No systemic change in SOEs yet under NPP Government

Improving the efficiency and profitability of State-Owned Enterprises (SOE) by ending systemic shortcomings as well as endemic corruption was one of the core pillars of the NPP’s election manifesto in 2024.  The stance of the administration towards reforming the SOEs has remained largely unclear with divergent views expressed at different times by the Government’s influential decision makers. The left-leaning coalition which promised systemic change convinced the masses they had the best credentials to revive loss-making state entities given their strong anti-corruption stance.

In this backdrop, the revelation by the Finance Ministry’s Final Budget Position Report – 2025 that the main 51 SOEs recorded a combined profit of Rs. 444.4 billion in 2025, down 17.6% from last year would not have pleased pro-reformist groups who expected better performance from SOEs under an NPP Government. Nevertheless, excluding the CEB, the remaining 50 SOEs generated profits of Rs. 483.2 billion, a 21.5% rise from 2024. Compared to the net profit of Rs. 141.6 billion in 2024, the state-owned electricity utility incurred a net loss of Rs. 38.7 billion in 2025. Apart from the deterioration in the financial performance, the CEB experienced significant administrative as well as leadership volatility at the top during last year. In May 2025, the first CEB Chairman under the NPP Government Dr. Tilak Siyambalapitiya resigned from his post, just under eight months after being appointed. His appointment itself was severely criticised given the obvious conflict of interest as RMA Energy – a firm which is co-owned by the former CEB Chief and his wife - is a registered service provider to the CEB and continued to engage in state energy contracts while Siymbalapitiya held the top executive seat at the utility.

Meanwhile, efficiency and effectiveness of SOEs cannot be determined by profits alone. The profit is a subjective figure which can be manipulated by various accounting policies and not objective. Moreover, certain state entities like banks have inherent competitive advantages as they are under state ownership. State banks enjoy a natural captive market courtesy of their parent shareholder— the Government. By default, the entirety of state corporations and statutory boards maintain their accounts with the state banks, hence, both the BOC and People’s Bank can secure a large pool of low-cost deposits. Questions have also been raised whether the two banks require the high number of employees they currently possess given the rise in digital and online banking services. The two state banks are often called upon to bail out perennial loss-making entities like SriLankan Airlines which has affected both banks and the overall economic growth of the country.

The fundamental shortcoming of SOEs is their lack of sense of ownership. The empirical evidence suggests that SOEs in Sri Lanka have functioned primarily to enrich employees and their political masters at the expense of taxpayers. Compared to private enterprises, the agency conflict is quite acute among SOEs and even under the NPP Government several top executive leaders of some corporations have devoted their time and energy towards initiatives that benefit their own interests instead of making systemic improvements to the institutions they are heading. For instance, Sri Lanka Export Credit Insurance Corporation (SLECIC) Chairman Prof. Aruna Shanthaarchchi, an academic of Sabaragamuwa University who has been temporarily released from service, has prioritised assisting his primary place of employment using the financial resources of the Corporation instead of addressing the shortcomings of the institution which he is heading. SLECIC has sponsored various research symposiums of Sabaragamuwa University although such activities do not accrue any meaningful benefit to the Corporation.

The Government needs to fundamentally rethink its stance on SOEs and ideally should consider divesting state commercial entities to private ownership. In the Sri Lankan cultural context, where individuals often misuse their power and influence to achieve their personal agendas, state ownership of commercial enterprises is not in the best interest of taxpayers.