A law in essence?

Shahzad Tahir

RECENTLY, two open tabs on the internet browser left me puzzled. One showed a Twitter quote: ‘no one is above the law’. The other opened on a news headline: ‘PM takes back powers to sack heads of public entities.’ The quote and the news item appear to be at ideological odds with each other.

In essence, a law is seen as a means of regulating actions in a society. This definition is seen as applying to all individuals and/or organisations in general, so that no one is considered to be above the law. But do the rulers have some other definition for ‘law’, one that is more in sync with the observation that ‘some are more equal than others’?

With the promulgation of the Companies Ordinance 2016 (claimed by treasury benches as an upgrade to the outdated corporate regulatory regime), vide amendments in sections 186 and 187, the government has effectively interfered with the independence of state-owned enterprises, rendering the role of SOEs’ boards of directors to those of marionettes. Under the new directives, the terms and conditions of CEO appointments for SOEs shall be determined by the government. Section 186(4) says that the government “shall have the power to nominate and appoint the chief executive of a public-sector company in such manner as may be specified” and Section 186 (5), “A chief executive nominated under sub-section (4) shall hold office during the pleasure of the government”. Hence, the CEOs of SOEs would “hold the office as the government pleases”, enabling the government to sack heads.

What is a law if it privileges the lawmaker?

Using 2015-16 budgetary figures, the opportunity cost of sustaining SOEs was almost equal to half the Public Sector Development Programme budget of 2015-16. As of March 2015, according to the State Bank of Pakistan, the total outstanding domestic debt and liabilities on SOEs stood at Rs634.2 billion, up by 17 per cent from the previous two years — whereas as of March 2015, the Pakistan government’s external debt for SOEs stood at $2,424bn, up by 21pc from the previous two years.

Now look at China. According to the World Economic Forum, it has transformed its economy from that of a country with a “GDP per capita level, similar to Zambia — lower than half of the Asian average and lower than two thirds of the African average” to a country with “an average GDP growth of close to 10pc per year until 2014, raising per capita GDP almost 49-fold”. SOEs remained a key driver in its economic growth throughout the entire reform process.

A brief by KPMG, a global accounting services firm, states that, in the third phase of Chinese SOEs reforms starting in 1993, “The [Chinese] government has emphasised the transformation of SOEs into ‘modern corporations’ with clearly defined responsibility and authority, separating government from internal management”. Today, the majority of Chinese companies on the Fortune Global 500 are state-owned, including China National Petroleum and Sinopec Limited.

The fact might be unknown to some readers that Telenor Pakistan, a subsidiary of the Telenor Group Norway, is also an SOE. In his book, The Government as Capitalist, the former head of Norway’s state-owned Statoil and former CEO of Telenor Group, Harald Norvik, wrote in his book, “The frameworks for administering state-ownership are in many respects exemplary. For instance, the state ownership operates on a set of governance guidelines which are in line with the generally accepted good practices.”

In Pakistan, however, the phenomenon of SOE boards’ independence has taken a direct hit in the recent past: the government’s sacking of the chairman of the National Transmission and Despatch company in 2014 and that of the Lahore Electric Supply Company being classic examples. While there are a multitude of factors that lead to poor performance and billions are spent on keeping Pakistani SOEs alive, experts argue that among the primary reasons for this is the absence of an independent, empowered and sovereign oversight body to closely monitor the activities of SOEs.

Global trends of SOE successes indicate the need for separating government from management and operations of SOEs, and letting SOEs thrive in a commercial setting under the supervision of a nonpartisan, independent and professionally equipped oversight body.

Had the new ‘law’ been aimed at improving the performance of state-owned enterprises vide the enhanced independence of their boards and improved corporate governance, it would have seemed like a genuine measure for the good of all. Unfortunately, in this case one must ask why the ordinance is being called a law when it appears that no one is above the wishes of the lawmaker.

The writer is working for an accounting firm.

Published in Dawn December 28th, 2016

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