Pakistan: Lesson from Passco's losses

The doctrine in contemporary economics that government should not be in the business of doing business fits perfectly well in the instant case. According to a report compiled by the Auditor General as revealed by the "Business Recorder" on 27th July, 2012, the procurement of substandard rice and its late disposal by Pakistan Agriculture Storage and Services Corporation (Passco) had inflicted a loss of over Rs 11 billion to the national exchequer. The details of the story indicated that Passco had arranged to purchase Basmati Rice (Super) at Rs 75,000 per ton and the Corporation suffered huge losses because the paddy, particularly purchased in Sindh, was of poor quality, wet and substandard. As if this oversight was not enough, the sale of the commodity was delayed for a considerable time. Passco was required to sell its rice stocks in March or April, 2009 but the management stocked the rice for about two years and then sold it slowly without realising that Passco/government was bearing heavy interest charges. The last batch of rice stock was disposed of as late as in October last year. The Audit was of the view that the management should have investigated the procurement and disposal process itself which had caused huge losses. The matter was reported to the Passco management on 28th November, 2011 but it rejected allegations on the ground that losses sustained by Passco had been picked up by the Federal Government because "wet rice" was procured and disposed of in accordance with the instructions of the Ministry of Food and Agriculture. The above report as published in the "Business Recorder" is a classic example of the working of the Public Sector Enterprises (PSEs) in Pakistan where inefficiency and mismanagement is the order of the day and huge financial losses suffered due to ineptitude, negligence or corrupt practices of their managements are picked up routinely by the national exchequer. To make the matters worse or more complicated, there is a general tendency of buck-passing to save one's own skin and blame the other party for omissions and failures at various stages. In the instant case, a highly substandard commodity, inferior to the actual specifications, was procured; its sale was delayed for an unduly long period without realising that interest charges had to be paid to the banks for stocking the commodity and then Passco had the cheek to say that such an unwise decision was taken in accordance with the instructions from the relevant ministry of the government. All of this seems unbelievable and obviously a lot of people are involved in such dubious practices, making a lot of money and bleeding the government exchequer profusely and mercilessly. If the government was made to suffer a loss of over Rs 11 billion in only one transaction, it is not surprising that managements of the PSEs in Pakistan were bleeding the country's budget like a pig every year. Since structural fiscal deficit is already quite substantial, added burden due to the mismanagement in the PSEs is usually financed through bank borrowings, which are highly inflationary and make the lives of ordinary people more miserable, who had no role in stealing the money from government exchequer. Although there is a lot of criticism on the working of the PSEs, no bold efforts have so far been made to set the things right and save the nation from this crooked game. There could be certain merit in the argument that certain PSEs providing essential services to the public at large need to be restructured and retained in the public sector, but organisations like Passco which are primarily engaged in trading and ordinary business do not qualify for such treatment. They need to be disbanded because their functions could easily be taken over by the private sector without the involvement of the government. The sooner it is done, the better to alleviate the heavy burden now carried by the government/ordinary tax payers. No private trader would buy wet and substandard paddy without a huge discount in price and as a rational agent would sell it at the appropriate time to economise on bank charges. Above all, he will not blame anybody else but only himself if there is a loss by the end of the day. Our fiscal position is so precarious that we cannot afford to feed endlessly white elephants like Passco. It is time to say farewell to such animals and lighten the burden on the nation's fragile back. Certain landlords or vested interests may not be happy with such an approach but this is now the accepted norm in almost all the countries of the world.