public sector enterprises reform program …...pakistan: public sector enterprises reform program...

Completion Report

Project Number: 48065-002 Loan Number: 3398 and 3399 August 2018

Pakistan: Public Sector Enterprises Reform Program (Subprogram 1) This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – Pakistan rupee/s (PRe/PRs)

At Appraisal At Project Completion (4 April 2016) (30 June 2017)

PRe1.00 = $0.0095 $0.0095 $1.00 = PRs104.8 PRs104.8

ABBREVIATIONS

ADB CGR ERP GDP IFRS IMF

MOF MOR PMU PPP

– – – – – – – – – –

Asian Development Bank corporate governance rules enterprise resource planning gross domestic product International Financial Reporting Standards International Monetary Fund Ministry of Finance Ministry of Railways program management unit public—private partnership

PSE PSERP PSMCL

SDR SECP

TA VSS

– – – – – – –

public sector enterprise Public Sector Enterprises Reform Program Pakistan Steel Mills Corporation (PVT) LTD. special drawing right Securities and Exchange Commission of Pakistan technical assistance voluntary separation scheme

NOTES

(i) The fiscal year (FY) of the Government of Pakistan and its agencies ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30 June 2018.

(ii) In this report, “$” refers to United States dollars.

Vice-President Wencai Zhang, Operations 1 Director General Werner E. Liepach, Central and West Asia Department (CWRD) Director Tariq H. Niazi, Public Management, Financial Sector and Trade Division,

CWRD Team leader Adrian Torres, Principal Financial Sector Specialist, CWRD Team members Catherine Debalucos, Associate Project Analyst, CWRD

Sana Masood, Project Officer, Pakistan Resident Mission, CWRD Mariane Sual, Senior Operations Assistant, CWRD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2

A. Project Design and Formulation 2 B. Project Outputs 2 C. Project Costs and Financing 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Technical Assistance 5 H. Consultant Recruitment and Procurement 5 I. Monitoring and Reporting 5

III. EVALUATION OF PERFORMANCE 6

A. Relevance 6 B. Effectiveness 6 C. Efficiency 7 D. Sustainability 7 E. Development Impact 8 F. Performance of the Borrower and the Executing Agency 8 G. Performance of the Asian Development Bank 8 H. Overall Assessment 8

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 9

A. Issues and Lessons 9 B. Recommendations 10

APPENDIXES

1. Design and Monitoring Framework 11

2. Project Cost at Appraisal and Actual 15

3. Disbursement of ADB Loan and Grant Proceeds 16

4. Status of Compliance With Loan Covenants – Loan No 3398 and 3399-PAK 17

5. Status of Compliance With Policy Actions 22

BASIC DATA A. Loan Identification

1. Country Islamic Republic of Pakistan 2. Loan number and financing source 3398 (ordinary capital resources [OCR])

and 3399 (concessional OCR lending [COL])

3. Project title Public Sector Enterprises Reform Program (Subprogram 1)

4. Borrower Islamic Republic of Pakistan 5. Executing agency Ministry of Finance 6. Amount of loan 3398 (OCR)—$200 million

3399 (COL)—$100 million (SDR70.87 million)

7. Project completion report number 1698 8. Financing modality Policy-Based Loan

B. Loan Data

1. Fact Finding – Date started – Date completed

4 April 2016 13 April 2016

2. Loan negotiations – Date started – Date completed

18 May 2016 18 May 2016

3. Date of Board approval 28 June 2016

4. Date of loan agreement 28 June 2016

5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

26 September 2016 29 June 2016 0

6. Project completion date – Appraisal – Actual

Not applicable

7. Loan closing date – In loan agreement – Actual – Number of extensions

30 June 2017 30 June 2017 0

8. Financial closing date – Actual

30 June 2017

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9. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

Loan 3398: LIBOR plus 0.60% as determined by Section 3.02 of the loan Regulations less credit of 0.10 as provided by section 3.03 of Loan Regulations Loan 3399: 2% per annum Loan 3398: 15 years Loan 3399: 25 years Loan 3398: 3 years Loan 3399: 5 years

10. Terms of relending (if any) None

11. Disbursements

a. Dates

Initial Disbursement 30 June 2016

Final Disbursement 30 June 2016

Time Interval 0 months

Effective Date 29 June 2016

Actual Closing Date 30 June 2017

Time Interval 12 months

b. Amount ($ million)

Category or Subloan

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Loan 3398 200.00 0 0 200.00 200.00 0 Loan 3399 98.63 0 0 98.63 98.63 0 Total 298.63 0 0 298.63 298.63 0

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost 298.63 298.63 Local currency cost 0 0 Total 298.63 298.63

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 0 0 ADB financed 298.63 298.63 Other external financing 0 0 Total implementation cost 298.63 298.63

ADB = Asian Development Bank.

3. Cost breakdown by program component: Not applicable 4. Program Schedule: Not applicable 5. Program performance report ratings: Not applicable

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D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Membersa

Reconnaissance Fact finding

3–8 March 2016 4–13 April 2016

4 3

16 24

a, b, c, d a,b,c

Project completion review 2–6 July 2018 1 5 a,d a a = public management specialist, b = financial sector specialist, c = senior economic officer, d = senior programs

officer.

