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Public Sector Enterprise


Public Sector Enterprise often referred to as state sector, government owned undertakings/enterprises or state-owned enterprises. These are formed under the legal proceedings, wholly or partly owned and controlled by the government and produce marketable goods and services, have an explicit or extractable budget, and are supposed to finance their operating costs from their own resources. Public sector enterprises are different from other two sub-sets of public sector, viz, the government and the public sector institutions. In a public sector enterprise, the majority of equity shares is owned by the government directly or indirectly through governmental institutions and the government has decision making control either directly or through its appointed bodies. Public sector enterprise normally has three forms of organisational structure, the departmental undertakings, statutory corporations and joint stock companies.

Departmental undertakings are not formed by or with the consent of the legislative authority. These are set up by the executive actions of government bodies without any capital structure and budget, and charged with the duty of carrying out specially defined functions within the purview of the government bodies that set them up. These undertakings are not independent entities, although they enjoy a fairly high degree of monopoly. They are subject to budgetary, audit and other controls of the government and are managed by civil servants. They are financed by annual appropriation from the Treasury, which also receives their revenues. A departmental undertaking is best suited where the main purpose of the enterprise is to collect revenue for the state and to provide public utilities and services at fair prices in larger public interest. Some examples of departmental undertakings in Bangladesh are the Bangladesh Railway, Postal Department, Telephone and Telegraph Board, Power Development Board, Water Development Board, Customs Department, National Board of Revenue, ordnance factories, overseas communication services, and multipurpose river projects.

Statutory corporations are enterprises normally engaged in economic or manufacturing activities and are set up by act of legislature. These corporations are legal entities separate from the government and also the persons who conduct their affairs. bangladesh bank, the government owned life and general insurance companies, biman bangladesh airlines are examples of statutory corporations. Shares of such corporations are in the name of the government and these are thus owned and controlled by the government. Statutory corporations enjoy extensive legal autonomy, and their rules, objectives, functions and duties are defined and specified in the act. Financing statutory corporations is not part of the Treasury and therefore, they can retain their revenues, and also spend as per the rules laid down by the statute. A statutory corporation set up by an Act cannot be regarded to fit in with the changed circumstances without legislative amendments.

Joint Stock Companies are set up under the provision of the companies act. Establishment of companies is easier and is best suited where the nature of the work is substantially commercial. Most joint stock companies are not public sector enterprises in the strict sense. They are free from day-to-day control by the ministry, and are not subject to government's budgetary discipline. They are managed by the board of directors, and are subject to audit and other provisions of the Companies Act. The distinctive feature of a government controlled joint stock company is that the government, except when it sets up a mixed enterprise, puts up the entire capital. Such a company is wholly autonomous and makes its own rules and decisions in respect of investment, finance, personnel and commercial audit. bangladesh shilpa bank, bangladesh shilpa rin sangstha, bangladesh krishi bank, and nationalised commercial banks (NCBs) are examples of joint stock forms of public sector enterprises in Bangladesh.

In Bangladesh public sector enterprises, conceived basically as an instrument of economic development are active in almost all areas of the economy and engage a sizeable volume of resources. The total investment in the industrial sector in 1980-81 was estimated at Tk 43.85 billion, three-fourths of which was in the public sector.

History of state owned institution Evidences suggest that the public sector in British India was primarily concerned with the administration and regulation of education, health, broadcasting, posts and telegraph, telephone, roads and railways and defence. Public sector was not very active in areas like transportation and banking. No Industry was reserved for public sector in Pakistan, but the role of public sector enterprises in other areas was supportive to the growth and development of the industrial capitalists. Originally, the government created enterprises in the public sector with the objective of transferring them later into private ownership when their profitability was ensured. The Pakistan government accepted the strategy of a laissez faire economy and promoted the growth of private sector in its five-year plans and banked on private enterprises as the main vehicle of development keeping the public enterprises as their handmaiden.

The government of Pakistan used the state-owned enterprises mainly for the development of the economic condition of West Pakistan during the period between 1958 and 1970. The private sector received little government patronage in East Pakistan, where the public sector investment was, however, relatively larger than in West Pakistan. The public sector of the economy of Pakistan in the early post-partition years between 1947 and 1950 covered communication network, power, irrigation, defence and social service sectors like education and health.

