Public Enterprises

Concept of Public Enterprises

The autonomous organizations established, owned, managed and controlled by government for the purpose of providing goods and services to the people at reasonable prices. The aim of public enterprises are to provide public utilities like drinking water, communication, fuel, electricity, transport facilities etc. at a reasonable price.

Nepal Telecom Co. Ltd, Nepal Airlines corporative, Nepal oil corporative, Nepal Electricity Authority, Dairy Development Corporation, Salt Trading corporation, National Trading corporation are some examples of public enterprises operating in Nepal.

Characteristics of Public Enterprises

• Government ownership:

It is owned by the government. It is either wholly or partially owned by the state investing at least fifty-one percent of its share capital.

• Government management and control:

It is managed and controlled by the government. The government appoints the board of directors and the chief executive for the management of day-day affairs of the enterprises.

• Service motive:

A public enterprise is established for providing quality goods and services to the people rather than earning profit.

• Financial autonomy:

It has financial autonomy in the operation of its business. It can generate revenues by producing and selling goods and services and make expenditures thereof on their own without government interference.

• Autonomous body:

It is an autonomous body. The board of directors is all in all in the enterprises and is independent of government regulations.

• Separate legal entity:

It is established under the law with a separate legal entity, except the department organizations. It has a corporate status with a common seal. It can sue and can be sued.

• Public accountability:

It is accountable to the general public. The board of directors and executives of the enterprises are accountable for their performance to the parliament.

• Perpetual Succession:

It has a permanent life .Being a separate legal entity, its life is not affected by the changes in the government.

Importance of public enterprises

• Establishment of key and heavy industries:

Public enterprises invest a large amount of money in establishing a large scale industries. They make the investment in such areas where public utility is the main concern. They are very necessary to establish large organization that the private sector can't do.

• Avoid Uncertainty:

The private organization may leave the market if profit is not there. Certain goods and services are very important for general public at all time. For e.g.: water, electricity, food etc. must be provided with a regular supply of basic production market.

• Planned Development:

Public enterprises are main instrument or tool to support government in developmental planning. They work according to government planning. They increase their investment amount and business activities in the area where the government has given priority.

• Balance Development:

A private organization is concentrated in city areas because profit is more in city areas but for the development of a country, rural economy is to be developed as well. The public enterprises invested in rural and remote areas conduct business activities. It helps to promote life and economy of backward areas also. Balanced development of the country can be achieved.

• Creation of employees:

Public enterprise invests a large sum of money in establishing the big size of the industry and larger number of people will get employment opportunities. Sometimes the government may also encourage public enterprises to develope employment opportunities. This helps to solve the unemployment problem in the country.

• Development of infrastructures:

The infrastructure development is very important for the promotion of trade of the country. Public enterprises are established to invest in infrastructure sector such as communication sector, banking and insurance facilities, electricity etc. The private organization can't do business in such sector because it require large amount of investment.

• Public utility concern:

Public enterprises are mainly concerned to provide service even though they are profit organization. They provide services to the general public after charging very minimum amount of profit. This helps general public to get basic requirement at affordable cost.

• Source of government:

Public enterprises pay different kind of taxes such as customs duty, value added tax, import tax, export tax etc. The profit of the public enterprises goes to the government to conduct and finance its activities. The government uses this revenue for infrastructure development as well.

• Accelerate economic growth:

The government can use public enterprises as the tool to increase the economic growth of a country. This organization invests a large sum of money and conduct business in large scale. Public enterprises also work in infrastructure development. They are important to increase the rate of economic growth in a country.

Types of Public Enterprises

A business organization which is wholly or partially owned by state is called public enterprises. These are the business organization which is wholly invested by government managed by government or majority of investment is made by a government. Public enterprises are classified into following three types:

1. Departmental undertaking
2. Public corporation
3. Government Companies

Departmental Undertaking

Those business enterprises which are totally invested and controlled by the specific ministry of government are called departmental undertaking. The ministry of government will be established to promote departmental undertaking. It is the oldest form of public enterprises. The example of departmental undertaking in Nepal is a postal department.

The features of department undertaking are explained as below:

• Formation:

Ministry of government decides to establish and operate the departmental undertakings. Simple legal procedures are sufficient to establish departmental undertaking.

• No separate legal entity:

The departmental undertaking and related ministry of government are same. The departmental undertaking cannot purchase and sell assets of enterprises by its own name. It is part of a government.

• Management and control:

The departmental undertaking is directly managed and controlled by concernd ministry of government. This enterprise is responsible towards the government.

• Rules and regulations:

The departmental undertaking has to follow all the rules and regulation provided by a government. It has to follow the same system for accounting, budgeting and auditing as government.

• Accountability:

The departmental undertaking is accountable towards parliament and government of a country. They have to provide all work report to the government. The financial activities of the departmental undertaking are planned and managed by a government with the help of budget.

Public Corporation

Business enterprises which are established after passing a special act or law from parliaments are called public corporation. These enterprises are established to solve the specific need of the country. A public corporation is also called a statutory company. This company invests a large amount of capital to provide product or service for the general public.

The features of public corporation are as follow:

• Formation:

Government establishes a public corporation under a special act of the parliament. The act defines the role, duties, power, objectives, function as well as the relationship of the corporation with other departments of the government.

• Separate legal entity:

A public corporation has a legal separate entity as it carries the business activity on its own. It can sell and purchase the assets in its own name. It can sue and can also be sued.

• Government ownership and control:

It is totally owned by a government. However, some portion of its share capital is also held by the general public. But these private shareholders are in a minority.

• Own employees:

A public corporation has its own employees. They are not civil servants.

• Service motive:

The main motive of the public corporation is to pursue public welfare activities. It provides quality service rather than more economic gain.

Government Companies

Public enterprises established under the company act of the country are called government companies. The government owns at least 51% share out of its total share of the company. This type of companies are more popular as it easy to organize and is considered to be more efficient.

The features of government companies are as follow:

Incorporated under company act:

A government company is incorporated under the company act of the country. In Nepal, all its right, duties, privileges and responsibility are accordance with the provisions of the company act 2063 B.S.

Government ownership:

The government owns 51% of the share of the company. In another word, the government holds majority shares of the company.

Separate legal entity:

A government company has it a legal separate entity. It can sell and purchase assets in its own name.

Board of Directors:

A government company is managed by the board of director. The government appoints the directors including the chairman in accordance with the ratio of share held.

Financial autonomy:

A government company can manage its financial policy on its own. It formulates a financial plan and policies for its successful operation.

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal. Business Studies. Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al. Business Studies. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.