I. PROJECT DESCRIPTION

1. The Government of Pakistan owns 191 public sector enterprises (PSEs) with total assets estimated at PRs9,400 billion in FY2014. These PSEs employ more than 420,000 workers (78,000 of which are employed by Pakistan Railways). Many PSEs do not have appropriate accounting, audit, and internal control procedures, which often results in untimely and unreliable disclosure of financial statements. 2. While some PSEs are profitable, most are struggling to make profits. As a result, many PSEs rely on regular discretionary fiscal transfers and sovereign credit guarantees to maintain operations. In FY2016, fiscal allocation to support PSE operations (including subsidies and other transfers) constituted 65% of overall budget allocations to the PSEs. This limits the critical capital development expenditures needed to improve PSE efficiency and the government’s ability to invest in critical capital projects and improve service delivery. 3. Since 2014, the government has imposed drastic cuts in transfers and allocations to PSEs as one measure of reducing the fiscal deficit and overall borrowings. Total budgetary transfers to PSEs (including support and capital investment) declined from 3.1% of gross domestic product (GDP) in FY2012 to 1.5% of GDP in FY2015. 4. To support the government’s PSE reform agenda, the Asian Development Bank (ADB) approved a programmatic approach for the Public Sector Enterprises Reform Program (PSERP) in June 2016, allotting a loan of $300 million for subprogram 1 of the PSERP. The project aimed to reduce net fiscal transfers to PSEs from the federal budget and improve the performance of PSEs as an outcome. To achieve this, the project outputs were to (i) address the labor issues, and introduce a communication strategy and design monitoring system; (ii) improve financial transparency, monitoring, and corporate governance in PSEs; and (iii) initiate restructure and reforms in Pakistan Railways. The program aims to introduce institutional reforms and improve the commercialization of PSEs to make them profitable in the long term, thereby decreasing their need for government support and improve their dividend distribution to the government budget. 5. Pakistan Railways was one of three PSEs (along with Pakistan International Airlines Corporation Limited and Pakistan Steel Mills Corporation (PVT) LTD.) initially shortlisted to be covered under the PSERP. However, as Pakistan International Airlines and Pakistan Steel Mills were also covered under the 3-year International Monetary Fund (IMF) reforms program (IMF Extended Fund Facility), Pakistan Railways was selected for restructuring and reforms in overall financial management, audit function, human resources, digitization of the land assets data base, outsourcing of selected railway services, and transparency in the procurement process under the PSERP. Pakistan Railways, which has been responsible for more than 70% of Pakistan’s freight traffic since 1960, has limited capacity and its procedures are obsolete, reducing its ability to improve the overall performance of the company. It has not pursued periodic modernization of its railway systems, which has resulted in an increased need for manual labor provided by about 78,000 workers requiring $375 million for salary and pensions annually (about 70% of financial resources). This financial constraint has left little room for much-needed expansion of railway corridors and upgrading of the freight and passenger services.

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II. DESIGN AND IMPLEMENTATION

6. Under the PSERP, the Ministry of Finance (MOF), through the Finance Division, was the executing agency (EA).1 The Implementation and Economic Reforms Unit under the Finance Division served as the program management unit (PMU) for the overall coordination, reporting and implementation of the program. The Finance Division, Ministry of Railways (MOR), Pakistan Railways, the Privatization Commission, and the Securities and Exchange Commission of Pakistan (SECP) were the implementing agencies. Subprogram 1 was designed to be implemented over 12 months from June 2016 to June 2017. A. Project Design and Formulation

7. At appraisal, the PSERP was highly relevant to, and consistent with, ADB’s country partnership strategy for Pakistan, 2009–2013, which supported one of the key strategic areas—reforms—to bring down market distortions and institutional bottlenecks, improve public financial resource management, develop the private sector and bring about structural transformation. The program was also aligned with the country’s development road map and implementation strategy, the Pakistan Vision 2025, which affirms the government’s commitment to converting loss-making PSEs into profit-making entities through restructuring and eventually strategic privatization of selected PSEs. 8. At the design stage, ADB looked at key lessons learned from past ADB country reviews2 and assessments of other similar development programs from the World Bank,3 and incorporated these lessons in the formulation of the policy actions for the PSERP. The policy actions were also designed to complement future ADB interventions in the transport sector4 and initiatives of other development partners in PSE reform.5 9. At completion, the PSERP remains highly relevant as the government continues to address the inefficiencies and institutional bottlenecks in PSEs. The government’s continued reforms in PSEs will be supported in subprogram 2 to further implement deeper structural reforms that will improve the commercialization of targeted PSEs. B. Project Outputs

10. The PSERP had three general outputs: (i) the introduction of a communication strategy and policies to address labor issues, the design of a monitoring system, and the assessment of costs and benefits; (ii) the improvement of financial transparency, monitoring, and corporate governance in PSEs; and (iii) the restructuring and reform of selected PSEs. There were 13 policy

1 ADB. 2016. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic

Approach and Policy-Based Loans for Subprogram 1 to the Islamic Republic of Pakistan: Public Sector Enterprises Reform Program. Manila.

2 Independent Evaluation Department. 2013. Country Assistance Program Evaluations: Pakistan, 2002–2012—Continuing Development Challenges. Manila: ADB.

3 Independent Evaluation Group. 2012. Project Performance Assistance Report: Egypt—Egypt Financial Sector Development Policy Loan, Egypt Second Financial Sector Development Policy Loan; Independent Evaluation Group. 2012. Project Performance Assistance Report: Guatemala—Guatemala Financial Sector Adjustment Loan; Independent Evaluation Group. 2012. Project Performance Assistance Report: Morocco—Morocco Financial Sector Development Policy Loan; Pakistan—Banking Sector Restructuring and Privatization, Banking Sector Development Policy Program. Washington, DC.

4 ADB. 2015. Technical Assistance to the Islamic Republic of Pakistan: Enabling Economic Corridors through Sustainable Transport Sector. Manila.

5 Some policy actions under the PSERP were aimed at facilitating strategic private participation in selected PSEs initiated by the government under the IMF program.

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actions under subprogram 1. The outputs and the corresponding policy actions were not changed over the implementation phase. Details of the status of compliance for the 13 policy actions are in Appendix 5. 11. Output 1: Policies to address labor issues and communication strategy introduced, monitoring system designed, and costs and benefits ascertained. The Privatization Commission Board approved a communication strategy in May 20166 that targets various stakeholders, including the general public, to improve awareness and support for privatization and restructuring of PSEs. The board also approved the report7 that articulates the strategies for the proposed reforms in May 2016. The report provides the costs associated with implementing trainings, voluntary separation scheme (VSS), and funding of unfunded pension liabilities. The strategies also covered labor issues during privatization. However, this did not come into play as no privatizations took place during the implementation phase of the program.8 Consequently, funding of unfunded retirement liabilities of PSEs on the privatization list was also not implemented. 12. Output 2: Financial transparency, monitoring, and corporate governance in PSEs improved. The Finance Division has uploaded the financial performance report for all the federal PSEs for FY2015 and the report for FY2016 has been prepared and is expected to be uploaded by the end of July 2018. 13. Based on the SECP’s records, the status of filing of statement of compliance related to FY2015 (as of 30 September 2016) complied with the target of 35%. Compliance by PSEs has improved significantly, with the compliance rate increasing to 67% as of 30 June 2018, which is much higher than the target indicator set under the program’s design and monitoring framework. Furthermore, the SECP has complied with the other indicators for Output 2 of the program’s design and monitoring framework through its monitoring of the performance of all PSEs and non-compliant entities. In addition, the SECP is also submitting a quarterly progress report to the MOF, enabling the MOF to continue monitoring the non-compliant entities and take remedial action as required. 14. Notification to extend the scope of corporate governance rules (CGR) to all PSEs has been issued as a result of the taskforce that was mandated under the program. This increases the government’s ability to enforce CGR across all the PSEs and to encourage and increase representation of females on PSE boards. The government has made amendments to the CGR in line with international best practices. 15. Output 3: Restructuring and reform of selected PSEs initiated. Of the 13 policy actions under the PSERP, six are targeted towards reforms in Pakistan Railways. In relation to this, Pakistan Railways has appointed a professional chief internal auditor and has also established a road map for the strengthening of the internal audit department. It has also established a methodology for the risk-based internal audit system. Steps are being taken to improve the system in line with international best practices. The chief internal auditor is from the Accounts and Audit Group of the Civil Service of Pakistan.

