Before Temasek Holdings, govt used to manage the govt owned companies just like our companies today. Temasek holding is a company registered just like any other private holding company in Singapore and pays taxes like any other company and is governed under the same rules as other companies in Singapore. This arrangement provides a level playing field to all be it government affiliated company or else. Temasek is protected to the extent of appointment of its 14 board members,  its CEO and its past reserves under the constitution of Singapore. The executive authority of the country, and the sole shareholder of the company, Ministry of finance, has absolutely zero involvement in Temasek’s investment, divestment or other business decisions.  Just like any other company, Temasek’s sole shareholder, ministry of finance, has right to appoint or remove a board member but with concurrence of the President of Singapore. Board also needs concurrence of the President to appoint or remove the CEO.  A very strong constraint is placed by constitution on right of the govt to company’s money even though govt is the sole shareholder.  The day new cabinet swear-in , all reserves of Temasek on that day become “Past Reserves” and new govt or current govt cannot draw any amount from the past reserves of the company thus protecting the national assets even if there is a change in govt.

In Pakistan, our state-owned companies and enterprises are managed by the state to a variety of degree from one company to the other. I have Listed 108 companies – and there are even more – and they all have officers from Civil Services of Pakistan at various roles – From Board Member to the Managing Director of the company. Where it attracts the conflict of interest, it also overlaps the state role simultaneously as regulator and the business operator. Separation of the commercial interests of the state from its regulatory responsibilities is not something new to Pakistan or either to the Govt itself. Government Holdings (private) ltd company was established in 2000 under Ministry of  Petroleum and Natural Resources with intent to separate “regulatory & commercial interests”.

Our Govt shall also establish, as sole shareholder, independent holding company (ies) so as to manage the affairs of Govt’s commercial interests separately from its regulatory responsibilities. Considering our political culture, the best way possible is to create such holding company through an act of parliament, say a State Owned Enterprise Holding & Management Company (Establishment) Act, and place it under all regulatory requirements in force for the time being. Appointment of the board members can follow the procedure as adopted in KP Ehtesaab commission. A joint search & scrutiny committee of the parliament can be mandated to find and appoint the board members for the holding company and the board subsequently can appoint CEO of the company. The company so created shall be given complete freedom to any investment, divestment and any other business decision completely independent from any state institution/office and subject to the regulatory requirements in place.  Taking the “Past reserve protection”  philosophy as in Singapore’s constitution, such a protection be placed on assets of the company so created and on its subsidiaries to prevent any direct or indirect encroachment from the current govt in office.  In this act shall also empower the company so created to have power to appoint board members to its subsidiaries and any such power essential to ensure efficient and transparent corporate governance in all subsidiary companies. The same act shall clearly define and place the limits to the relationship of Govt as sole shareholder and the holding company as some second layer of security exclusively being the Public money at risk.

Another act of parliament, say State Owned Enterprise Holding & Management Company (Taking over enterprises/companies) Act can be introduced to transfer existing companies under various ministries/divisions under the management control of the newly established holding company. This act may facilitate the transfer of commercial entities along with their assets & liabilities in stage wise manner so as to have reasonable time for holding company to prepare for the new administration. Although current Companies Act have provisions on relationship of holding company & its subsidiary, however here being a public companies the act can be more elaborative and rigorous to set out the limits to which holding company can exercise its powers in terms of assets and liabilities of the subsidiary company.

I suggest that our provincial govts can also shift to the concept of service provision or management companies to corporatize and to improve the service delivery by creating and playing in a competitive environment. Separating corporate interests of the govts can significantly reduce the chance of abuse of merit and corrupt practice thus improving overall transparent working environment and generating efficient revenue streams for the govts. I believe such an arrangement can also reasonably attract the private and foreign investments in state-owned but privately held companies and contribute to the growth of the company and economy.

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Yasir Cheema

Yasir Cheema is a Civil Engineer by training and currently working as Resident Engineer for Surbana Jurong Pte. Ltd. in Singapore. He writes at this portal about Governance, Public policy, Institutional development, Construction practices, and procedures.

3 comments so far

Muneeb (@manopatano)Posted on 2:18 pm - Mar 15, 2017

For our rulers, sarkari corp is a cash cow. why would they ever want to let go of “free Money” and not to forget the political advantage attached to it in for of recommendations for hiring.
Temasek is a very fine example of transparency and removal of conflict of interests. There are also other examples such as the airlines of gulf countries and nakheel. All these companies operate like private corps and actually raise profits for their respective govts with low to negligible interference from the governments.
We can not expect that since we have not managed to create an environment of transparency and competition in our country. we need to work on that first. and then on to the despoliation of such decisions.

MashwaniPosted on 11:12 pm - Mar 15, 2017

If a Govt can’t use “Past reserves” then what is the purpose of having SOEs?

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