State-owned enterprises’ looting

Pakistan Steel Mill

A number of cases are before the Supreme Court (SC) regarding corruption and mismanagement in state-owned enterprises. Of note amongst these are the Pakistan Steel Mills (PSM) and the Railways.

In the PSM case, a three-member bench headed by Chief Justice Iftikhar Muhammad Chaudhry was presented a forensic audit report for the year 2008-09 by the PSM’s counsel, who pleaded with the court to send the PSM cases to NAB as no progress was made for financial recovery despite the registration of 10 FIRs. Of the Rs 26.5 billion loss in that year, business losses were Rs 4.68 billion, losses due to corruption Rs. 9.99 billion, and mismanagement Rs 11.84 billion. The court found all three components interlinked and leading to corrupt practices. To the court’s surprise, it could not be known so far exactly what were the cumulative losses of the PSM. The ex-chairman PSM, Moin Aftab Sheikh was mainly responsible for corruption of Rs 3.9 billion through allocation of products, purchase of iron ore and zinc, and production of cast and rolled billets.

The 10 FIRs referred to were lodged against 51 traders, consumers, contractors and 10 officers and employees of PSM. All the others, except the ex-chairman, are on interim bail. After the forensic audit report, five additional complaints have been registered with the FIA. It is noteworthy that the forensic report has been with the PSM for six months. In answer to the court’s query why no action had been taken on the report, the Industries Secretary gave the lame excuse that PSM was ‘contemplating’ referring the matter to NAB. The court asserted that responsibility for this continuing state of affairs rested with the minister and chairman, but they were not being held to account. ‘Honourable’ mention of the virtual ruin of PIA formed part of the court’s justified ire.

It is hardly necessary to dilate on the present state of the Railways, which have literally ground to a halt. Trains stand suspended or cancelled, there are not enough locomotives, the roiling stock is in a dilapidated state, and corruption and mismanagement are floating on the surface. Railway lands have been victims of mismanagement in leasing to other government departments, the armed forces, Rangers, etc. Slums have been allowed to proliferate on Railways land in all the cities of Pakistan. The SC’s anger at the transfer of the Railways Board secretary was spot on since the court said he was assisting the court to identify the corruption and wrong practices in the Railways. A promise of rescinding the transfer was wrung, but the transfer itself smacks of mala fide intentions.

The SC has often, since the restoration of the judiciary, been accused of intervening in things outside its purview. There may be weight in that criticism in some instances, but the fact remains that it is the failure of the government to rectify the faults in the state-owned enterprises that has both encouraged corruption and the ruin of what were once financially healthy units. The court has therefore felt compelled to take notice where none is being taken by the executive. State-owned enterprises, as the above examples show, and as is general public knowledge, suffer from the same venal, corrupt corporate culture as the rest of government and the bureaucracy. That is what brings grist to the mills of those who advocate wholesale privatisation of all such units in order to bring in the efficiency and accountability that private enterprise is theoretically based on. Unfortunately, the negative experience of privatisation has blown a few large holes in that received wisdom. The faults of state-owned or privatised enterprises is not who the owners are, but who manage them and how. The challenge is to examine whether short of privatisation (no magic wand in our experience), professional management, corporate responsibility and accountability can be inducted into the state-owned enterprise to save them from going to rack and ruin and relieve the budget of the drain they represent on public finances. – Dailytimes