6 This policy action was achieved a month earlier than previously targeted in the design phase. 7 Please see appendix 5, policy action 2 for details. 8 The SECP noted during the review that government approvals to move ahead with privatization of selected state-

owned enterprises have been delayed and in some cases withdrawn because of the public’s negative sentiments on privatization.

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16. Pakistan Railways formed a committee in 2015 to rationalize the service structure in all the cadres of the institution. Subsequently, a consultant was hired to complete the process of restructuring human resources. The consultant was only able to provide an initial report. The final report is to be completed by the newly hired consultant this December 2018. 17. Pakistan Railways is close to completing the geographic information system based mapping of all land records and is now in the process of reconciling these records. The digital database is improving the railways’ efficiency in identifying and monitoring all land-based assets and eventually capturing the fair value of these assets in its balance sheet. 18. Pakistan Railways has established one public–private partnership (PPP) unit in the MOR and one in its headquarters in Lahore to ensure that selected services can be privatized in PPP mode. However, it appears that the units established are not dedicated units as required under the policy action. Pakistan Railways noted that there are about 40 staff working on PPP-related jobs. However, these staff are part of the railways’ commercial division and are not necessarily engaged as dedicated staff for the PPP unit. 19. Pakistan Railways has started migrating from a cash-based accounting system to an accrual-based accounting system to ensure the matching of all revenues with costs. The preparation of financial statements in accordance with the International Financial Reporting Standards (IFRS) improves transparency in financial reporting and gives an accurate view of the financial performance of Pakistan Railways. However, the preparation of financial statements for FY2018 has been delayed because enterprise resource planning (ERP) was not implemented by the targeted dates. According to Pakistan Railways, it is in the process of selecting the appropriate ERP solutions platform to adopt. 20. Pakistan Railways has started uploading all the tenders on its website along with bid evaluation reports and is in the process of introducing e-procurement. Furthermore, the time required to complete the procurement process has been reduced from 150 days to 120 days, improving the efficiency of the process and also reducing operating costs. C. Project Costs and Financing

21. The program size was based partly on the need to address four large-cost items critical to PSE-related reforms, including (i) voluntary separation costs, (ii) funding of a retirement benefit fund to manage unfunded pensions and other retirement liabilities of workers, (iii) cost of vocational and other training programs, and (iv) communication costs. At appraisal, it was estimated that the development financing needs was approximately $900 million over the next 2 years of which an estimated $640 million would finance the shortfall in the government’s support to PSEs for FY2017 and FY2018, an estimated $240 million would finance the contribution to the Retirement Benefit Fund, and the balance of $20 million would finance training and communication. The program was expected to finance 67% of this development financing needs. ADB provided $300 million under subprogram 1. The expected improvements in PSE performance and efficiency justified the economic benefits of the program. Refer to Appendix 2 for further details. D. Disbursements

22. ADB provided a policy-based loan of $300 million of which $200 million was sourced from its ordinary capital resources and the balance of $100 million (SDR70.87 million) from Asian Development Fund resources. The loan was approved by the ADB Board of Directors on 28 June

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2016 and was made effective the following day. All 13 policy actions achieved full compliance and the loan was fully disbursed on 30 June 2016, 3 months ahead of the scheduled time frame. Refer to Appendix 3 for further details on the disbursements. E. Project Schedule

23. The PSERP was implemented on 30 June 2016 and completed on 30 June 2017 without any extensions and with all policy actions complied with at loan approval. F. Implementation Arrangements

24. The implementation arrangements designed at appraisal were satisfactory and no changes were made during the implementation of subprogram 1. The implementation arrangement was adequate with the PMU coordinating the activities of all the implementing agencies to deliver the program. The MOF, through the Finance Division, was the executing agency. The executing agency was supported by the Implementation and Economics Reform Unit within the Finance Department that served as the PMU responsible for overall coordination and reporting during the implementation. The PMU helped coordinate the respective activities of the five implementing agencies: the Finance Division, the MOR, Pakistan Railways, the Privatization Commission, and the SECP. G. Technical Assistance

25. On 15 December 2014, ADB approved project preparatory technical assistance (TA) for the program ($500,000) with the MOF as the executing agency. The project preparatory TA engaged 12 individual consultants: eight national consultants and four international consultants who have expertise in legal, regulatory, financial management, fiscal policy and PSE reform. The consultants provided inputs in the formulation of the policy matrix and the overall design framework of the PSERP, covering three key areas of reform as noted in paras. 10–20. Three minor changes were approved, one of which allowed the extension of the national financial management expert and national regulatory expert for another 6 months, and the engagement of a national corporate finance expert and an international exports specialist. One of the amendments also facilitated the pre-termination of contracts of three international consultants to free up funds for the national consultants needed for subprogram 2. The project preparatory TA is to be closed on 31 December 2018 and has an undisbursed balance of $105,472 as of 6 July 2018. H. Consultant Recruitment and Procurement

26. There was no procurement, advance contracting, or retroactive financing. No other consultants were engaged except for the individual consultants under the project preparatory TA. I. Monitoring and Reporting

27. The borrower is compliant and has ensured continued compliance with all the covenants as detailed in Appendix 4. Also, it has not requested a waiver or change in the covenants. Prompt compliance with key covenants was also observed. This performance is a result of thorough program preparation and effective dialogue with the borrower. The review team noted that the borrower was not required to submit periodic reports on covenant compliance and there was no periodic independent monitoring from ADB.

