PEs make sluggish returns

KATHMANDU, July 10:

Returns on government investment in public enterprises (PEs) hovered at 5-6 percent in fiscal year 2011/12, thanks to huge amount of profit generated by Nepal Telecom (NT).

“Though total amount of return from PEs has increased, rate of return went up to around 5-6 percent in 2011/12,” Basudev Sharma, under secretary at the Privatization Cell at the Ministry of Finance (MoF), said. “However, the earning will be zero if we calculate cumulative profit and loss repotted by the PEs.”
Sharma further added that return on investment would have dropped to around 1-2 percent if earnings of NT were not taken into account.

Presently, 37 PEs are in operation in the country. The government has already privatized 30 PEs. Of them, only five are making profit.
Different studies commissioned by the government have showed that deep rooted political interference, overstaffing, lack of efficiency of staffs and long standing mismanagement are the major factors behind the eroding performance of state-owned enterprises.

The cumulative investments of the government in shares and loans in PEs have reached Rs 92 billion and Rs 90 billion respectively as of 2011/12.
A report prepared by MoF on latest status of PEs states that the number of PEs making profit decreased to 15 in 2011/12 from 21 recorded in 2010/11. “Eight PEs that made profit in 2010/11 completed fiscal year 2011/12 in red. Similarly, PEs which made loss in 2010/11 returned to profit in 2011/12,” said Sharma, adding that Nepal Electricity Authority (NEA) and Nepal Oil Corporation (NOC) are the major contributors in the cumulative loss incurred by PEs during the review year.

All nine PEs, which fall under the category of financial sector, reported profit during the review year. The number was eight in the year 2010/11.
Though more than a half a dozen reports prepared by different committees have made hosts of recommendation to manage PEs, nothing has been done so far in this regard in the absence of clear government policy on PEs.

Amid lack of concrete policy to properly govern PEs, the Privatization Cell has categorically put forth five suggestions, including merging PEs of similar nature, to breathe new life on the ailing state undertakings.

Among others, the cell has suggested that chief executives be appointed by evaluating business plans of the aspirants. Similarly, merging PEs on the basis of their nature of business, implementing programs for restructuring, reorganizing and rightsizing of employees, enforcement of performance contract for chief executives, and going for privatization are the suggestions given by the Privatization Cell.

Source: Republica