Direction of SOEs

State-Owned Enterprises (SOE) have posted overall profits amounting to Rs. 227.8 billion during the first half of this year, representing a decline from Rs. 280.7 billion a year earlier, according to the Mid-Year Fiscal Position Report 2025. The latest disclosure is contradictory to the impression the Government and some of its ministers have been trying to convey that SOEs are generating higher profits than in the past.

The NPP in the run up to the election last year convinced the electorate that they were capable of turning around the performance of State commercial entities by getting rid of waste and corruption. Throughout the history, the NPP as well as its ideological parent the JVP have staunchly opposed privatisation of Government-owned business undertakings. Captivated by the Leftist political movement’s anti-privatisation stance, employees and trade unionists in the SOEs were at the forefront of supporting the NPP dispensation.

However, since gaining power, mixed signals have been communicated by the administration with regard to the continuity of SOEs under State ownership. The prominent NPP politician and Minister of Agriculture K.D. Lalkantha has been advocating seemingly pro-privatisation views in the recent past, while others like Deputy Minister of Industries and Entrepreneurship and Development Chathuranga Abeysinghe have emphasised the importance of reviving loss-making state enterprises through sound strategic planning, correct leadership, apart from improving systems of governance. Hence, there is confusion about the Government’s chosen path. 

Despite having extensive experience in the private sector, Abeysinghe’s vehement opposition to privatisation is quite difficult to fathom. As this column has elaborated on numerous occasions, the absence of sense of ownership is the biggest impediment faced by SOEs. Agency conflict – managers taking decisions that benefit themselves instead of maximising shareholder wealth – is quite acute in public enterprises compared to private business entities. Colombo District MP’s enthusiasm to revive and stimulate Government enterprises towards impressive financial/commercial success could be altruistic and genuine; however, his thinking is not supported by empirical evidence and generally accepted principles of business management.

According to the Ministry of Finance, the Ceylon Electricity Board (CEB) had incurred a loss of Rs. 13.2 billion during the first half of the year and is ranked as the biggest loss-making SOE. The state-owned electricity utility posted a net loss of Rs. 13.2 billion in the first half due to the disputed electricity tariff reduction during last January. The CEB’s losses have always undermined the finances of State banks apart from burdening taxpayers. The International Monetary Fund (IMF) has continuously opined that the CEB should be permitted to raise electricity tariffs based on the cost-recovery principle. If the electricity tariffs are not adjusted to maintain financial viability of the CEB, it would destabilise the IMF program, thus, threatening the recovery of the economy.

Time has certainly come to make a concrete and decisive step with regard to the national carrier SriLankan Airlines, which had incurred a loss of Rs. 10.7 billion over the first six months of the year. It is reported that the airline’s accumulated losses run into Rs. 628.3 billion with negative equity of Rs. 415.2 billion. The 2025 Budget allocated Rs. 20 billion to service the airlines debt. There is no commercial case whatsoever for the Government to be involved in a high-risk, extremely capital-intensive business.

Meanwhile, State-owned banks had recorded impressive financial results for the time period in concern. Nevertheless, State banks have always reported increased profits every year irrespective of the government in power. But the question needs to be asked whether there is any merit in the Government to own commercial banks. Given the natural inclination among the islanders to default, there is widespread public perception that the loans borrowed from State banks do not need to be repaid. 

Being emotional and sentimental about State enterprises would do no good for the country. Our economy has stagnated far too long. It is time to shed outdated views and formulate pragmatic and feasible solutions to the woes facing SOEs.