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28. Key reporting requirements include publishing the annual financial performance reports of PSEs on the Finance Division website and listing PSEs that are not filing a statement of compliance with CGR on the SECP website. Pakistan Railways is also uploading all the procurement tenders and major bid evaluation reports on its website. 29. All the PSEs are maintaining their account books in accordance with applicable accounting standards and relevant procedures. The PSE boards and shareholders approve the audited financial statements as per prescribed timelines provided in the Companies Act, 2017. Management letters are reviewed by the board of directors.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The program is rated highly relevant with respect to the government’s PSE reforms agenda and to ADB’s country partnership strategy for Pakistan, 2015–2019, which supported the institutional reforms and governance. Pakistan Vision 2025 lays down a foundation to put Pakistan on the fast track to development with the ultimate goal of transforming the country into one of top 10 economies in the world by 2047. Pakistan Vision 2025 affirms the government’s commitment to convert public sector running-deficit institutions into profit-making entities through a combination of improving governance, restructuring, and partial and outright privatization. PSE reforms continue to be a priority and ADB is partnering with the government to deliver a second, deeper level of reforms under the overall program that will deliver restructuring of PSEs to achieve long-term efficiency and profitability. The programmatic approach is appropriate for the intended program as it allows reforms to be phased in so that lessons from each subprogram can be applied to the next one. 31. The public sector in Pakistan constitutes a large share of the economy, contributing about 10% of the GDP. The challenges of governance, poor financial management, a poorly organized workforce and political influence have impeded effective public service delivery. In Pakistan, an overarching constraint in efficient management of PSEs has been limited availability of financial data, inadequate capacity within government to monitor their performance, and weak corporate governance practices, including non-compliance with the SECP’s CGR. The PSERP is part of the government’s ambitious reforms agenda, which includes (i) improving governance within PSEs, (ii) restructuring, (iii) devising strategies to address labor issues, and (iv) creating an effective communication strategy to carry out privatization of PSEs. The program provided support to the government to improve efficiency, self-sustainability and financial transparency within PSEs. Reforms delivered under the PSERP empowered the regulator to effectively monitor the compliance of PSEs with Public Sector Companies CGR, 2013. B. Effectiveness

32. The PSERP is rated effective. It has broadly achieved its outcomes by implementing financial transparency, monitoring, improving corporate governance in PSEs, restructuring and reforming Pakistan Railways, approving policies by the Privatization Board to address labor issues, and creating a communication strategy targeting stakeholders to bring them on board and make the process of privatization successful. 33. The PSERP has extended CGR, including the promotion of female representation on PSE boards, across all the PSEs. Almost 61% of PSEs are now filing statements of compliance with the SECP as compared to 35% at the start of program. Furthermore, the program has been

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instrumental in improving the effective monitoring of the performance evaluation of the board to deliver better outcomes, both financial and nonfinancial. A strong performance monitoring system sets objectives and targets, and in doing so provides clarity to PSE boards and management as to the expectations of the government. 34. The program initiated the phased migration of the financial management system of Pakistan Railways from the current accounting practices to an internationally recognized set of accounting standards (International Financial Reporting Standards [IFRS] or International Public Sector Accounting Standard [IPSAS]), including the adoption of accrual-based accounting. Pakistan Railways is preparing its first IFRS-based financial statements by fully implementing ERP. This is expected to be achieved in the next reporting cycle. A complete restructuring and rationalization of Pakistan Railways’ workforce is also being carried out to improve operational efficiency.

35. The privatization strategies were implemented, albeit slow, while some of the envisaged privatization transactions did not push through. No major progress was made towards funding of the unfunded retirement liabilities of PSEs on the privatization list. Also, improvements in the profitability of, and dividend income from PSEs were not achieved. Profitability, however, also has inputs from external forces that are beyond the PSEs’ control. C. Efficiency

36. The PSERP subprogram 1 is rated highly efficient. No major change was required in the scope of the program, all policy actions were completed, and the loan was disbursed on time. The efficiency was the result of (i) thorough program preparation, (ii) effective policy dialogue with the executing agency, and (iii) the political commitment of the government. D. Sustainability

37. The PSERP subprogram 1 is rated likely sustainable. Continuity of reforms under subprogram 2 facilitated sustainability. The program has delivered improvements in the public financial management system of PSEs in the areas of accurate financial reporting, budgeting, and effective internal auditing. The policy actions, however, have not been able to deliver the desired outcome in terms of profitability of, and dividend income from, PSEs over the short (1 year) implementation period. Preliminary estimates suggest that PSEs incurred a loss for FY2016.9 Profitability of PSEs is also driven by other external factors that are beyond their control. The next level of reforms under the program will focus on other structural reforms that support the commercialization, efficiency, and long-term profitability of targeted PSEs. 38. The program has ensured calibration of the government’s PSE reform policy and approach, focusing on the broader PSE portfolio. As a result, the government has formulated a list of PSEs ready for privatization in the medium term, subject to reform and restructuring, and a list of those that would be retained (such as railways, airports, and seaports). An enabling policy framework for privatization has been established, including (i) a labor strategy that includes funding of unfunded pension liabilities, training costs, and voluntary retirement costs; and (ii) a robust communication program. The program has helped the government to plan financing requirements and to develop a coherent well-coordinated approach for managing adjustment costs through joint support from development partners. The program has improved financial transparency through public disclosure of the financial performance of PSEs. This has also

9 Financial statements of PSEs will be published on the SECP website in the second half of July 2018.

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improved the MOF’s capacity to manage and monitor PSEs’ financial performance. As a result of the program, the SECP has significantly improved its compliance with CGR. The program is also promoting private sector participation in the provision of public assets and services under a PPP approach. The creation of viable and bankable PPP transactions will ensure not only improvements in service delivery but also minimize the budgetary support requirements. E. Development Impact

39. The program’s impact on institutional development is rated satisfactory. The program achieved the target impact with fiscal transfer to PSEs under subsidies and grants reduced from 0.8% of GDP for FY2015 to 0.4% of GDP for FY2018. During implementation, the program played a critical role in building consensus on reform directions among relevant government agencies. The program helped restructure line agencies, reduce duplication of functions, and improve the operational efficiency of the SECP, Privatization Commission, and Pakistan Railways. The coordination among various government agencies and the MOF has improved significantly, with the MOF leading the reform agenda to ensure that the program generates desired economic benefits in the long term. 40. Under the PSERP’s subprogram 2, the government has carried out additional reforms to augment the policy actions achieved under subprogram 1 to further improve service delivery in Pakistan Railways and other selected PSEs. F. Performance of the Borrower and the Executing Agency

