Finance Ministry drafts new law to streamline public enterprises

- RAJESH KHANAL, Kathmandu

Jun 6, 2019-

The Finance Ministry has prepared a draft Integrated Public Enterprise Act designed to frame uniform policies for the state-owned corporations operating in the country.

According to the Annual Performance Review Report of Public Enterprises released by the ministry, 40 public enterprises are currently operating in the country. One-third of them are in poor financial shape due to bad management and overstaffing, saddling the government with financial burdens, the report said.

In 2012, the government established a Public Enterprise Board to oversee these state-owned companies and end the practice of handpicking their chief executives. This board was dismantled in 2016.

Bimal Wagle, former chairman of the board and head of the committee that wrote the proposed legislation, said they had completed the draft and handed it to the ministry. According to him, the draft has proposed forming a two-tier system—an executive board and a governing board—to fix operational standards for public enterprises and monitor them.

Public enterprises have been bedevilled by fickle government policies that change with every change of administration. Last year, the government had decided to shut down crisis-ridden Janakpur Cigarette Factory, but now it is looking for potential investors to revive the five-decade-old factory.

“The new law is expected to end the practice of altering policies regarding poorly performing public enterprises as per political interest,” said Wagle.  

He said that the erstwhile board had a limited scope of appointing only high level officials for public enterprises. “In the new legal framework, the governing board will decide whether or not to continue operating public enterprises that are not performing well,” he said.

Currently, the public enterprises are regulated under an array of laws including the Company Act, Public Enterprise Act and Development Committee Act. “The integrated law will replace these acts and develop a uniform policy in the sector,” said Wagle.

Lack of policy clarity is often seen delaying the government’s plan to privatise crisis-ridden enterprises, thus increasing the financial burden on the government. According to the Annual Performance Review Report, 13 government enterprises were wallowing in the red in 2017-18, and the government had to provide credit worth Rs164.42 billion to keep them afloat.

The state’s equity investment in the public enterprises stood Rs237 billion.

Last year, the government received Rs9.89 billion as dividend that made out return of just four percent compared to the huge capital injection from the state’s coffer.

The new law has proposed fixing parameters such as the rate of return on investment, managerial and economic efficiency, and the trickle-down effect produced to meet social objectives to gauge the performance of public enterprises, Wagle said.

“Based on these parameters, the government will decide whether or not to keep crisis-ridden enterprises or provide them with financial support,” he said.

The government said in the budget statement for this fiscal year that an integrated law would be enforced to improve the managerial capacity of public enterprises.

The government has also planned to operationalise sick industries in collaboration with the private sector and cooperatives.

Published: 06-06-2019 08:11

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