Plight of SOBs
View(s):A couple of weeks ago, state-owned retailer Laksala was infuriated with a story in the Business Times about the payment of commissions which violated government rules and regulations (ARs and FRs).
The company responding to the report said that these payments were made for ‘promotional purposes’ and not as a commission, a claim that was challenged by the Business Times which stated, quoting Treasury sources, that there was no provision in the regulations governing Laksala to make such a payment.
The handicrafts retailer also took up the position that making such payments was common practice in the private sector and to be competitive, such payments have to be made to which the Business Times response was that it is still illegal. On the other hand, if the argument was that such payments were in violation of government regulations, why weren’t such objections raised by the Treasury representative on the Laksala Board of Directors in the first place?
While it was argued, rather reasonably, that state companies like Laksala cannot compete with the private sector if commissions are not paid, the point here is that Laksala needs to seek permission from the Treasury to make such payments.
Every state-owned company including, for example, Sri Lanka Telecom, SriLankan Airlines, Ceylon Electricity Board (CEB) or Ceylon Petroleum Corporation (CPC) has representatives from the Treasury looking after the government stake in the business. These representatives are supposed to make sure that the Treasury and public interest are ensured, but are they effective?
As I was reflecting on these issues, the phone rang with ‘Human resource’ pundit H.R. Perera on the line. While human resources are his forte, H.R. Perera is a reservoir of information on many other matters too.
“Hello … hello, long time no see,” he said, in a warm greeting. “Fine … fine,” I replied.
“The other day I was reading the exchange of words between Laksala and the Business Times on ARs and FRs and it seemed unfair that Laksala is unable to make commissions which are an age-old trade practice,” he said.
“You may be right on following a marketplace practice. However, if there are rules, they cannot be violated. The rules must change to reflect modern day trends,” I said.
“If payment of commissions was in violation of the rules, why wasn’t there any objection by the Treasury representative on the board? Isn’t that their role to guide the board of a state company in observing state rules and regulations?” he asked.
“Absolutely, but Treasury representatives are more like ‘sleeping’ directors, they rarely raise objections and some are even not sure of the regulations themselves,” I replied.
As I sipped my morning tea and continued our discussion, my thoughts were briefly disrupted by sounds of what appeared to be an argument near the gate, where Kussi Amma Sera, Mabel Rasthiyadu and Serapina had gathered for their usual Thursday morning gossip. It seemed the conversation was on the political happenings in the country and the forthcoming presidential election.
“Eksath jathika pakshaya sajith premadasawa egollange janadhipathi apekshakaya hetiyata path nokaranne aei? Ohu ehi hondama balaporottuva ne. (Why hasn’t the UNP announced Sajith Premadasa as their presidential candidate? He is their best hope),” said Mabel Rasthiyadu.
“Mama ekanga naha Sajith karaka sabawa thiranayak enathek bala sithiya yuthui kiyala. Kriyavaliyak thiyena ne. (I don’t agree. Sajith has to await a decision by the Working Committee. There is a process),” defended Kussi Amma Sera.
“Namuth apekshakaya kauda kiyala karana prakashaya pramada kirima honda lakunak neve (But the delay in announcing the candidate is not a good sign),” said Serapina, adding: “Meka vipakshayata vasiyak (This is an advantage to the opposition)”.
They had a point: Every day that there is a delay in announcing the candidate of the ruling UNP for the November 16 presidential poll, it is an advantage to the main opposition candidate.
Interrupting my thoughts, H.R. Perera said: “With so many Treasury directors on boards of state companies, why aren’t these organisations more efficient and profitable?”
“Good point. The whole purpose of these Treasury representatives is to ensure state rules and regulations are followed to the letter,” I replied.
There are over 400 state-owned businesses or SOBs which come under Treasury supervision. While a few like the CEB or CPC are doing well, these two organisations are also losing money because other state agencies are not paying bills for their (CPC and CEB) services.
According to a recent Finance Ministry report, levy and dividend income of 38 SOBs out of 55 large SOBs has not been credited to the Treasury in the first six months of 2019.
Revenue from the profit, levy and dividends of the SOBs have dropped to around Rs. 4.8 billion in the first six months this year compared to around Rs. 21 billion in the same period last year, while losses at the 55 SOBs totalled Rs. 87 billion in 2017.
In a recent statement, JVP leader Anura Kumara Dissanayake has said that state institutions are not profitable because they are politicised.
Without using a suitable team of professionals to convert state institutions into profit-making organisations, these institutions are run as employment hubs for the supporters of ministers, he has said.
In recent years, governments have been pushing for public-private partnerships to transform these institutions to profit-making from losses, an effort which has largely not succeeded with the exception of a few cases. SriLanka Telecom which has a sizable private sector stake from Malaysia’s Maxis telecommunications has shown profits which proves that such an arrangement is beneficial in the public interest.
SriLankan Airlines, when Emirates had a 43.6 per cent stake in the national carrier, was run profitably as it was under Emirates management. The moment Emirates exited due to a disagreement, the airline collapsed and has been reporting huge losses. Efforts by the present government to bring in a foreign investor to once again manage the airline have so far failed. Efforts are still underway with a plan to retire debt and find an investor-cum-manager.
As I was winding up my conversation with H.R. Perera, Kussi Amma Sera walked into the office room with my second cup of tea and a question: “Mahattaya, mokakda ada liyanne (What are you writing today?).”
I explained what it was and she appeared confused. Who wouldn’t be… in trying to understand why and how these state companies are bleeding the nation when they can be profitable ventures?