41. The performance of the government and the executing agency is rated satisfactory. The government, and the executing and implementing agencies, showed strong commitment in their timely compliance with the policy actions and their willingness to support the PSERP from design preparation to implementation. However, some outputs are lagging in terms of implementation, but efforts are being made to deliver the desired outcome. G. Performance of the Asian Development Bank

42. ADB’s overall performance is rated satisfactory. No extension was sought in the preparation and delivery of subprogram 1 with loan effectiveness and disbursement dates achieved 3 months ahead of the targeted dates. Public Management, Financial Sector and Trade Division of Central and West Asia Department with the support from Pakistan Resident Mission, implemented subprogram 1. No major issues were encountered during the implementation though it was noted that program completion report (PCR) submission was not required from the borrower per loan agreement. The borrower did not respond to an initial formal request for PCR submission. Nonetheless, the second request during the review mission yielded results and the borrower’s PCR was received on 12 July 2018. Further compliance review of the loan covenants was not performed during implementation on the basis that all policy actions were met when the ADB Board of Directors approved the subprogram 1 loan. H. Overall Assessment

43. Overall, the PSERP subprogram 1 is rated successful. It was highly relevant in improving PSEs’ governance, and was effective in achieving targeted outcomes. Subprogram 1 was efficient in terms of timely implementation, with no extension required. Subprogram 1 is likely sustainable given the government’s ongoing commitment to PSE reforms and improvements in PSE governance compliance.

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Overall Ratings

Criteria Rating

Relevance Highly relevant Effectiveness Effective Efficiency Highly efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of ADB Satisfactory ADB = Asian Development Bank. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons

44. Key lessons from the program include the following: (i) Stakeholder feedback. Seeking stakeholder feedback is vital to ensure strong

commitment for reforms. (ii) Active consultation. The policy reform agenda benefited from active consultation

within ADB’s divisions, incorporating lessons from previous ADB-funded reform programs, and recognizing issues identified in the preparation of new projects, ensuring that the reforms were responsive to Pakistan’s needs and implementable given the fiscal and institutional constraints.

(iii) Policy dialogues. The program successfully supported high-level policy dialogue between the government and ADB that otherwise would have been difficult to achieve.

(iv) Getting reforms on the agenda. (a) Commitment was stronger when ADB support for reforms was embedded in the government’s initial reform agenda. (b) Wide public and intergovernmental consultation on the reform agenda facilitated better understanding of the reasons for reform, and the expected benefits and costs. (c) Lack of consensus among stakeholders on the role of government and core public functions and services in the reform agenda led to wavering on reform commitments in areas such as PSE reform and some privatized public sector functions.

(v) Managing complexity. (a) The politics of reform in Pakistan can be complicated and needed close monitoring and regular dialogue. (b) Identifying and supporting pro-reform leaders is important, but involvement of a wider support base may have helped to better manage the risks and uncertainties that underlie reform commitment. (c) ADB needed to re-engage more intensely in policy dialogue during political transitions.

(vi) Implementing reforms. (a) Improved monitoring and evaluation of the outcomes and development impact of reforms (against targets) is needed to inform stakeholders of progress. (b) Intensified dialogue and flexibility is required during a period of political transition.

(vii) Sustaining reforms. (a) Economic and public service management reforms initiated attitudinal changes toward accountability but fell short of reaching a critical mass in many cases. (b) Assumptions about the response of the private sector needed to be more realistic and reviewed regularly. (c) Reform is a medium- to long-term effort that needs continuous support from ADB.

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45. Some of the key issues are as follows: (i) Slow progress in fully functioning of a dedicated PPP unit in Pakistan Railways; (ii) Pakistan Railways delayed the adoption of accrual-based accounting as required

in the program’s policy action; (iii) The privatization process was slow because of the political pressure to preserve

the status quo of many PSEs and the public’s negative sentiments; and (iv) Discontinuation in public awareness campaign.

B. Recommendations

46. Key recommendations include: (i) Consistency in policies. As the new government is likely to take charge from

August 2018, consistency in the policies for restructuring and privatization must be ensured.

(ii) (Settlement of labor issues. To make the privatization process a success for the next government, the Privatization Commission must increase its efforts to address labor issues and implement the already approved communication strategy more proactively.

(iii) Additional assistance. To ensure the sustainability of future projects, it will be essential to focus on the efficient use of scarce fiscal resources. Under a new reform program, ADB can provide additional policy-based assistance to support reforms in road, water, transport, and other infrastructure projects. Pakistan Railways will also require assistance to establish a dedicated PPP Unit.

(iv) Future monitoring. ADB can benefit from continued monitoring of the program impact via subsequent subprograms under the PSERP. Given ADB’s significant presence in the road, transport, and power sectors, continued policy dialogue with the government is essential to further deepen the reforms program. Continued monitoring of the improvements in women’s representation in PSE boards is also necessary.

(v) Conditionality framework. The government can put in place systems and procedures for a credible framework of conditionality for fiscal support to PSEs. Profitability targets, social functions, and conditionality to ensure compliance with CGR can be established to support the fiscal resource base.

47. Further action or follow-up. To ensure successful implementation of the reform program, the Privatization Commission and Pakistan Railways are required to submit quarterly progress reports to ADB explaining the implementation progress of all policy actions along with the regular uploading of PSEs’ annual financial performance reports to the Finance Division website and listing PSEs that are non-compliant with CGR on the SECP website. 48. Timing of the project performance evaluation report. Governance and state-owned enterprise reforms remain a priority development agenda for the country as reflected in the Pakistan Vision 2025 and all the recently concluded reform programs conducted with the assistance of development partners like ADB. Given Pakistan’s deteriorating foreign exchange reserves and rising fiscal deficit, PSE reforms to reduce fiscal transfers will be a high priority for the next government. As the PSERP has sensitized the government to the importance of the governance reforms, ADB should remain engaged in public sector reforms over the medium term.

