New advocacy group advocates SOE privatisation
Whilst the present government has announced that it is serious about reforming the state-owned Enterprises (SOE), one obvious remedy – the privatisation option-appears to have been ignored. Advocata, an independent policy think tank based in Colombo, is urging the government and the politicians to engage in an open discussion that at least keeps privatisation in the mix of policy options. The Advocata Institute launched on Thursday conducts research, provides commentary and holds events to promote sound policy ideas compatible with a free society in Sri Lanka.
In its first report on the ‘state of state enterprises in Sri Lanka, Advocata revealed that loss-making SOEs cost the taxpayer a colossal Rs. 636 billion between 2006 and 2015 while the profitable SOEs contributed Rs. 530 billion.
The full impact of SOEs on the Sri Lankan economy and the true cost to the taxpayer is not reflected in the published accounts because of hidden subsidies. The report revealed that the performance of around 190 enterprises out of 245 remained unknown. The government is to set in motion the overhaul of the country’s bloated SOEs on a case-by-case basis in a bid to display its commitment to change despite the economic slowdown. This was revealed by Deputy Minister Eran Wickremaratne at a panel discussion held following the launch of the Advocata Institute at the Lakshman Kadirgamar Institute in Colombo on Thursday.
The State Enterprise Development Ministry works to ensure that SOEs operate in a sound competitive and regulatory environment to promote efficient and open markets at the domestic and international level, he told a packed gathering of ministers, MPs, economists, scholars and businesspersons. Answering a question, he noted that his ministry would intervene in policy and regulation and in the event of market failure of those enterprises. Over a period of time there has been widespread politicisation, particularly in the last decade, which means that the objective for which the state enterprises were set up was lost.
The objective of the SOE’s is to provide the highest quality products and services at the lowest possible price, since it is for the citizens. For that it is essential to have a professional management that must make decisions based on this objective, he pointed out. Delivering the keynote address, Prof. Rohan Samarajiva, founding chair of LIRNEasia said that it is essential to look beyond things like national pride and job security for the employees, at issues such as the logic of investing public money and imposing political decisions made on inherently risk-laden activities such as running airlines.
Facts such as the inefficiency of SriLankan with 333 employees per aircraft (behind only Syrian Air and Pakistan International Airlines) appeared to make an impact on at least those who do not buy into the labour theory of value. Over-emphasis on political rights as a manifestation of the 30-year war has sucked the oxygen needed for economic discourse and time is right to bring economic freedom to the fore, he said adding that Advocata is emerging at the right time in the right place.
He said that the first solution to tackle the SOE issue is the privatization and the second best is to set up a holding company like Singapore’s Temasek which owns SOEs that can be treated as normal business enterprises (not those that have other objectives such as the provision of housing or welfare) and can be subject to normal regulatory oversight. The companies make commercial decisions and do not supply services below cost.