Cabinet Committee seeks legal advice to reform Boards of SOEs

In a bid to address the long-standing issue of political appointees dominating boards of state-owned enterprises (SOEs), Pakistan’s Cabinet Committee on State-owned Enterprises has sought legal advice from the Law Division regarding the removal of existing directors and the reconstitution of these boards with neutral experts and professionals.

The previous PDM government faced criticism for appointing board directors to power distribution companies who had political connections or were relatives of parliamentarians. This occurred during a challenging period for the country’s power sector, marked by circular debt, company inefficiency, and rampant power theft.

During a recent meeting held in the last week of September, the Cabinet Committee directed the Finance Division to seek legal advice from the Law and Justice Division to facilitate changes in accordance with the recently enacted State-owned Enterprises (Governance and Operations) Act 2023 (the Act).

Key points and decisions made during the meeting include:

a.The meeting highlighted the need for clear criteria for appointing ex-officio directors, which were absent in the existing SOE policy.

b.The Committee sought advice from the Securities and Exchange Commission of Pakistan (SECP) to determine the qualification standards for directors, ensuring a more effective composition of SOE boards.

c. The Act stipulates that the first policy under the legislation should be notified within one year of its enactment. A draft policy was prepared by the Finance Division, shared with relevant stakeholders, and made available for public input.

d.The Committee noted that the SOE (Ownership and Management) Policy 2023 required new guidelines and rules for appointments to key positions, including CEO, CFO, and company secretary.

e.There was discussion about the applicability of provisions of the Companies Act 2017 to SOEs under the SOE Act, which needed clarification in the SOE policy.

f.The meeting highlighted the absence of provisions related to the remuneration or fees of directors for attending meetings in the SOE policy.

g.The need to outline the procedure for exercising the federal government’s rights as a shareholder in SOEs was discussed.

h.The Committee directed the Central Monitoring Unit of the Finance Division to identify dormant state-owned enterprises.

In nutshell, the Cabinet Committee on State-owned Enterprises approved the draft State-owned Enterprises (Ownership and Management) Policy 2023, with the Finance Division instructed to incorporate the proposed changes and resubmit the policy promptly. These actions aim to enhance the governance and operations of state-owned enterprises in Pakistan by ensuring transparency, professionalism, and effective management, while also addressing concerns of political influence and inefficiencies in these entities.