SOEs required finance ministry approval for loans, salaries
Companies are also required to align employee conditions with the job classification framework developed by the PCB.
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The code of corporate governance for State-Owned Enterprises (SOEs) has been amended to require government-owned companies to obtain approval from the finance ministry for changes in borrowing, administrative structures, and remuneration frameworks.
The amendments were approved during the Privatisation and Corporatisation Board (PCB) meeting held on the 25th of this month. According to the revised rules, government-owned companies must now seek prior approval from the Ministry of Finance for the following actions:
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Alterations to the administrative structure of the company.
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Changes to the salary structure, including bonuses and allowances.
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Securing loans.
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Making domestic investments.
Previously, these approvals were issued by the PCB. Updated guidelines for obtaining the necessary approvals were released by the PCB on Tuesday.
Companies required to comply with these guidelines include government-owned entities, government-majority-owned companies, and non-publicised entities among commercially owned government institutions.
Loan Approval Guidelines: The guidelines for obtaining loans emphasise due diligence and transparency. They require:
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A clear assessment of the need for the loan and financing options.
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Research and comparison of multiple lenders, with a technical paper prepared by the company board for management.
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Inclusion of financial details, repayment capacity, potential challenges, and impact on the state budget in the paperwork.
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Priority to be given to government-owned lenders and financial institutions.
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Submission of the board-approved paper to the Ministry of Finance for final approval.
Salary Structure Guidelines: Amendments to the salary structure must be based on a human resource needs assessment conducted every five years. The assessment should consider:
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The type and scale of the company’s operations, workload, and staffing requirements.
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Comparative evaluations of existing and proposed salary structures, including market assessments.
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Efficiency assessments and budget implications.
Additional requirements include maintaining salary expenditure at 30% of revenue for revenue-generating companies. For non-revenue-generating companies, the salary expenditure cap is 50% of operating expenses, which may increase to 65% for labor-intensive operations.
Companies are also required to align employee conditions with the job classification framework developed by the PCB.