Following the independence of Bangladesh in 1971, major changes were made in the ownership structure of the enterprises of industrial, commercial and financial sectors. Through nationalisation, the government gained control over 86% of the total industrial assets in the country. The government took over all the units of the industries abandoned by West Pakistani and other non-Bengali owners and nationalised them. The government also nationalised all industrial units owned by Bangladeshi citizens in the three major sectors, namely cotton textile, jute and jute manufacturing and sugar manufacturing. In July 1972, the government imposed ceiling on private investment. The limit set for private investment in small industrial units was Tk 2.5 million, which was later enhanced to Tk 3.5 million including the investment of profits, and simultaneously, the government preserved the right to nationalise any private enterprise whenever felt necessary. The strategy did not work well and within two-three years of nationalisation, the state-owned enterprises started experiencing severe deterioration in productivity and profitability largely due to management inefficiency, corruption and an ideological conflict between personal ambitions of the policy makers, managers and employees and the national interest.

In 1974, in an effort to check the accentuating crisis, the government took initiative to revise the investment policy making greater room for private enterprises in the economy. In the revised investment policy of 1974, only 18 sectors were reserved for the public sector and the remaining sectors were kept open for private investment and the ceiling for private investment was raised to Tk 30 million. The new policy opened scope for foreign private investment in the country. Provisions were made to compensate the owners in the event of nationalisation and the moratorium on nationalisation was extended from ten to fifteen years.

In 1976, the government brought further changes in the national development strategy and encouraged state-sponsored private industrial development. The industrial policy was again revised and offered concession to both local and foreign private investors. Most reserved sectors for state investments were made open for joint participation of public and private enterprises. The government abolished the provision of moratorium on nationalisation, formulated policies to promote private capital and encourage competition between public and private sector enterprises. The public enterprises were restructured through merging some public corporations and creating a few new enterprises. The new goals included revitalisation of the private sector, increase in efficiency of the public sector management, organisation of efficient import substitution, production of exportables, and restriction on monopoly in production, employment generation, and development of skills and technology. All these were included in the government's industrial policy declared in 1982. This policy clearly demonstrated the intention of the government towards privatisation.

The Second Five-year Plan for 1980-85 was revised and the allocation for private sector industry was enhanced from 25% in 1980-81 to 59.4% in 1981-82. The few sectors kept reserved for state-owned enterprises were air transport, telecommunication, nuclear energy, power, and defence goods. All other sectors and kinds of industries were made open for private investment without any ceiling. The major capital intensive public sectors such as jute and cotton textile, sugar, paper, steel, shipbuilding, heavy electricals, minerals, and oil and gas were also made open for either public or private investment or for partnership of both. To facilitate private investment, the government disinvested more than 390 units of industrial, commercial and financial sectors. To help promote share market and to accumulate required funds, the government unloaded 49% of the shares of some public sector enterprises.

In 1983, in line with the privatisation policy, the government returned two nationalised banks, Uttara and Pubali to their former Bangladeshi owners. Simultaneously, the establishment of private banks was allowed, as a consequence of which three private banks namely, the City Bank, the National Bank and the Islami Bank were commissioned in the same year. Later, both military and civil governments encouraged the private sector to flourish in all the areas of the country's economy except (a) arms, ammunitions and other defence equipment and machinery, (b) nuclear energy, (c) forest plantation and mechanised extraction within the bounds of reserved forests, (d) security printing (currency note) and minting, and (e) railways and air transportation (except air cargo and domestic air transportation).

In addition to the provisions made in the investment and industrial policies of different years, the government established the board of investment (BOI) in 1989 for accelerating private investment in the country. BOI is vested with necessary powers to take decisions for speedy implementation of new industrial projects and provide operational support services to the existing ones. Along with other entrusted activities, BOI is now responsible to accelerate the unloading of shares of the public sector enterprises in the light of the government's privatisation policies. The industrial policy 1999 was a clear departure from all previous industrial policies in the sense that it showed the least interest of the government in public sector enterprises as a vehicle for economic development.

One of the classifications of public sector enterprises in Bangladesh is that as non-financial public enterprises and banking and other financial public enterprises. The number of non-financial public sector enterprise is 40, and according to Bangladesh Standard Industrial Classification (BSIC), these belong to 7 broad sectors. Public sector enterprises in the industrial sector are under 6 public corporations such as Bangladesh Textile Industries Corporation, Bangladesh Steel and Engineering Corporation, Bangladesh Sugar and Food Industries Corporation, Bangladesh Chemical Industries Corporation, Bangladesh Forest Industries Development Corporation and Bangladesh Jute Mills Corporation. Those in the power, gas and utilities sector are Bangladesh Oil, Gas and Mineral Resources Corporation, Bangladesh Power Development Board, Dhaka Electric Supply Authority (desa), Dhaka Water and Sewerage Authority, and Chittagong Water and Sewerage Authority.