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators with

Targets Project Achievements

Impact Reduced net fiscal transfers to public sector enterprises (PSEs) from the federal budget

Subsidies and Grants outlay to gross domestic product (GDP) ratio to be reduced

Achieved: The subsidies and grants have been reduced from Rs 243.2 billion (0.886% of GDP; FY 2014–2015) to Rs. 138.8 billion (0.404% of GDP; FY 2017–2018)

Outcome Improved PSE performance

a. Annual net profit of PSEs improved by 20% by FY2018 (FY2014 baseline: PRs199 billion)

Not achieved: The PSEs posted a net loss for FY 2016. As the fiscal year for PSE’s will be closed either on 30 June 2018 or 31 December 2018, the annual accounts will be available within four months from the close of fiscal year. The overall profitability figures for 2018 will be available after October 2018.

b. Dividend income from federal

PSEs improved by at least 20% by FY2018 (FY2015 baseline: PRs83 billion)

The profitability position of PSEs is subjected to number of factors that are beyond PSEs control and is determined by market forces like oil prices, inflation, exchange rate fluctuation, law and order situation and natural calamities.

Outputs 1. Policies to address labor issues and communication strategy introduced, monitoring system designed, and costs and benefits ascertained

1a. Privatization Commission board approved a communication strategy for PSE privatization and restructuring by June 2016 (2015 baseline: NA)

Achieved: Privatization commission board approved a communication strategy to obtain the strong public and stakeholder support to deliver economic and social benefits accruing to the government and individual citizens as a result of restructuring and privatization of PSEs.

1b. Privatization Commission board approved strategies to address labor issues related to VSS, pensions, and training in PSE reforms for submission to Cabinet

Achieved: Privatization commission board approved strategies to address labor issues that includes voluntary separation schemes, pensions and training. Funding of unfunded pension liabilities and

12 Appendix 1



Committee on Privatization by June 2016 (2015 baseline: NA

settlement of labor issues will facilitate government in fetching attractive prices through privatization.

2. Financial transparency, monitoring, and corporate governance in PSEs improved.

2a. Finance Division published a comprehensive stock-take and financial performance report on the federal government PSEs for FY2014, and committed to annual publication thereafter within 15 months of the end of each fiscal year by June 2016 (2015 baseline: NA)

Achieved: 1) Financial Performance report for FY 2014–2015 has been uploaded on MOF website.

2) Financial Performance report for FY 2015–2016 will be uploaded on Finance Division website.

2b. Securities and Exchange Commission of Pakistan (SECP) ensured at least 35% of PSEs submit audited statements of compliance and statement of compliance with CGRs for FY2015 by June 2016. (2015 Baseline: 20%). 2c. SECP monitored noncompliance of CGR by PSE for FY2015 and submitted a quarterly report to the Finance Division by June 2016 (2015 baseline: NA) 2d. SECP issued show cause notices to all PSEs that are noncompliant with the filing requirements of CGR applicable for PSEs for FY2015 by June 2016 (2015 baseline: NA)

Achieved: For the fiscal year 2016–2017, 61% of the PSEs filed with SECP statement of compliance with Public Sector Companies CGRs, 2013.

Achieved: Quarterly report until 31st March 2018 has been submitted to Finance Division and is being submitted regularly on quarterly basis.

Achieved: Show cause issued to all the non-filers. List updated and placed on SECP website at the link https://www.secp.gov.pk/data-and-statistics/corporates

https://www.secp.gov.pk/data-and-statistics/corporates


Appendix 1 13



2e. MOF mandated a task force to (i) devise a strategy to bring all PSEs in the ambit of the CGR, (ii) improve women’s representation on PSE boards, and (iii) design performance evaluation criteria by June 2016 (2015 baseline: NA)

Achieved: (i) All PSEs are brought under the ambit of CGRs, (ii) Under the Companies Act, 2017, all companies are required to have women’s representation on boards, and (iii) performance evaluation criteria of board has been improved through amendment in CGRs.

3. Restructuring and reform of selected PSEs initiated

3a. Pakistan Railways (i) appointed chief internal auditor with relevant professional experience, and (ii) approved a road map for strengthening the internal audit department in line with best management practices by June 2016 (2015 baseline: NA)

Achieved: PR has appointed a professional Chief Internal Audit and has also establish a road map for the strengthening of internal audit department. Further, to this, the PR has also established a methodology for the risk based internal audit system.

3b. Pakistan Railways commenced selection of consultants to carry out detailed assessment on departmental restructuring and workforce rationalization by June 2016 (2015 baseline: NA)

Achieved A committee was constituted in 2015 to rationalize the service structure in all the cadres of Pakistan Railways. Subsequently, a consultant was hired to complete the process of restructuring of human resources. The consultant has provided the interim report; however, later the consultant was changed due to some internal issues.

3c. Pakistan Railways commenced creation of a digital land asset database by June 2016 (2015 baseline: NA)

Achieved Pakistan Railways commenced creation of a digital land asset database. PR is close to completing the geographic information system based mapping of all land record and is now in the process of reconciling land records. The digital database will help in identifying and monitoring all land-based assets on PR’s and eventually capturing the

14 Appendix 1



fair value of these assets in its balance sheet.

3d. Ministry of Railways notified the establishment of a dedicated PPP unit for implementation of approved PPP framework and strategy for private participation in selected railways service by June 2016 (2015 baseline: NA)

Partially Achieved: PPP unit in the Ministry of Railways is not established a dedicated unit and operates on an ad hoc basis. Further the capacity and experience of the members in the unit are limited to implement the approved PPP framework.

3e. Ministry of Railways mandated the phased migration from current accounting practices to an internationally recognized set of accounting standards (International Financial Reporting Standards or International Public Sector Accounting Standards), including the adoption of accrual-based accounting by June 2016 (2015 baseline: NA)

Partially Achieved: PR has started the process of migration from cash-based accounting system to accrual-based accounting system. However, the preparation of financial statements for the FY 2017–2018 is delayed due to non-implementation of Enterprise Resource Planning as per targeted dates.

3f. Pakistan Railways initiated reforms to improve transparency and efficiency in procurement processes and submitted a status report highlighting recent initiatives and future reforms by June 2016 (2015 baseline: NA)

Achieved: PR has started uploading all the tenders on its website along with bid evaluation reports and is in the process of introducing e-procurement. Further, the time required to complete the procurement process has been reduced from 150 days to 120 days improving the efficiency of the process and also reducing operating cost.

Appendix 2 15

PROJECT COST AT APPRAISAL AND ACTUAL

($'000)

Appraisal Estimate Actual

Item Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost

A. Policy Based Loans 1. Loan 3398 (OCR) 98.63 0.00 98.63 98.63 0.00 98.63 2. Loan 3398 (COL) 200.00 0.00 200.00 200.00 0.00 200.00 298.63 0.00 298.63 298.63 0.00 298.63

Source: ADB

16 Appendix 3

DISBURSEMENT OF ADB LOAN AND GRANT PROCEEDS

Table 4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount ($ million) % of Total

Amount ($ million) % of Total

2016 298.63 100% 298.63 100% Total 298.63 100% 298.63 100% ADB = Asian Development Bank. Source: Asian Development Bank.

