Rules of business for SOEs are yet to be framed

Dhaka,  Tue,  26 September 2017
Published : 15 Aug 2017, 20:31:30 | Updated : 15 Aug 2017, 20:31:45
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Rules of business for SOEs are yet to be framed

Rules of business for SOEs are yet to be framed
Helal Uddin Ahmed
The state-owned enterprise sector of Bangladesh continues to play an important role in increasing national income, adding value, generating employment and collecting revenue income despite the government adhering to a long-running policy of private sector development and privatisation. The existing state-owned enterprises (SOEs) are making crucial contributions to the economy, especially in the power and gas, transportation, communication and service sectors. 

According to Bangladesh Economic Review 2017 published by the Ministry of Finance, the total operating revenue of non-financial enterprises during 2011-12 financial year was Taka 1069.93 billion, which increased to Taka 1366.02 billion in 2015-16. In the context of production cost, total value addition during 2014-15 was Taka 130.46 billion, which rose to Taka 225.25 billion during 2015-16 financial year. According to the revised estimates for 2016-17, overall net profit of all these enterprises stood at Taka 66.16 billion till 30 April 2017; at the same time, Taka 25.03 billion was deposited in the government treasury as profits. 

The debt-service liability (DSL) of non-financial state-owned enterprises up to 2015-16 stood at Taka 2197.36 billion. However, total outstanding loans of 19 state-owned enterprises up to December 2016 were Taka 279.28 billion, of which classified loan was Taka 2127.20 million. 

Return on assets (ROA) in this sector during 2011-12 was -3.81 per cent (negative), which rebounded to 3.46 per cent (positive) in 2015-16, while net profit over operating revenue during the year was 7.97 per cent. Return on Equity was 1.49 per cent during 2011-12, which rose to 2.69 per cent in 2015-16. But in terms of asset turnover, efficiency has declined in 2015-16 compared to the previous financial year (2014-16). 

Improvements in the overall figures during the past two years may, however, be attributed partially to the windfall profits made by Bangladesh Petroleum Corporation (BPC) due to a massive fall in global oil prices and absence of a concomitant price adjustment in the country. 

The existing non-financial state-owned enterprises in Bangladesh can be divided into seven sectors, as shown in the Table, in accordance with Bangladesh Standard Industrial Classification (BSIC).

GOVERNANCE PROBLEM IN THE STATE-OWNED ENTERPRISES: It has been found from various studies over the years that allocation of responsibility and authority in public enterprises have remained quite inconsistent with the managerial needs of delegation and decentralisation. While field officers remain responsible for implementation, much of the authority and power remains with the central bosses at the secretariat. The required authority is usually not vested even where responsibility is assigned. The upward concentration of power and authority at the ministry level often saps the drive and dynamism at the field level where it is most needed. Although public enterprises still play an important role in the economy, their effectiveness has been greatly impaired through curtailment of their autonomy and postings of bureaucrats having little managerial or professional skills in top positions. Back in 1989, a USAID/GOB study on public administration efficiency showed fundamental weaknesses in the bureaucratic control of public enterprises, centralised authority in decision making, lack of confidence in delegation of power, lack of professional knowledge in the ministries and anomalous positions in different cadre services. 

The institutional arrangement for the control and supervision of public enterprises reflect a multi-tier structure. There exist three hierarchical levels in the bureaucratic control system of public enterprises. At the bottom lie the individual units, which are the ultimate object of control and supervision. These units have virtually no operational autonomy and all decisions regarding production, staffing, procurements, etc. must be referred to and approved by the corporations. The statutory corporations are above the individual enterprises and control, direct and supervise those directly under them. The corporations themselves do not enjoy much operational autonomy. On matters of policy (such as pricing) and operation, they have to refer to the ministry above them. The uppermost bureaucratic tier is the controlling ministry/division who exercise control over specific aspects of policies or operations. 

The bureaucratic control of public enterprises in Bangladesh has not only been extensive in coverage, but also intensive in nature. A survey of the chairmen and directors of industrial corporations was conducted in the mid-1970s and early 1980s to evaluate the intensity of control by the government bureaucracy (Muzaffer Ahmad, 1983). It found that the controls became more rigid in five areas (day-to-day operation, organisational matters, personnel management, marketing and pricing of products). The intensity of control by the ministries/division in day-to-day operations has gradually increased over time. 

The extensiveness and intensity of control leaves very little room for applying intelligence, innovation and risk-taking. Innovative qualities and entrepreneurial spirit are therefore replaced by a rigid bureaucratic attitude in the administration of public enterprises. Although control creates an impact on accountability, the enterprises and corporations shift the incidence of accountability back to the central ministry as the extent of control and direction are germane with it. 

The control system for public enterprises in Bangladesh should, therefore, be viewed as a growth in time, rather than as a continuation in logic (Alimur Rahman, 1986). Historically, there have been powerful and dominating civil service elites, who have wielded considerable power and influence in framing and implementing national policies and in running the government. They have consistently been reluctant to part with their authority, zealously guarding their privileges. They have viewed autonomy and decentralisation of power as a threat to their interest and have always blocked such moves. Thus, because of their opposition, the rules of business for public corporations and enterprises could never be framed. Besides, monitoring has become a tool for post-facto audit over the years, and not a tool for timely managerial decision making.

BUREAUCRATIC CONTROL SYSTEM: The bureaucratic control structure of public enterprises in Bangladesh is not performance-oriented. The detailed means and measures for evaluating and monitoring performance have not yet been worked out properly. A control system, which is built around mistrust and oriented more towards delving into procedural omissions and commissions, cannot increase work-cum-operational efficiency and improve performance. There should be an overhaul and reform of the current management system and administrative practices in the state-owned enterprises of Bangladesh. Examples of successful running of such enterprises in countries like China and India may be emulated for the purpose. 

Dr. Helal Uddin Ahmed is a retired Additional Secretary of the Ministry of Public Administration and former Editor of Bangladesh Quarterly. 

hahmed1960@gmail.com

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