Depoliticising SOEs

The Government stated recently that it will introduce a new bill to boost state-owned enterprises (SOEs) that are making losses and burdening the public. The bill is currently being studied by the legal draftsman and will attempt to find lasting solutions to the vexing problem of loss-making SOEs.

The proposed board will focus on depoliticising core public enterprises while staffing them with professionals and making the entities financially viable in order to enhance their profits.

Cabinet recently approved a ‘concept of statement of corporate intent’ for what it deems strategically important public enterprises. It is hoped that allowing SOEs to make their own decisions will create space for them to be more profitable.

The Government has also decided to divest several non-core state assets such as stakes in Hyatt, Hilton and Lanka Hospitals while for several others a progressive public-private partnership approach would be adopted.

According to Public Enterprise Development Minister Kabir Hashim, SOEs make the largest contribution to the economy. The Minister stated recently that the revenue of the top 10 SOEs, which amounts to around Rs. 1 trillion, accounts for half of the turnover of all 295 listed companies on the Colombo Stock Exchange, amounting to Rs. 2.2 trillion, signalling the importance of the sector and the toll failing SOEs take on the economy.

In the face of several SOEs facing financial difficulties, the Minister also said that 42 entities received Rs. 215 billion in budgetary support in 2012 and 2013. In 2014, it was Rs. 123 billion which meant each of the households in Sri Lanka were burdened with Rs. 24,000. Even with the budgetary support granted by the previous Government, the losses of SOEs in 2014 amounted to Rs. 60 billion.

The latest COPE report presented to Parliament recorded losses of Rs. 110 billion due to “wasteful and uneconomic” practices by SOEs. The State Engineering Corporation loss alone is Rs. 2,918 million, mostly exacerbated by the actions of ministers who refuse to repay the corporation from funds allocated to their respective portfolios despite work done and try to shift responsibility to the Treasury.

The COPE report’s revelation that 98% of the losses in public enterprises is caused by four State companies: The Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), SriLankan Airlines and Mihin Lanka, is of particular concern. Meanwhile, economists have estimated that loss-making companies bleed as much as 2% of GDP from the economy.

The responsibility for acting on the COPE report is directly on Parliament. Despite over two years of rule by the present Government, much of this largely remains unaddressed while those at fault have still not been held accountable. After repeated appeals, the Government needs to investigate and punish the numerous offenders citied in successive COPE reports.

Furthermore, allowing key SOEs to formulate a statement of corporate intent will only work if the Government is successful with the implementation of the bill to depoliticise SOEs. Filling these loss-making enterprises with professionals who will be geared towards revitalising these sinking ships is a step in the right direction and now, more than ever, this step needs to be seen through to fruition. These professionals have to also be empowered to make unpopular decisions; stronger policies need to be made and politicians have to allow these enterprises to run without interference if the country is to ever pull them out of crisis.