Public Enterprises

Concept of Public Enterprises:

Public enterprises, often referred to as state-owned enterprises (SOEs) or government-owned corporations, are business entities that are owned and operated by the government at various levels (national, regional, or local). These enterprises play a crucial role in the economy by engaging in commercial activities while being under public ownership and control. The primary objective of public enterprises is not solely profit maximization but also the fulfillment of broader public policy goals, including providing essential services, promoting economic development, and ensuring public welfare.

Public enterprises in Nepal are government-owned or controlled corporations that serve various economic and social purposes. The government typically holds a significant percentage of ownership, often over 51%. Shareholders include the government, private individuals, or institutions. Management is overseen by appointed officials or boards, ensuring alignment with public policy objectives. Key sectors include energy, transportation, and telecommunications.

A prominent example is the Nepal Electricity Authority (NEA), where the government owns a majority share, manages the country’s electrical infrastructure, and plays a crucial role in power generation, transmission, and distribution to meet public needs and promote economic development.

Here are some different definitions from various scholars:

Peter Drucker: Peter Drucker, a renowned management scholar, defined public enterprises as organizations that operate with the primary goal of providing essential public services rather than making a profit. He emphasized their role in serving the public interest.

Richard M. Bird and François Vaillancourt: Bird and Vaillancourt, economists specializing in public sector economics, defined public enterprises as government-owned entities that engage in commercial activities, such as producing and selling goods and services, alongside their public service functions.

John Kay: John Kay, a British economist and business thinker, views public enterprises as organizations that can achieve social goals while maintaining a commercial orientation. He emphasizes their potential to balance public interest and economic efficiency.

Adam Smith: While not specifically defining public enterprises, the father of modern economics, Adam Smith, argued that government intervention in the economy should be limited to essential public services, such as defense, justice, and infrastructure, which indirectly relates to the concept of public enterprises.

Bimal Jalan: Bimal Jalan, an Indian economist and former governor of the Reserve Bank of India, defined public enterprises as entities owned or controlled by the government that engage in economic activities to achieve specific social and economic objectives.

These definitions reflect the diverse perspectives and purposes of public enterprises, which can vary significantly depending on the political, economic, and social contexts of different countries and regions.

Features of Public Enterprises:

Public enterprises typically exhibit several key features that distinguish them from private-sector businesses:

1. Government Ownership: Public enterprises are fully or partially owned by the government, which holds a significant stake or controls the majority of shares. This ownership gives the government the authority to influence the operations and objectives of these enterprises.

2. Public Policy Objectives: Public enterprises often have dual objectives. While they aim to generate profits, they also pursue broader public policy goals, such as ensuring universal access to essential services, creating employment, promoting regional development, or supporting strategic industries.

3. Public Accountability: As government-owned entities, public enterprises are subject to high levels of public scrutiny and accountability. They are required to adhere to transparency standards, report to government authorities and, in some cases, face legislative oversight.

4. Government Control: Governments exercise varying degrees of control over public enterprises, including appointing boards of directors, approving major decisions, and setting performance targets aligned with public policy objectives.

5. Financial autonomy: Public enterprises usually enjoy a certain degree of financial independence, allowing them to determine their pricing and investment choices. Nevertheless, they remain answerable to the government for their financial performance.

6. Cross-Subsidization: Public enterprises may engage in cross-subsidization, where revenue generated from profitable activities is used to subsidize loss-making or essential services. This helps ensure that critical services remain accessible to all, even if they are not financially self-sustaining.

7. Monopoly or Oligopoly: In some sectors, public enterprises operate as monopolies or oligopolies, where they have a dominant market position. This allows governments to regulate prices and quality of services to protect consumers.

8. Social Responsibility: Public enterprises often have social and environmental responsibilities. They may be tasked with adhering to sustainability goals, providing affordable services to disadvantaged groups, or adopting environmentally friendly practices.

9. Long-Term Focus: Public enterprises may have a longer-term focus than private companies. They can invest in infrastructure and development projects that might not yield immediate profits but are crucial for the country’s long-term economic and social development.

10. Separate legal entity: Public enterprises possess independent legal status distinct from the government. Consequently, they have their own assets and liabilities and bear legal responsibility for their debts.

Roles of Public Enterprises in Nepal:

In Nepal, as in many other countries, public enterprises play vital roles across various sectors. Some of their key roles include:

1. Service Provision: Public enterprises are involved in delivering essential services to the population, such as electricity, water supply, and telecommunications. They ensure that these services are accessible to all, including remote and underserved areas.

2. Economic Development: Public enterprises contribute to economic development by investing in critical sectors like transportation, energy, and manufacturing. They create employment opportunities, stimulate economic growth, and support the country’s infrastructure development.

3. Resource Mobilization: Public enterprises generate revenue for the government through dividends, taxes, and fees. This revenue can be reinvested in public services, development projects, and poverty alleviation efforts.

4. Market Regulation: In some sectors, public enterprises regulate markets and ensure fair competition. For instance, the Nepal Oil Corporation regulates the petroleum sector to stabilize prices and ensure the availability of fuel.

5. Strategic Industries: Public enterprises are often involved in strategic industries like defense, aerospace, and energy production, where government control is deemed necessary to protect national interests and security.

6. Social Inclusion: Public enterprises can support social inclusion by providing affordable services to marginalized communities and promoting equal opportunities for all citizens.

7. Environmental Sustainability: Public enterprises can be directed to adopt environmentally sustainable practices and invest in renewable energy sources to mitigate the environmental impact of economic activities.

8. Research and Innovation: Some public enterprises engage in research and innovation to advance technology and knowledge in specific sectors, contributing to overall economic development.

9. Infrastructure Development: Public enterprises often invest in critical infrastructure, including roads, bridges, and public transportation, which is essential for connecting remote areas and fostering economic growth.

10. Poverty Alleviation: By creating employment opportunities and supporting rural development, public enterprises can help alleviate poverty in Nepal’s economically disadvantaged regions.

In summary, public enterprises in Nepal, like in other countries, serve as instruments for achieving various public policy objectives, including economic development, social inclusion, and the provision of essential services. They play a pivotal role in shaping the country’s economic and social landscape while being accountable to the government and the public.