The transportation and communication sector comprises Bangladesh Shipping Corporation, Bangladesh Inland Water Transport Corporation, Bangladesh Biman Corporation, bangladesh road transport corporation, Chittagong Port Authority, Mongla Port Authority, Chittagong Dockyard Workers Management Board and Mongla Dockyard Workers Management Board. The commerce sector includes Bangladesh Petroleum Corporation, Bangladesh Jute Corporation, and Bangladesh Trading Corporation. The agricultural sector includes Bangladesh Fisheries Development Corporation, and Bangladesh Agricultural Development Corporation. The construction sector includes Chittagong Unnayan Kartippakkha, rajdhani unnayan kartripakkha, Khulna Unnayan Kartippakkha, and Rajshahi Unnayan Kartippakkha. Entities in the service sector are bangladesh freedom fighter welfare trust, Bangladesh Film Development Corporation, Bangladesh Tourism Corporation, bangladesh civil aviation authority, bangladesh small and cottage industries corporation, bangladesh inland water transport authority, Rural Electrification Board, Bangladesh Export Processing Zone Authority, bangladesh handloom board, Bangladesh Silk Foundation, Bangladesh Water Development Board and Bangladesh Tea Board.

The financial sector includes the 4 nationalised commercial banks viz, sonali bank, janata bank, agrani bank, and rupali bank, 6 development financial institutions namely, Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Sangstha, Bangladesh Krishi Bank, rajshahi krishi unnayan bank, Bank of Small Industries and Commerce Bangladesh and Bangladesh House Building Finance Corporation. The Insurance Sector includes the life insurance Corporation and the general insurance Corporation. But since January of 2010, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha merged into one bank named Bangladesh Development Bank Limited (BDBL). So presently the development financial institutions has decreased by 5.

The reformation programmes of non-financial state-owned institutions in Bangladesh are performing since the last ten years upto 2010. A few institutions have been transferred to private sectors. Nevertheless, the state owned organisations play an important role to increase GNP, VAT, employment and revenue income. The amount of net profit of those organisations was more affirmative during the FY of 2008-09 than the FY of 2007-08. The volume of net profit during the FY of 2001-02 was (-) 1533.56 crore taka but by increasing/decreasing, it rose to around (-) 130 crore taka in the FY of 2009-10. The revenue income has been reduced in the state owned sector due to privatisation. But it is said that there has been enough development in using wealth and management system. So these institutions accumulated 170.08 crore taka in the state treasury during the FY of 2001-02, which gradually enlarged by 478.53 crore taka in the FY of 2009-10. [Abul Kalam Azad]

Management of state-owned enterprises In the early days of Pakistan, bureaucratic control and political leadership remained in the hands of Non-Bangalis and the benefits of state policies encouraging the development of a national bourgeoisie were monopolized by immigrants and Punjabi groups. In the 1960s the unpopularity of free enterprise and a market control philosophy of development led to a policy of sponsored capitalism in East Pakistan.

All public sector industrial enterprises in Pakistan were organised as companies. From its very inception Pakistan was committed to a strong private sector, and public sector ventures were to be promotional and supportive in nature. Pakistan Industrial Development Corporation (PIDC) was organised as a statutory corporation, which aimed at developing industries and later divesting them when they would become profitable. The same principle was followed when in early 1970s Pakistan took over many industrial units and places them under holding corporations.

In the post liberation period, private sector industries faced a major set back due to mass exodus of non-Bangali owners and managers. The government of Bangladesh (Taking over of Control and Management of Industrial and Commercial Concern) Order, 1972 was promulgated to fill in the vacuum. All abandoned properties including 725 industrial units were brought under the government control and management. A management board was created for each enterprise as provided in the 1972 ordinance.

Later, the government dissolved the management boards and appointed administrators to run these enterprises. On 26 March 1972, the government promulgated Bangladesh Industrial Enterprises (Nationalisation) Order, 1972, under which it nationalised all abandoned enterprises of assets valuing at 1.5 million and more as well as all industries of the jute, textile and sugar sectors. Eleven industrial sector corporations were established in pursuance of this order, and all the nationalised units, as well as the enterprises and projects of Bangladesh Industrial Development Corporation (formerly EPIDC) were placed under the control of the respective sector corporations. These measures led to the increase in public ownership of industrial fixed assets from 34% to 92%. Some public corporations of the industrial sector were later merged through an amendment of presidential order 27 in 1976 to form Bangladesh Chemical Industries Corporation (BCIC) (merger of BFCPC, BPBC and BTC), Bangladesh Steel and Engineering Corporation (BSEC) (merger of BESC and BSMC) and Bangladesh Sugar and Food Industries Corporation (BSFIC) (merger of BFAIC and MSMC). These three public corporations along with Bangladesh Jute Mills Corporation (BJMC), Bangladesh Textile Mills Corporation (BTMC) and Bangladesh Forest Industries Development Corporation (BFIDC) now constitute six manufacturing public corporations with 386 enterprises under them. Of these, 339 are abandoned units, many of which were left with huge liabilities, mostly in the form of mortgages on their assets.

