A first step

Monday, 23 May 2011 00:00 -     - {{hitsCtrl.values.hits}}

Loss making State Owned Enterprises (SOEs) have long been a headache for the government. In fact statistics show that as much as 2% of GDP is leeched away by these institutions and the State Resources and Enterprise Development Ministry’s decision to initiate a Voluntary Retirement Scheme (VRS) to restructure four SOEs is a commendable move.

According to weekend newspaper reports 822 employees from Kantale Sugar Corporation, Embilipitiya Paper Mill, Ceramics Corporation and Rubber Manufacturing and Export Corporation (RMEC) will be given Rs.600, 000 VRS to open up the possibility of Private public Partnerships (PPPs). Already the government has received around 28 proposals for PPPs with the fight being between Indian and Chinese companies. Apparently around six foreign investors have shown interest in the Ceramics Corporation under a 30-year lease and 11 investors in the RMEC. The Kantale project is expected to get off the ground as early as end May. Yet before the new phase of restructuring can take place the excess employees have to be taken care of.

Given that the government has spent Rs. 4.3 million per month as salaries of 500 employees of the closed down Ceramics Corporation, a further Rs. 4 million as salaries of Embilipitiya Paper Corporation and Rs. 1 million as salaries of Kantale sugar factory employees per month since 1994 the decision to restructure these institutions must come as a relief to the public. These four SOEs are estimated to contain a combined asset value of Rs. 10 billion. Despite the tie-up with private enterprises the ownership of the companies will remain with the government.       

On the negative side if the employees reject the VRS then they will be sent on compulsory retirement. Even though many employees have not worked for over a decade perhaps it would be prudent to keep those with relevant expertise and integrate them with the new workforce since it would assist the new company to start business that much faster. Another point is that since most of these people are from the area, resurgence of these companies would give direct benefit to the local community.

There are many other SOEs that are bleeding public money and it is noteworthy that the Ministry has finally taken steps to convert them into profit making organisations. These plans have been in the pipeline for the better part of last year and are slowly showing signs of bearing fruit. Introduction of global best practices, new technology and management would be the right recipe to get these companies back in the profit making game. However since there are several other companies including BCC Lanka and Salusala to be whetted as PPPs the success of these initial four ventures is crucial.

Converting these SOEs is simply the first step in a long journey. Giants such as the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) are also in the waiting line posing stronger challenges for the government. Ensuring that the loss making SOEs are made sustainably profit making and limiting political involvement in management will be key challenges. Under these circumstances it is imperative for these four SOEs to lead by example so that continuous evaluation will provide a blueprint for the other institutions to follow.