SOEs and employment

Employment, whether it is in the private or public sector, should ideally be based on merit. But, this may change if a feudalistic proposal is accepted into law, possibly worsening existing challenges of overstaffing, wastage and mismanagement within State-owned enterprises (SOEs).  

Petroleum Resources Development Minister Arjuna Ranatunga has proposed creating a quota system in the Ceylon Petroleum Corporation (CPC) recruitment process to make it mandatory that 10% of jobs are allocated to children of former employees. During a recent speech, Ranatunga argued that SOEs are under threat of privatisation and they need to be protected. But, in a befuddling twist, he believes that the best way to protect them is to introduce archaic hiring practices.

If children of CPC employees wish to follow in their parents’ footsteps, they are free to apply and follow approved selection criteria that already exists. If they are qualified, they can compete and get the job they deserve. Creating a quota only opens up the possibility that already existing backdoor policies could increase worsening inefficiencies and mismanagement, increasing the threat of privatisation. Moreover, if this proposal is implemented in one SOE, it could well be adapted by others.

The entitlement culture of State enterprises is one reason why SOEs are routinely lossmaking. SOE employees are given regular salary increases, car permits, interest-free loans and other perks even when their institutions rack up colossal losses. Powerful trade unions strike if demands are not met and often disregard public interest to achieve their ends. This standoff has already resulted in the appointment of a Salaries Commission that is attempting to iron out salary anomalies created by successive governments attempting to pacify unions by, essentially, buying votes with public funds.       

Earlier this year, the Ceylon Electricity Board (CEB) was found to be paying its employees’ PAYE taxes amounting to billions of rupees, which is essentially double taxation of the masses. Despite the issue being highlighted in several Committee on Public Enterprises (COPE) reports and even being discussed at Cabinet, few steps have been taken to make SOEs more fiscally responsible and uphold their duty towards maintaining public trust.

Currently, Sri Lanka has about 400 SOEs, according to the Treasury, with over a million employees. Yet, only a handful of these SOEs make profits or generate returns for the public, and are largely seen as employment providers rather than service providers.

In mid-2017, Moody’s Investors Service put Sri Lanka’s public enterprise debt at a whopping 14% of GDP and warned the Government of additional risks to its finances should such debt require any State support, which is likely to become the case as most cannot support repaying their debt. 

This translates into a massive debt pile of little under $ 12 billion, or Rs. 1,848 billion, that has accumulated due to the continuous annual losses. According to Moody’s, the total liabilities include government guarantees, outstanding SOE debt to the banking system, and outstanding SOE foreign borrowings.

Increasing numbers of aging employees at SOEs are also a ticking fiscal time bomb for the Government. The State will have to fork out larger and larger funds to meet pension payments and continue them for decades longer as Sri Lanka confronts the multiple challenges of an aging population. In this situation, proposing quotas for the next generation is just ensuring current problems are bequeathed to the next set of taxpayers as well.