Figure 4.1: Projection and Cumulative Disbursement of ADB Loan Proceeds

($ million)

Projection Cumulative Disbursement

Year Amount ($ million) % of Total

Amount ($ million) % of Total

2016 298.63 100% 298.63 100% Total 298.63 100% 298.63 100%

Appendix 4 17

STATUS OF COMPLIANCE WITH LOAN COVENANTS—LOAN NO 3398 AND 3399-PAK

Status of Compliances with Covenants—Loan Agreement

3398-PAKCovenant

Reference in Loan Agreement Status of Compliance

(a) The Borrower shall cause the program to be carried out with due diligence and efficiency and in conformity with sound applicable technical, business and development practices b) In the carrying out of the program, the Borrower shall perform, or cause to be performed, all obligations set forth in schedule 4 to the special operation loan agreement. c) The Borrower shall make available, promptly as needed and on terms and conditions acceptable to ADB, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the program and for the operations and maintenance of the program facilities. d) The Borrower shall ensure that the activities of the departments and agencies with respect to the carrying out of the program are conducted and coordinated in accordance with sound administrative policies and procedures. e) As part of the reports and information referred to in Section 7.04 of the loan regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as

Article IV, Section 4.01 (a)

Article IV, Section 4.01 (a)

Article IV, Section 4.02



Complied with

Complied With

Complied With

Complied With

Complied With

18 Appendix 4

Status of Compliances with Covenants—Loan Agreement

3398-PAKCovenant

Reference in Loan Agreement Status of Compliance

ADB may reasonable request concerning (a) the counterpart funds and the use thereof; and (b) the implementation of the program, including the accomplishment of the targets and carrying out of the actions set out in the policy letter

Status of Compliances with Covenants—Loan Agreement 3399-PAK

Covenant Reference in Loan Agreement Status of Compliance

In the carrying out of the Program, the Borrower shall perform, or cause to be performed: all obligations set forth in Schedule 4 to this Loan Agreement.

Section 4.01.

Complied With

As part of the reports and information referred to in Section 6.05 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning (i) the Counterpart Funds and the use thereof; and (ii) the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

Section 4.02.

Complied With

Implementation Arrangement: 1) The Borrower shall, though the Finance Division of MOF, provide overall oversight of the Programmatic approach and regularly monitor

Schedule 4

Complied With

Appendix 4 19

Covenant Reference in Loan Agreement Status of Compliance progress of the programmatic approach 2. The MOF though its Finance Division shall be the program executing agency. Privatization Commission, SECP, MOR, and Pakistan Railways shall be the implementing agencies for the respective components under the programmatic approach. The program management unit established under the Finance Division of the MOF shall coordinate the implementation of the programmatic approach 3) The Borrower shall ensure that the Finance Division of MOF, the Privatization Commission, SECP, MOR and Pakistan Railways are adequately staffed and provided with the necessary financial, technical and the resources to perform their respective functions as executing or implementing agencies under the programmatic approach. Policy Actions and Dialogues 4) The Borrower shall ensure that all policy action adopted under the program, as set forth in the Policy letter and the Policy Matrix, continue to be in effect for the duration of the Programmatic Approach and thereafter. 5) The Borrower shall keep ADB informed of policy discussions with other bilateral agencies that may have implications of the

Schedule 4

Schedule 4

Schedule 4

Schedule 4

Complied With

Complied With

Complied With

Complied With

20 Appendix 4

Covenant Reference in Loan Agreement Status of Compliance Program and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall take into account ADB’s views before finalizing and implementing any such proposal. 6) The Borrower shall carry out review of the Program with the participation of ADB for the design of the following subprogram of the programmatic approach. As part of the such review, the Borrower and ADB shall work closely on achieving compliance with indicative policy actions for the subsequent program of the programmatic approach. On a regular basis from at least nine months prior to the proposed consideration of that sub program by ADB Board and include agreement on clear milestone and time frame for achieving compliance with the indicative policy actions. If an indicative policy action requires revision, details of the proposed revision shall be agreed. The Borrower acknowledges that the subsequent subprogram is subject to ADB Board approval and the review describe in this paragraph does not commit ADB to financing of the subsequent subprogram, which is subject to ADB Board approval. Development Financing for PSE’s 7) The Borrower shall ensure that for its Fiscal Year ending

Schedule 4

Schedule 4

Complied With

Complied With

Appendix 4 21

Covenant Reference in Loan Agreement Status of Compliance on 30 June 2017, and each subsequent fiscal year for the duration of the programmatic approach, the amount budget allocation to PSEs for their development expenditures (including development loan) is at least 0.4% of the Gross Domestic Product of the Borrower for the same fiscal year Use of Counterpart Funds 8) The Borrower shall ensure that the counterpart funds are used to finance the implementation of certain program and activities consistent with the objectives of Program. Governance & Anticorruption 9. The Borrower and the program executing agency shall, and shall ensure the implementing agencies shall: a) Comply with ADB’s Anticorruption Policy 1998, as amended to date and acknowledge that ADB reserve the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice, relating to the program; and (b) Cooperate with any such investigations and extend all necessary assistance for satisfactory completion of such investigation.

Schedule 4

Schedule 4

Not Applicable (no government

counterpart funding applied)

Complied With

22 Appendix 5

STATUS OF COMPLIANCE WITH POLICY ACTIONS

Policy Action Status of Compliance & Source Documents

1. Privatization Commission Board approved a communication strategy for PSE privatization and restructuring. (Documents required: Communication strategy duly approved by the Privatization Commission board)

Completely Complied With: Privatization Commission board approved a communication strategy to obtain the strong public and stakeholder support to deliver economic and social benefits accruing to the government and individual citizens as a result of restructuring and privatization of PSEs. (Privatization Commission Board Approval)

2. Privatization Commission board approved strategies to address labor issues, related to VSS, pensions and training in PSE reforms for submission to Cabinet Committee on Privatization (CCOP). (Documents required: Approved strategy and letter confirming CCOP submission status).

