Enhancing Public Sector Enterprises for Economic Growth in Bangladesh

1. Welcome

2. Bangladesh :Transforming Public Enterprises A. B. M. KhorshedAlam Additional Secretary Ministry of Industries Government of Bangladesh

3. Bangladesh • Surrounded by India, Myanmar and The Bay of Bengal

4. Bangladesh at a Glance Population : 150 million (appx) Area : 147,570 sq. km Density : 993/sq. km. Average HH size : 4.8 persons Annual growth rate of population : 1.38% Literacy Rate : 68% Primary School Enrollment : 96% Per Capita Income : 780 US$ Total GDP : 101.22 bn US$ GDP growth rate : 6.24%

5. Bangladesh at a Glance • Foreign Exchange Reserve : 11.0 bn. US$ • Annual Export : 16.20 bn. US$ • Annual Import : 23.74 bn. US$ • Remittance (Expatriate Bangladeshis) : 14.0 bil. US$ • FDI in Flow : 913 mil. US$ • Exchange Rate(Taka/US$) : 74.69 Taka • Peak Hour Power Demand : 5,800 MW • Max. Power Generation : 4,600 MW • Access to electricity : 47% • Per capita generation : 220 KW hr

6. Categories of PSEs in Bangladesh • 100% Government owned companies • Up to 49% share off loaded companies and managed by public sector. • More than 51% share off loaded companies and managed by private sector. * National companies * Foreign companies including multinationals

7. PSEs in Bangladesh at a Glance • No. of PSEs : 236 units • PSEs contribution to GDP : 2% • No. of PSEs listed in Stock Market : 27 units • Market capitalization of PSEs : 10.30% • Total Market Capitalization : 49.86 bn US$ • PSEs Employment out of total employment : 7% • Total Employment PSEs : 240 thousand • PSEs Privatized through outright sale : 54 Units • More PSEs will be listed in stock market : 5 Units

8. Legal Instruments of PSEs in Bangladesh • General Government Orders / Instructions • Relevant Statutory Acts, Rules and Regulations for State Owned Sector Corporation. • Bangladesh Bank Order 1972 • Banking Companies Act 1991 • Financial Institutions Act 1993 • Securities and Exchange Commission Act 1993 • Company’s Act 1994 • Bankruptcy Act 1997

9. Public Sector Enterprises (PSEs) Financial Sectors: Commercial Banks & Financial Institutes. Manufacturing Sectors: Jute Industries, Textile Industries, Engineering Industries, Chemical Industries, Sugar & Food Industries, Forest Industries, Power, gas & water, Medicine etc, Transport & Communication Sectors: Road transport, Water transport and Aviation. Trade Sectors: Energy and Commodities. Agriculture Sectors: Fertilizer distribution, Fisheries. Construction Sectors: Urban development & Housing Authority. Service Sectors: SME development, Tourism, Regulatory bodies etc.

10. Rationale of PSEs Function • Historically inherited large industrial entities. • Monitor and guide financial sector through commercial banks and financial institutions. • Huge capital intensive nationally important project like power plant, fertilizer factory etc. • Commercial entities required to protect public interest e.g. Sugar mills, Commodities distribution co. etc. • Ensure basic necessities for the citizens, like water supply, sanitation, urban transportation etc.

11. A Policy Shift on PSEs Employment must be considered before privatizing any public sector enterprise. Alternative employment of existing workforce has to be ensured. PSEs will be encouraged to function as a supplementary and competitor of the private sector. In this regard, establishing public private partnership (PPP) and running industries through private management will be given priority. Local and international entrepreneurs will be invited to invest in the PSEs for its technological and managerial development. If privatization could bring benefits to officials, employees and workers, it will be given special importance.

12. Reform Strategies of Public Sector Enterprises • Private Sector shall be the key role player in the development of industrialization • Govt. will examine the probable ways to make PSEs profitable before going for privatization Attempts to be taken for managerial development in public enterprises & Shares to be offloaded to clear the way for creating Public Ltd. Co. under the Company Act, 1994. • Govt. will conduct survey on technical & financial aspects of privatized enterprises to pulse their visible & invisible impact on national economy, and do the needful to address the problem if any.

13. Public-Private Partnership (PPP) • Priority to be given to encourage establishing enterprises under Public Private Partnership (PPP) & running industries under private sector. • Infrastructural Project like CETP, electricity, gas, port facility, road & railway transportation, telecommunications etc. in economic zones & industrial parks will get priority under PPP initiatives.

14. Organization of the State Ownership Function for PSEs Cabinet of Ministers Respective Ministry Corporation Board Enterprise Board Enterprise Management

15. Institute exercising state authorities • No central authority exist. As many as 19 ministries own the PSEs in Bangladesh. • Performance is monitored by the holding corporation. • The budget is controlled by the Ministry of Finance. • Appointment of CEO and Directors of Holding Corporation is controlled by Ministry of Human Resources. • Appointment of CEO and top management of enterprise is controlled by Holding Corporation or Enterprise Board. • Pay structure of PSEs workers is determined by Wage Commission under Ministry of Labour and Employment. • Company Law is controlled by the Ministry of Commerce. • Capital expenditure for expansion, modernization, renovation etc. through Govt. financing is controlled by Ministry of Planning. • Overall administration of PSEs and Holding Corporations are vested with the respective Ministry.

16. Performance Evaluation Systems of PSEs • Target setting and performance evaluation by Enterprise Board. • Internal auditing by Holding Corporation. • Auditing by the government commercial audit department under Comptroller and Auditor General of Bangladesh. • External auditing by qualified chartered accounting firm. • Capital expenditure if funded by government is monitor and evaluated by Implementation, Monitoring and Evaluation Division of Ministry of Planning.

17. PSEs Board in Bangladesh: Practices • Nomination of directors: No specific rules or policy guidelines. Administrative ministries appoint the bureaucrats, professional, business leaders and members of civil society. Political consideration is a usual practice. • Conduct of the directors: Company Act, SEC guideline and Bangladesh Bank’s regulation generally provides a framework without any specific instruction to the govt. nominated directors. • Powers of the Board: Statute spell out the powers, but sometimes influenced by the respective Ministry . • Board Composition: 7-13 members (average) . • Selection of CEO and top managers: appointed from civil service on deputation, or on contract, or as political affiliation. • Remuneration: Except a few, almost majority follows government pay scales. Non-executive directors only get fee for attending the board meeting. • Absence of Performance Evaluation of the Board.

18. PSEs Board in Bangladesh: Key Reform Measures • Re-constitution of the PSEs board including State-Owned Commercial Banks (SCBs) • Provision made for independent directors in listed company board. • Corporatization of the SCBs • Terms limit on board duration and limits to the size of the boards • Implementation of BASEL II Framework from January 2010. • SeparateBanking Division under the Ministry of Finance. • Separate pay scale for the SCBs and Bangladesh Bank (BB)-(Proposed). • Banking Reform Law (proposed). • Financial Reporting Council 2008 (in process).

19. THANK YOU