SOEs under the radar

Pedris Appo – short for Appuhamy, a retired agriculture expert who does farming – was an amused man this Thursday morning. I asked him why he was so cheerful.

“State Minister of Finance Shehan Semasinghe is reported to have said at a meeting that the Government has taken a decision not to open any more state-owned enterprises (SOEs),” he said.

“So what’s so funny about it,” I asked.

“Well the ministers should be talking about reducing the number of SOEs and cutting losses which burden the public. These institutions have been employment generating units for every politician who comes to power,” he said, adding that if these politicians have their way, they would open more SOEs as long as it serves their purpose of finding jobs for their supporters. Forget the losses!

“However, in this case I think the minister may be right. Both the government and the opposition realise that SOEs are bleeding the economy and resulting in a heavy burden on the public,” I said.

The minister is also reported to have said that there are around 430 SOEs (it’s between 300 and 500 of which 52 SOEs are the more prominent ones), with a few showing profits and most reporting losses. Last year alone the government, he said, spent some Rs. 1.5 trillion to operate these SOEs, monies which would have been put to more productive use in developing the country.

As I wound up my call with Appo, the trio was deep in discussion on another current topic – the drama at Sri Lanka Cricket which is in total shambles. “Mae davasa wala hamoma katha karanney cricket wala thiyena arbudaya gena (Everyone is talking about the crisis in cricket these days),” said Serapina.

“Kreeda amathi kiyanawa lankawey cricket sambandayen weda karana kattiya dushithai kiyala, ayin karanna avashyayai kiyala (The Sports Minister says those running Sri Lanka Cricket are corrupt and that they should be removed),” noted

Mabel Rasthiyadu.

“Varthavak thiyenawa Sri Lanka cricket wala baladarin egollange mithuranta saha sinama niliyanta vishesha ticket deela thiyenawa kiyala tharanga balanna. Eva hari mila ganan wedi lu (There was a report that the officials of Sri Lanka Cricket had given friends and film stars special tickets to watch matches costing a lot of money),” added Kussi Amma Sera.

Indeed Sri Lanka Cricket is rocked by crises with the Minister dismissing the game’s executive committee, a decision challenged in court by the officials. For the record, the team has turned in some mediocre performances during the current cricket World Cup tournament.

Back to our topic on SOEs, the government seems to be in a hurry to sell off stakes in state companies like SriLankan Airlines, Sri Lanka Insurance, Sri Lanka Telecom-Mobitel, Hilton Hotel, Grand Hyatt owning company and in most cases has started the process of inviting bids for such sales. In general, the idea is for the government to own a majority stake (51 per cent) and sell the balance. In the privatisation of SriLankan Airlines, the sale is for three units – the airline, catering and ground handling.

Units of the Ceylon Electricity Board (CEB) are also listed for privatisation, with distribution being one of the entities that would be offered for sale.

It has been said over and over again that the government should stay away from business and allow the private sector a free hand in managing and running the economy. At least they (private sector) would stick to the usual fundamentals of running a company at a profit and cut losses. Of course, there are key sectors that for national and security reasons must remain in the state like electricity generation and bus and rail transport. The government needs to limit its involvement to these crucial sectors and allow the rest to be run by the private sector without being a burden on the public.

Restructuring SOEs is a perennial issue confronted in the past by many administrations but it hasn’t gone further than making promises which are never kept. In the current case, the pressure to exit from these state-owned entities has been the agreement with the International Monetary Fund (IMF) in which there are many things that need to be addressed by the government to cut losses, one being the burden of the SOEs.

According to a report in the Business Times, the government is to enact a new state-owned enterprises (SOEs) Act to provide legislative authority and operational effect to the SOE reform policy.

The fiscal policy report of the Finance Ministry said, the “principles elaborated in the reform policy advocated by the IMF broadly align with good practice and, if realised, should result in improved fiscal and governance outcomes from commercial SOEs”.

A holding company will be set up bringing all these state institutions under one umbrella and drive comprehensive reforms of state enterprises, the management and governance of state enterprises.

SOEs are bleeding money as the government continues to fund these loss-making entities. Last week, it was reported in the Sunday Times that SriLankan Airlines and the CEB will receive a total of Rs. 238.9 billion from the Treasury to settle their debts ahead of the divestment process. A supplementary estimate was presented to Parliament for this purpose. This came just as the process to divest SriLankan Airlines began last week which reported a huge net loss in its latest annual report for 2022/2023. In this supplementary estimate, Rs. 129 billion will be allocated to the CEB and Rs. 109.9 billion to the national carrier.

One of the requirements of the US$2.9 billion bailout package by the IMF is a rigorous restructure of the country’s lossmaking SOEs which include the CEB and the Ceylon Petroleum Corporation (CPC). By this it means, converting the CEB and CPC to profitable units by passing on price hikes of global fuel prices to the consumer instead of subsidising the cost to reduce the burden on the consumer. In restructuring SOEs, the reality is that while the authorities have accounts and other details including assets of 52 institutions strategically important for the proper functioning of the economy, little data is available (particularly accounts and net assets) of another 400 SOEs.

On the flip side, the government is taking the wrong approach in trying to sell off two stately, British-built post offices in Nuwara Eliya and Kandy, to set up hotels instead of renovating them and preserving them as heritage properties.

As I wound up my column, on yet another one of Sri Lanka’s biggest headaches, it is evident that Sri Lanka’s tale of economic woes would continue as opposition is mounting against privatisation with the country heading for an election year in 2024. It would be interesting to see what the budget 2024 would also promise to the country when President Ranil Wickremesinghe presents it tomorrow in Parliament.