Completely Complied With: Privatization Commission board approved strategies to address labor issues that includes voluntary separation schemes, pensions and training (Privatization Commission Board Approval)

3. Finance Division published a comprehensive stock-take and financial performance report on all federal government PSEs for FY2014, and committed to such annual publication in respect of each succeeding fiscal year within 15 months of end of that fiscal year (Documents required: A report on financial performance of PSEs including financial statements and some key non-financial information for FY2014 and a letter detailing the publication schedule of the financial performance report for FY2015 and FY2016).

Partly Complied With: 1) Financial Performance report for FY 2014-2015 has been uploaded on MOF website. 2) Financial Performance report for FY 2015-2016 prepared and will be uploaded on Finance Division website by end July 2018. MOF sign off is required prior to uploading the reports on the website. (Ministry of Finance website)

4. Securities and Exchange Commission of Pakistan (SECP) ensured that at least 35% of PSEs submitted statement of compliance with Corporate Governance Rules (CGR) for FY2015 and the audit opinions thereon. (Document required: Report of compliance rate for FY2015 from SECP).

Completely Complied With: For the fiscal year 2016-2017, 61% of the PSEs filed with SECP statement of compliance with Public Sector Companies Corporate Governance Rules, 2013 (SECP Letter)

Appendix 5 23


5. SECP monitored noncompliance of CGR by PSE for FY2015 and submitted a quarterly report to Finance Division (Document required: Noncompliance report (First quarterly report ending 31st March 2016 for FY2015).

Completely Complied With: Quarterly report until 31 March 2018 has been submitted to Finance Division and is being submitted regularly on quarterly basis. (SECP report)

6. SECP strengthened enforcement on filing requirements of CGR applicable for PSEs for FY2015 through issuing show cause notices to noncompliant PSEs (Documents required: Show causes notices of all non-compliant PSEs to be provided by SECP to the government. The government will provide (i) list of show causes notices with their dates and addressees and (ii) one sample to ADB for review, with an option that ADB will have access to all the notices).

Completely Complied With: Show Cause issued to all the non-filers. List updated and placed on SECP website at the link https://www.secp.gov.pk/data-and-statistics/corporates (SECP Website)

7. MOF mandated the task force on corporate governance to (i) devise a strategy to bring all the PSEs in the ambit of the CGR, (ii) improve women representation on the Boards of PSEs, and (iii) design performance evaluation criteria (Document required: MOF order to expand the terms of reference of the task force to cover the additional mandates).

Completely Complied With: (i) all PSEs are brought under the ambit of CG Rules, (ii) under the Companies Act, 2017, all companies are required to have women’s representation on boards, and (iii) performance evaluation criteria of board has been improved through amendment in CG Rules. (Finance Division Notification, Companies Act, 2017, CG Rules, 2013 (as amended in 2017)

8. Pakistan Railways (i) appointed Chief Internal Auditor with relevant professional experience to lead the internal audit department; and (ii) approved a roadmap for strengthening the internal audit department in line with the best management practices. (Document required: (i) Certificate by the Secretary Railway Board on the appointment of the Chief Internal Auditor; and (ii) roadmap for strengthening the internal audit department).

Completely Complied With: Pakistan Railways has appointed a professional Chief Internal Audit and has also establish a road map for the strengthening of internal audit department. Further, Pakistan Railways has also established a methodology for the risk based internal audit system. (Pakistan Railways notification and copy of roadmap)



24 Appendix 5


9. Pakistan Railways commenced selection of consultants to carry out detailed assessment on departmental restructuring and workforce rationalization (Document required: progress report on the procurement of consultants provided by Pakistan Railways).

Completely Complied With; Pakistan Railways has started the process of selection of consultants to carry out detailed assessment on departmental restructuring and workforce rationalization. Process is expected to be completed by December 2018 (Progress report from PR)

10. Pakistan Railways to commence creation of a digital land asset database including satellite imagery and digital copies of all land records of the land assets of Pakistan Railways. (Document required: Progress report).

Completely Complied With: 1) Pakistan Railways commenced creation of a digital land asset database. 2) Pakistan Railways is close to completing the geographic information system based mapping of all land record and is now in the process of reconciling land records. The digital database will help in identifying and monitoring all land-based assets and eventually capturing the fair value of these assets in its balance sheet. (Progress Report)

11. Ministry of Railways notified the establishment of a dedicated PPP unit for implementation of approved (i) PPP framework for the railway sector, and (ii) strategy for private participation in selected railways services (Documents required: (i) copy of PPP Framework (ii) copy of strategy; and (iii) notification of establishment of PPP unit for implementation of PPP Framework)

Partly Complied With: Pakistan Railways has also established a PPP unit as one in Ministry of Railways and one in Lahore to ensure that selected services of Railways can be privatized on PPP mode. However, it appears that the units established are not dedicated units as required under the policy action. This may have been influenced by the recent political uncertainty at the federal level but this is expected to be resolved under the new government which will resume office in August 2018. (Notification regarding establishment of PPP units and copy of PPP framework)

Appendix 5 25


12. Ministry of Railways mandated the phased migration of Pakistan Railways from current accounting practice to an internationally recognized set of accounting standards (IFRS/IPSAS), including the adoption of accrual-based accounting. (Documents required: Ministry of Railway’s instruction to Pakistan Railways of implementation plan of phased migration and the implementation plan)

Partly Complied With: Pakistan Railways has started the process of migration from cash-based accounting system to accrual-based accounting system. However, the preparation of financial statements for the FY 2017-2018 is delayed due to non-implementation of Enterprise Resource Planning as per targeted dates. Efforts are being made by Pakistan Railways to rectify this issue. (MOR instructions to Pakistan Railways)

13. Pakistan Railways improved transparency and efficiency in procurement processes by initiating reforms in the areas of bidding procedures, bid evaluation procedures, and e-procurement. (Document required: Detailed status report on procurement reforms taken in the areas of e-procurement; bidding procedures; bid evaluation procedures; and identification of further reforms).

Completely Complied With: Pakistan Railways has started uploading all the tenders on its website along with bid evaluation reports and is in the process of introducing e-procurement. Further, the time required to complete the procurement process has been reduced from 150 days to 120 days improving the efficiency of the process and also reducing operating cost. (PR website and status report)

ADB = Asian Development Bank; CCOP = Cabinet Committee on Privatization; government = Government of Pakistan; IFRS = International Financial Reporting Standards; IPSAS = International Public Sector Accounting Standard; MOF = Ministry of Finance; MOR = Ministry of Railways, PPP = public–private partnerships; Programmatic Approach = Public Sector Enterprises Reform Program; PSE = Public Sector Enterprise