Lanka’s SOBEs to generate own funds as transformed units
Far from the public eye, in closed door top-level meetings and official consultations, Sri Lanka’s cash-strapped government is crafting a plan to transform its loss making State-Owned Business Enterprises (SOBEs) into profitable, self-financing units.
Senior government officials revealed that the plan by the Treasury discussed with senior officials in the department involves restructuring SOBEs by strengthening their balance sheets and finding ways for these organisations to seek their own funds, internally, with little or no financial support from the government.
Currently SOBEs are managed by financial support from the Treasury. On the other hand whatever these state companies collect through revenue or levies is transferred to the Consolidated Fund – through regulation – which in turn is used by the Treasury to return some part of these earnings, back to the organization for operational and management.
A senior government official, who spoke on condition of anonymity, told the Business Times that the entire structure of funding state institutions is to change under this process. Henceforth state organisations will be directed to be self-funding through a mixture of cutbacks, efficiency improvement, enhanced productivity levels and own ways of seeking revenue.“However the regulatory transfer of funds to the Treasury will continue as before,” he said. The objective of the plan is to end an era of Treasury subsidies while ensuring these restructured organisations, once successful, continue to contribute to Treasury coffers to meet the government social spending commitments (education, health, social welfare, tax cuts to ease cost of living, etc). Sri Lanka has 54 SOBEs of which 10 own an asset base well in excess of market capitalisation of all listed companies in the country.
These 10 organisations include the Ceylon Petroleum Corporation, Ceylon Electricity Board, Sri Lanka Port Authority, Airport Authority, Water Supply and Drainage Board, SriLankan Airlines, the three large state banks and Sri Lanka Insurance.
The Treasury, in the first quarter of 2014, released a total of Rs. 4.5 billion and Rs. 1.9 billion to meet recurrent and capital expenditure, respectively, to seven SOBEs to meet their short, medium and long term financial requirements, the official said.
He said during the same January-April period, the same seven SOBEs – under the compulsory regulations – transferred dividends and levies to the Consolidated Fund totalling Rs. 9.7 billion.
| New plan and how SOBEs operate
SOBEs have somewhat a similar structure to private companies– expenditure, revenue and profit or loss components – but with one major difference: all earnings/revenue is sent to the Consolidated Fund. Furthermore, wages and other expenses are met by the Treasury which makes annual allocations in the budget. Thus all expenses of SOBEs are met by the Treasury which in turn takes all the revenue. Any loss is also borne by the Treasury. The plan to make SOBEs lean, efficient and self-financing include the conversion of outstanding debts to government Equity, settlement of long outstanding debts of government departments and agencies, firm commitment to immediately start delayed projects or return the funds to the Treasury. Officials said a Treasury directive has been issued to state banks to provide loan facilities to private sector contractors to implement infrastructure projects especially in Colombo and urban water supply schemes with the Treasury issuing a guarantee to the banks to reimburse the loan over a period of time. Under the plan, the National Water Supply and Drainage Board (NWS&DB) will be transformed to a commercially viable entity with the ability to source necessary funds on its own in the future. State banks would be asked to lend Rs. 42.1 billion to contractors of 35 water board projects which are aimed at providing direct water to 265,520 households. The banks, to release funds for these projects, have been directed to raise low cost funds in the international market. In order to improve cash collection, water bill payments will have to be made more convenient to the public under the proposed reforms. All SOBEs have been asked to invest whatever fixed deposits they have in productive and commercially viable ventures. The organisations have been barred from using the interest of these depositors to pay bonus or any other incentives for employees, which has been the practice. Officials said stern action would be taken against chairmen and director generals who are misusing fixed deposits of SOBEs. The Sri Lanka Insurance Corporation (SLIC) has been directed to introduce pension schemes to meet the needs of an increasing population of senior citizens, increase the insurance penetration in the country, while also earning more revenue for the organization. The Ceylon Electricity Board (CEB), another major institution where however its massive revenue generation is still insufficient to meet recurrent expenditure and debt payments, has been asked to convert Treasury loans to equity, strengthen its financial position and independently raise funds. It has also been asked to formulate low cost generation incorporating coal and non-renewable energy sources. |