SOE profits. Design: Ibrahim Yahya
ISLAMABAD:
The combined profitability of Pakistan’s top 15 state-owned companies decreased last year to a mere Rs622 billion, and there was only one firm with annual profits exceeding Rs100 billion, according to a new report by the Ministry of Finance.
The report, which has been approved by a cabinet committee, also pointed out serious flaws in the governance structures of all the public sector companies, including the ineffectiveness of their boards. It added that there was weak oversight by audit and risk committees of these boards. According to the State-Owned Entities (SOEs) report for the fiscal year 2024-25, the total profits earned by Pakistan’s top 15 public sector companies amounted to just Rs622 billion. These were 5% or Rs30 billion lower than the preceding year.
The report has been approved by the Cabinet Committee on State-Owned Enterprises and is in the process of ratification by the federal cabinet. The Ministry of Finance has not yet officially released the report. It has also commented in detail on the effectiveness of SOE boards. The boards are mostly incomplete and template-driven; there is no assessment of board effectiveness and there is no measure of oversight quality, commented the Central Monitoring Unit of the Ministry of Finance, which prepared the report.
It added that there was weak accountability of boards, while decision-making was also found to be ineffective.
The remarks made by the finance ministry reflect poorly on governance during Prime Minister Shehbaz Sharif’s government. These boards are mostly filled with loyalists or used to accommodate favoured individuals.
PM Sharif had decided that all bureaucrats who were members of different boards, in their official or private capacity, would not retain more than Rs1 million in board fees and had directed them to surrender the surplus amount to the government. However, the bureaucracy later compelled the prime minister to withdraw the decision.
The finance ministry stated in the report that boards have 50% independent representation, but there is weak independence of audit and risk committees and limited challenge to management.
There is also inconsistent reporting of key performance indicators, decisions and risk exposures; accountability was weak and stakeholders were unable to assess performance or fiscal exposure, it added. Less than 36% of SOEs have completed audits; delays persist and financial decisions were taken based on estimates, the Central Monitoring Unit apprised the cabinet committee. It added that lower valuation credibility had increased fiscal risks.
The report showed that there was only one company that earned more than Rs100 billion in profit, while only three companies posted profits exceeding Rs50 billion. A total of 14 SOEs recorded more than Rs10 billion in profits in the last fiscal year, according to the report.
With a 19% decline in profitability, Oil and Gas Development Company Limited (OGDCL) was the only firm that earned Rs170 billion in profit in the last fiscal year.
Pakistan Petroleum Limited earned Rs90 billion in profits, also down by 22%. The National Bank of Pakistan was the third highest public sector firm, registering Rs57 billion in profit, up by 106%, according to the report.
Profits in the oil and gas sector declined by one-fourth to Rs366 billion in the last fiscal year. The finance ministry said the decline was driven by receivables lock-up due to circular debt and price normalisation.
The balance sheets of oil and gas sector companies were also impacted by undue tax demands by the Federal Board of Revenue to meet its targets.
The fourth highest profit-making entity was the Water and Power Development Authority, which earned Rs52 billion in the last fiscal year. With Rs49 billion in profit, Government Holding Private Limited was the fifth highest profit earner, the report stated.
Karachi Port Trust earned Rs35.3 billion, Port Qasim Authority Rs35 billion and Pak-Kuwait Investment Limited registered Rs25 billion in profits during the last fiscal year. Pak-Arab Refinery Company earned Rs22 billion in profit, down by 60%.
Pakistan National Shipping Corporation earned Rs20.5 billion, State Life Insurance Company Rs14.8 billion and Sui Northern Pipelines Limited registered Rs14.5 billion in profit.
The finance ministry said accumulated losses of loss-making SOEs have reached Rs6.5 trillion and were increasing at an accretion rate of Rs700 billion to Rs900 billion every year.
Profitability has eroded as high-earning SOEs are under margin pressure due to rising costs and delayed tariff adjustments, according to the Finance Ministry. Aggregate profits of all government-owned companies declined from Rs821 billion to Rs710 billion — a reduction of 13% within a year.
The report stated that daily bleeding by these entities was equal to Rs3 billion, translating into over Rs1 trillion per annum, and added that these losses were creating massive fiscal pressure.
Zarai Taraqiati Bank Limited earned Rs9.6 billion in profit in the last fiscal year, slightly higher than the preceding year.
The report further stated that net financial deterioration indicated value destruction at the profit level, with losses outpacing profits despite a massive asset base. It added that companies’ assets also shrank by 1% to Rs38 trillion within a year under the Pakistan Muslim League (Nawaz) government.
