MPS call for re­struc­tur­ing of loss-mak­ing SOES

The Myanmar Times - Weekend - - Lcoal Business - HTOO THANT thanth­too@mm­times.com

DE­SPITE be­ing estab­lished with the ob­jec­tive of driv­ing the na­tion’s econ­omy, State-owned en­ter­prises (SOES) have not lived up to their roles. In­stead, at least a third is leech­ing off pub­lic funds that could have been chan­neled else­where. That needs to change, MPS said.

SOES were estab­lished with the aim of pro­duc­ing goods for ex­port and as im­port sub­sti­tutes as well as to make goods af­ford­able for the peo­ple. How­ever, due to poor tech­nol­ogy, weak com­pet­i­tive­ness and mis­man­age­ment, many SOES have in­stead be­come a bur­den to the State, the MPS pointed out.

There are 32 SOES man­aged by six union min­istries and among them, only 22 are prof­itable. Ac­cord­ing to 2018-19 bud­get data, es­ti­mated prof­its are ex­pected to to­tal some K2 tril­lion, with around one third gen­er­ated by the Cen­tral Bank of Myan­mar, four state banks and Myanma In­sur­ance.

Myanma Oil and Gas En­ter­prise (MOGE) is ex­pected to con­tribute an­other third of the earn­ings, with the re­main­der gen­er­ated by Myanma Gems En­ter­prise, Myanma Tim­ber En­ter­prise, Myanma Post and Telecom­mu­ni­ca­tion (MPT), Myanma Port Au­thor­ity and Myanma Petro­chem­i­cal En­ter­prise.

Prof­itable SOES pay 25pc of their earn­ings as tax, 20pc as con­tri­bu­tions to the gov­ern­ment while the re­main­ing is parked in a sep­a­rate re­serve fund.

Widen­ing losses Mean­while, SOE losses are es­ti­mated to be a lit­tle over K833 bil­lion, the bulk of which will come from Myan­mar Elec­tric­ity Gen­er­at­ing En­ter­prise (MEGE). For ev­ery unit of elec­tric­ity gen­er­ated, the gov­ern­ment loses K 23, said Dr. Tun Naing, deputy min­is­ter at the Min­istry of Elec­tric­ity and En­ergy (MOEE). The av­er­age pro­duc­tion cost per unit of elec­tric­ity is K 77.25 com­pared to the av­er­age sell­ing price of K 54.15 per unit.

As higher vol­umes of elec­tric­ity are be­ing gen­er­ated to meet de­mand, the gov­ern­ment’s losses have also mounted. In 2017-18, losses from pro­vid­ing elec­tric­ity to­taled K508 bil­lion, which is up by more than 20 per­cent com­pared to 2016-17. For the 2018-19 fis­cal year start­ing Oc­to­ber 1, losses are ex­pected to widen by a fur­ther 24pc, to K629 bil­lion for the pe­riod.

Since the Nld-led gov­ern­ment took of­fice in 2015, busi­nesses and MPS have ar­gued that elec­tric­ity prices should be raised to cut losses. How­ever, of­fi­cials have stalled on mak­ing a de­ci­sion as rais­ing prices could hurt the poor.

Mean­while, losses gen­er­ated by Myanma Rail­ways are fore­cast at K98 bil­lion for the pe­riod, com­pared to a loss of K79 bil­lion in 2017-18 and K 60 bil­lion in 2016-17.

Losses gen­er­ated by the MEGE and Myanma Rail­ways are es­ti­mated to ac­count for more than a third of to­tal losses gen­er­ated.

Other SOES such as In­land Water Trans­port, Road Trans­port and Myanma Postal Ser­vice may face losses, while the News and Pe­ri­od­i­cal En­ter­prise will likely lose money in the com­ing fis­cal year due to fall­ing ad­ver­tis­ing rev­enues and higher costs in­volved in de­liv­er­ing to ru­ral ar­eas. Change needed More im­por­tantly, loss-mak­ing SOES take funds from the pub­lic to cover their losses, which is “not right,” Dr Thet Thet Khaing, Pyithu Hlut­taw MP from Dagon con­stituency, said this month. She added that as “pro­duc­tion and com­pet­i­tive­ness of SOES are fall­ing and as op­er­a­tion costs are ris­ing, prof­its are de­creas­ing. Changes must be im­ple­mented for the whole sec­tor.”

In 2017-18, SOES con­trib­uted 44.6pc to na­tional in­come but ab­sorbed 31.8 pc of union ex­pen­di­ture, said U Maung Maung Win, deputy min­is­ter of plan­ning and fi­nance.

Many of the loss-mak­ing SOES are un­der the Min­istry of In­dus­try. Al­though high vol­umes of in­vest­ments have been made with the aim of pro­duc­ing more goods for ex­ports while sup­port­ing the pro­duc­tion of im­port sub­sti­tutes, much of the funds go to waste. This is be­cause of out­dated tech­nol­ogy, weak man­age­ment and pen­sion obli­ga­tions, which all lead to poor qual­ity prod­ucts.

“There are no de­vel­op­ments among some of these SOES and their losses are be­ing cov­ered by State funds, re­sult­ing in the coun­try not de­vel­op­ing as much as it should, said U Aung Hlaing Win, Pyithu Hlut­taw MP from Min­gal­adon con­stituency.

As such, SOE busi­ness mod­els need to be re­struc­tured. For ex­am­ple, eval­u­at­ing the per­for­mance of SOES with a sim­i­lar work­ing na­ture, en­act­ing a suit­able profit al­lo­ca­tion pol­icy in­stead of us­ing state funds and ap­point­ing the Min­istry of Plan­ning and Fi­nance to man­age and su­per­vise af­fairs, ac­cord­ing to Dr Thet Thet Khaing, Pyithu Hlut­taw MP from Dagon con­stituency.

Other MPS said SOES should stop spend­ing on ar­eas well sup­ported by the pri­vate sec­tor, such as trans­port in­fra­struc­ture. “There are enough pri­vate-sec­tor funds go­ing into build­ing roads so we should cut spend­ing in that area,” said U Aung Kyaw Kyaw Oo, Pyithu Hlut­taw MP of Hlaing town­ship.

U Thaung Aye, MP from Pyawbwe, said though, that “while re­forms are in­evitable to res­cue the loss-mak­ing SOES, if changes are wrong or in­ap­pro­pri­ate, it will lead to vi­cious cir­cle of losses.”

Last Oc­to­ber, Myan­mar econ­o­mist Dr Aung Htun Thet also sug­gested pri­vatis­ing some of the SOES and turn­ing oth­ers into pub­lic cor­po­ra­tions. How­ever

U Aung Hlaing Win added that un­qual­i­fied civil ser­vants should be re­placed by trained and ex­pe­ri­enced man­agers. “We should prac­tice mer­i­toc­racy like the pri­vate sec­tor,” he said.

U Maung Maung Win said that pri­vati­sa­tion con­tracts for some SOES are now be­ing drafted with the help of the IFC and the Ja­pan In­ter­na­tional Co­op­er­a­tion Agency, but added that plans would be car­ried out to sus­tain cur­rent staff con­di­tions and pen­sions.

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