The state-owned enterprises, as indicated in the guidelines of 1976, section 3(3) of the paragraph on 'Relationship between the Corporation/Autonomous bodies and Enterprises under them' are (i) to operate on commercial consideration having due regard to national interest, in the most efficient and economic manner within the policy framework and guidelines prescribed in the rules and regulations; (ii) to continuously strive to improve its performance and attain better result; and (iii) to earn additional revenue for the government. There is a provision in President's Order 27 for transfer of the government property, assets and liabilities to a corporation. The provision was later amended by the Ordinance No. VII of 1987, which enabled the government, among other things, to sell or transfer shares of the nationalised enterprises to corporations or to any other persons.

The general direction and administration of the officers and business of the corporations were vested in the respective board of directors, which could exercise all powers and do all acts and things that might be exercised or done by the corporation. The board could delegate its power to the chairman (the chief executive) for the purpose of efficient operation of the corporation. The corporation was authorised to appoint officers, employees and consultants for efficient performance of the corporation on such terms and conditions as it might determine. Under the system, the board operated under the supervision and control of the government and was guided in the discharge of its functions by such general or special instructions as might from time to time be given to it by the government. An annual budget statement for the corporation was to be prepared by the corporation and to be duly approved by the government. The system, however, emphasised more on an appropriate management system than on accountability. The government adopted some corrective measures in the form of directives to the ministries and corporations from improving efficiency in performance by the corporations.

These included (a) guidelines on the relationship between the government and the autonomous bodies/corporations and enterprises under them; (b) recommendations of the committee for reorganisation of public statutory corporation; (c) the Public Corporation (Management co-ordination) Ordinance No. 48 of 5 July 1986; (d) Government Order regarding strict observance of the guidelines of 1976 and resolutions of 1983; (e) the Bangladesh Industrial Enterprise (Nationalisation) (Amendment) Ordinance relating to disinvestment and transfer of government shares of nationalised enterprises to the public corporations; and (f) Notification (7 July 1988) of the Ministry of Industry relating to public issue of shares of the government enterprises and holding of 5% share of divested enterprises by the corporations under which they belong (eg, BCIC, BSEC, or BSFIC).

There are many shortcomings and constraints in the structure of control and management of the state-owned enterprises in Bangladesh. Generally speaking, there are four hierarchical levels in the control supervision structure. At the bottom is the enterprise level control involving internal management matters. At the next tier is the corporation control involving supervision, coordination among units, and delegated policy matters. At the third tier is the ministerial control of bureaucratic nature, involving evaluation, coordination amongst ministries and non-delegated policy matters. Finally, at the top is the political control exercised by the minister and the government involving major policy issues. There exists an implied accountability to the jatiya sangsad of elected representatives.

At the bottom is the individual enterprise, which is the ultimate object of control and supervision. The enterprises have no policy-making options as they operate within approved budgets, plans, policies and norms. Even when there is an enterprise management board, they limit themselves to routine operational matters and refer everything to the corporation. This resulted from the absence of mutual trust, lack of professionalism and the uncertain and changing state of informal authority and accountability. Above the enterprises are the statutory corporations. The basic function of these juridical bodies as defined in presidential order/ordinances/acts of parliament is to supervise, coordinate and direct the enterprises.

These bodies control and supervise the enterprises directly and contribute towards coordination between enterprises in matters of foreign procurement, personnel, marketing, disposal of surplus, or arrangement of finance. But the statutory corporations are heavily dependent on ministerial decisions. In most matters of policy and in certain matters of operations, they do not enjoy any autonomy. However, the statutory corporation can move on matters of policy on their own behalf and on behalf of the enterprises under them. The third tier is the ministry, which retains all control over the policy matters, which they define in consultations with other ministries, after scrutiny of papers prepared by the corporations. The fourth tier, the minister, who is a people's representative or a guardian of the public interest, often gets involved in small details of day to day administration rather than the policy issues. The minister, however, conducts review meetings, pilots policy proposals in the cabinet and responds to parliamentary scrutiny on behalf of the enterprises and corporations.

To increase the management skill efficiency, production capacity and marketing network of the state-owned enterprise, an attempt was made in October 1980 to form a forum under the name and style of 'Consultative Committee of Chairman and Managing Directors of Autonomous and Semi-Autonomous Bodies'. It was renamed in 1982 as Consultative Committee of Public Enterprises (CONCOPE). The objective was, among others, to continuously interact with the government for coordinated decision making on administrative and financial management across the public sector corporations and the enterprises under them. CONCOPE regularly holds sittings with the relevant government functionaries including the prime minister and the president for quick decisions on administrative, financial and related other matters. [Abul Kalam Azad and Zahid Hossain]