Unit-7 Public Enterprises
7.1 Concept of public enterprises:
A business corporation establishes and operated by the government is known as a public enterprise. The primary objective of government undertaking in such activities is to provide public welfare or services to its citizens. It also helps to save the general public from the exploitation of private business organizations and protects the national interest.
Public enterprises are autonomous organizations established, owned, managed and controlled by the government for public welfare. They are also called government corporations, state enterprises, nationalized industries, government undertakings, etc. the government has either full ownership or partial owner in such business.
The investment range of government is from 51% to 100%. Public enterprise aims to provide public utilities like drinking water, communication, fuel, electricity, etc at a reasonable price. Nepal Telecom Company Limited, Nepal Airlines Corporation, Nepal Oil Corporation, Nepal electricity authority, etc are some of the examples of public enterprises operating in Nepal.
Some definitions of public enterprises are as follows:-
According to the World Bank, “state own enterprises are financially autonomous and legally distinct entities wholly or partially owned by the government.”
According to A.N Agrawal, “public enterprises are autonomous or semi-autonomous corporations or companies established, owned and controlled by the state.”
From the above meaning and definition, we can conclude that public enterprise is a business enterprise that is owned, managed, controlled and operated by the government holding its total or majority of share for the public interest.
7.2 Characteristics of Public Enterprise.
A public enterprise is a form of business organization that is owned by the government by investing either partially or wholly in the share capital of a public enterprise.
Government management and control:
The government manages and controls public enterprises. The government appoints the directors and managers who manage the day to day operation of the enterprise.
Public enterprise is established not with the motive of earning profit rather they are established for providing goods or services at a reasonable price to the citizen of the nation. it creates employment opportunities, speeds up economic growth, industrializes the nation, and helps to maintain balance in the regional development of the country.
Public enterprises are operated by the government with its fund, they are accountable towards the general public. They should be responsible and have to perform their business as per the needs and requirements of the general public. The board of directors and the officers of public enterprises are accountable for their performance to the parliament.
Public enterprises are established in those areas where the private sector cannot invest. The industries like defense and public utilities cannot be left for the private sectors. Therefore, public enterprises are monopoly enterprises in those sectors.
Public enterprises are owned and financed by the government. However, they can generate revenue by producing and selling goods and services and make expenditures from their revenues. They have financial autonomy in the operation of their business. Their revenues and expenditures are not covered by the budget of the government.
Separate legal entity:
Public enterprises are established under a specific law of the country and have a separate legal entity. They have corporate status with a common seal. They can purchase and sell properties and enter into contracts in their names.
A public enterprise has permanents life. Being a separate legal entity, its life is not affected by the change of the government or its management. In another word, there is no effect on the existence of public enterprises because of the change in government and its management.
Public enterprises are business enterprises of government. They are established for manufacturing, marketing, financing, public utilities, and other services to the citizen of the nation. they are independents and financially autonomous, however, the government of Nepal makes a budget allocation to public enterprises if needed.
7.3 Importance of public enterprises (PES)
Public enterprises are established by the government to operate large scale business activities in different parts of the country. It helps in the economic progress and development of the nation.
Providing public utilities and facilities:
Public enterprises provided quality goods and services and public utilities like electricity, fuel, drinking water, transport, communication, etc through an extensive distribution and it an affordable price.
Establishing basic industries:
Public enterprises are established by the government in those areas where the private, sector cannot invest. The government provides basic facilities like transportation, communication, fuel, drinking water, electricity, etc. which is required for all other industries the citizens of nations. Therefore, public enterprises play an important role in industrialization of the nation.
Public enterprises are large scale enterprises and require large numbers of employees for the operation of their activities. So, the establishment of public enterprises creates employment opportunities in the country/society. It acts as a major employer in the country and helps to increases the earning and living standard of the people.
Attracting private sector investment:
Some public enterprises sell their shares to the general shares to general people. It attracts the investment of private sectors in public enterprises as people. Feel safe to invest because the government protects them.
Increases in government revenue:
Public enterprises have financial autonomy to make their expenditure. It helps to earn profit in the enterprise. earned profit is subject to tax and the government receives tax from them which ultimately increases the revenue of the government.
Utilizing natural resources:
Public enterprises help to utilize natural resources of the nation in the best possible manner by using modern equipment and technology. They also helped to earn foreign currency by exporting goods and services produced by using such natural resources.
7.4 Types of Public Enterprises:
Public enterprises can be classified into three categories explained as follows:-
A departmental undertaking is established, organized finance and controlled by the particular minister of government as one of its departments the ministry appoints all the executives and employees of such enterprise. Hence, employees are civil servants. The government provides financial resources to such an undertaking through the government budget.
All the incomes of the departmental undertaking are deposited in the government account. The government’s accounts are opened in the central bank and its branches of the nations. The features are as follows:-
Ministry of government or the department decides to establish and operate the departmental undertaking. Simple legal procedures are sufficient to establish it.
Management and control:
It is managed and controlled by the concerned department of government. The concerned ministry is responsible for managing it.
Rules and regulations:
The rules and regulations of the departmental undertaking are subject to the rules and regulations of government. The rules and regulations include the accounting budget.
No separate entity:
A departmental undertaking is the part of the government. They do not have a separate legal entity. They cannot prosecute without the permission of the government.
The undertaking is accountable to the general public. The accountability is justified through the parliament regarding its budget, accounting, and audit. The performance of the undertaking is discussed in parliament.
Public corporations are established under the special act passed by the parliament or national legislature. They are established to achieve a specific economic objective. The act specifies the objectives, rights, duties, scope of operation and operating procedure of the enterprise. The main purpose of a public corporation is to maximize social welfare. It is managed by the board of directors appointed by the government.
The employees are appointed under the terms and conditions of the specified act. The employees are not civil servants. The public corporation is independent in the recruitment, selection, appointment, and promotion of employees. They enjoy financial autonomy. Nepal airline corporation, Nepal electricity authority, agricultural development bank, etc are some of the public corporations operating in Nepal. The features of the public corporation are as follows:-
The government establishes public corporations under a special act of parliament. The act defines the objectives, functions, rights, duties, powers, privileges of the corporation with other departments of the government.
Separate legal entity:
A public corporation has a separate legal entity. It is an artificial person and carries the business in its own name. it can enter into a contract to purchase and sell assets in its own name. it can sue and can be sued.
Government ownership and control:
It is totally owned by the government. However, some portion of its share capital is held by the general public. But, the private shareholders are in the minority. Their decisions and actions do not affect the operation of the corporation.
A public corporation has it, own employees. They are not civil servants. It recruits, selects and appoints employees according to its rules and regulations.
The main motive of public corporations is to provide public welfare by providing quality goods and services at a reasonable price. It helps to uplift the socio-economic activities of the public. It gives emphasis on quality service rather than more economic gain.
A government company is incorporated under the company Act of the country. the government-owned at least 51% shares out of total shares of the company. In Nepal, a government company is incorporated and operated according to the provisions of the company Act, 2063 B.S. it is established by an executive decision of the government without passing a separate act. The board of directors is also appointed by the government as it holds the majority of shares. A government company has a separate legal entity.
The employees of a government company are not civil servants. All of them are appointed according to the rules mentioned in the MOA and AOA. Lumbini sugar factory, Janakpur cigarette factory, Biratnagar jute mill, etc are examples of government companies.