The government has already initiated the preparation of a restructuring plan for public enterprises. President Ranil Wickremesinghe made a clear policy announcement to the nation recently that the state authorities are serious about long-term economic reform.
He also categorically stated that Sri Lanka is ‘open for businesses. This could boost investors’ confidence and help attract more foreign direct investment (FDI) into the debt ridden country.
Additionally, the government expects the chief officers of these enterprises to be committed to improving their performances. If they fail to meet the annual targets assigned to them, we will not hesitate to replace them with more suitable candidates, he added.
There are currently 430 public enterprises operating in 33 sectors of the economy. These enterprises employ 6 percent of the Sri Lankan population.
However, many of these enterprises have garnered monopolistic positions in the market, hindering private investment.
Price fixing, inefficient management, and poor entrepreneurship have weakened public finances, turning these institutions into national burdens that are dependent on the taxpayer.
Notably, entities like the Ceylon Petroleum Corporation, Ceylon Electricity Board, and Sri Lankan AirLines have incurred significant operating losses, equivalent to 1.6% of the country’s GDP in 2021
Complementing the President’s directive to restructure SOEs, former finance minister Ravi Karunannayake outlined an action plan of upcoming reforms, adding that public enterprises in strategic sector links to day to day activities of the people are set to undergo reforms and others engaged in commercial activities face performance optimization.
He emphasised that according to official data, 39 of the 52 strategically important public institutions are making profits while 13 of them are still making losses.
The losses incurred by 13 public institutions currently amount to Rs 1,029 billion while the profits made by the 39 enterprises are at Rs 218 billion, he said.
He also highlighted that the annual loss made by the public institutions is more than Rs 811 billion, adding that only Rs 28 billion have been paid by the profit-making public institutions as taxes to the treasury .
The restructure tool is used to improve their financial and operational performance and to make them operate on the strength of their balance sheets, he pointed out, adding that measures were also taken to reduce the flow of public funds to SOEs.
He suggested that Sri Lanka should follow the Temasek model of Singapore which is operated on a competitive basis, where the Government has no intervention in business.
The professionals running the business raise the revenue and make profits the same as in a private company and the work principles are set right from the beginning to be competitive.
He categorically stated under this set-up privatisation in a partial or full sale of assets – is not the only option for SOE reform.
For instance, there are other options like the vesting of performance and management in private sector contracts, Public-Private Partnerships (PPPs), holding companies, listing on the stock market, Employee Stock Ownership Plans (ESOPs), etc.
Therefore, enhancing the low level performances of SOEs by optimisation procedure is essential whilst ensuring transparency and accountability at this difficult juncture of trying to recover from economic crisis, he added.
The government’s plan to restructure the SOEs on the directions of President Ranil Wickremesinghe is aimed at self-financing without depending on the treasury and it will be a reality soon, Mr Karunanayake opined.
He assured that the Government had made a firm decision to have major controlling rights of the non-strategic enterprises in the optimisation or commercialisation process and dismissed claims of total privatisation.
“We have to walk the talk and fulfill Sri Lanka’s obligation of IMF commitments relating to SOE reforms within six months and the Government has short-listed transaction advisors to assist in the divestiture of four SOEs in less than three months," he said.
They are Sri Lanka Insurance Corporation Ltd., Hotel Developers Lanka Ltd (Hilton Hotel Colombo), Canwill Holdings Ltd (Grand Hyatt Hotel), and Litro Gas Lanka Ltd including Litro Gas Terminals Ltd (LPG retailing).
Cabinet approval will be sought of a comprehensive strategy to restructure the balance sheets of the Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), the Road Development Authority, and Sri Lankan Airlines by June 2023.
Prompt publication of audited financial statements will be made for all 52 major SOEs while prohibiting new foreign exchange borrowing by nonfinancial SOEs which have foreign currency debt amounting to US$ 45.5 billion with limited foreign exchange revenues.
He noted that Sri Lanka has shown successful results from the privatisation of several state entities during the periods of late 1980s to around 2004.
At least 43 commercial entities were privatized and from 1995 to 2004 saw the privatisation of larger, more complex sectors such as telecommunications, gas, and airlines.
In fact, the much-hailed Sri Lanka Telecom (SLT) privatisation was carried out during this period, he revealed, noting that such enterprises have undergone performance optimisation making more profits rather than in state control.
He noted that the SOE reforms envisaged are expected to contribute towards higher economic productivity by reducing market distortions, increasing organisational efficiency and improving the quality of service to the public.