SOEs bleeding money
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Some years ago when the Business Times (BT) conducted a poll on the future of the national carrier, debt-ridden SriLankan Airlines during the tenure of the previous administration, the majority of respondents including many from the working class, were in favour of the airline being retained in state hands, despite mounting losses.Some ministers in the government used the poll to justify the reason for continuing state control of the airline under a new restructure plan that would gradually retire debt and recover on the road to prosperity. A similar plan was crafted by the Mahinda Rajapaksa-administration when the airline’s chief executive in a media interview in February 2013 spoke of a 5-year plan for the airline to break even in 2015/16.
More than five years later the airline is bleeding money and dependent on the Treasury for its existence.
I was reminded about the state of the national carrier when I got a call, rather early (7 a.m.) on Thursday morning from know-all neighbour Haramanis of ‘broken English fame’.
“I shay, gud morning,” he said. “Hello…hello,” I replied in a pleasant voice as I hadn’t spoken to him for a long time, adding: “I haven’t heard from you. How have you been?”
“What to do, noh! COVID has created many problems. I called because I read Prof. Sirimal Abeyratne’s interesting piece in the BT last week about the sale of Air India by the Indian government to Tata Group, its one-time owners,” he said.
“Yes, in fact I am trying to draw a parallel to our own case – SriLankan Airlines and many other state commercial organisations that are heavily losing money for the state and, in turn, the public,” I said. “Why can’t they sell SriLankan Airlines like what India did or shut the airline down? It’s the public’s money that is going down the drain,” he said.
“Well I don’t think it’s easy to scrap an airline and previous efforts to bring in a foreign investor haven’t worked either,” I said and rang off.
Remember, India liberalised its economy long after
Sri Lanka did it in 1977, but the way India is moving ahead, it has unbundled one of its biggest liabilities – the state airline and its reforms passage has been more promising. Sri Lanka is following the route of retaining state-owned enterprises (SOEs) though suffering huge losses and being regularly bailed out by the Treasury.
Thankfully, Sri Lanka privatised plantations some years ago; if not the management in state hands would have suffered huge losses. The same could be said about Sri Lanka Telecom in which the government has a 49 percent stake, while Malaysia’s Global Telecommunications Holdings N.V has 45 percent interest. This privatisation was Sri Lanka’s singular success (in April 2008) in unbundling state companies, with
Sri Lanka Telecom’s post-tax profit rising to Rs. 8 billion in 2020 from Rs. 4.5 billion in 2011.
In his column, Prof. Abeyratne used information from colleagues in India about the state of Air India and why it collapsed. Among these were extravagant spending on staff and higher management, unlimited perks for crew members like free air tickets for the family and generous allowances.
I wonder whether the staff of our national carrier too enjoys the same benefits.
According to another media report quoting official data, SriLankan Airlines lost Rs. 58 billion in the 10 months to February 2021 due to the impact of the pandemic, against a loss of Rs. 47.1 billion in the same period of the previous year.
The airline has been steadily losing money in the past five years. According to its last 2019/2020 annual report, the net loss was Rs. 48 billion, in 2018/19 the net loss was Rs. 44 billion, Rs. 17 billion (2017/18), Rs. 29 billion (2016/17) and Rs. 13 billion (2015/16).
As I pondered over these figures, I was in a mood to get a second mug of tea. Walking into the kitchen and pouring myself some tea I saw the trio deep in conversation under the margosa tree.
“Me davasa wala boomi-thel lip walata wedi illumak thiyenawa. Pita kotuwe kadawala me lip den ganna nehellu (There is a big demand for kerosene cookers and some shops in Pettah have run out of stocks),” said Kussi Amma Sera.
“Ow, mama paththare kiyewwa online kadawal-walin kattiya ahanawa kiyala dara vikunanna thiyenawada kiyala. Egollo dara wikunuwa kiyala eh vidihata (Yes, I read in the newspapers how an online shop had inquiries to sell firewood and that they supplied this to customers),” added Serapina.
“Thathve harima barapathalai, gas ganan hondatama ihala gihilla hinda. Janathawata jeevana viyadama dara ganna beri wela inne (The situation is serious with a sharp rise in gas prices. People have many difficulties these days with the rising cost of living),” noted Mabel Rasthiyadu.
It’s not only SriLankan Airlines that is swirling in debt. Of the more than 400 SOEs, a majority are in trouble and a headache to the Treasury.
Topping the list is the Ceylon Electricity Board (CEB), the Ceylon Petroleum Corporation (CPC) and SriLankan Airlines. Ironically, the CPC is suffering because state institutions including the CEB and the national carrier have not settled their fuel procurement bills. The CPC has requested the government to allow it to increase fuel prices which, reportedly was turned down by the President. Instead, the CPC has been asked to seek support from the Treasury but, in the meantime, it is proposing a massive US$2.5 billion loan from a global private lender, a proposal which has become controversial. Meanwhile according to official data, the loss of the major 52 SOEs for the first eight months of 2021 was Rs. 26.8 billion.
The dilemma facing the government is that there are problems in selling state assets with trade unions and opposition political parties opposed to any such move, even if these units are losing money. This is a problem faced by any government. The recent sale of a stake of the East Terminal of the Colombo Port drew fiery protests and demonstrations from trade unions. The government bowed to the demands and instead offered the West Terminal to an Indian investor. Strangely, there was little resistance from unions to this move.
As I wound up my column, sipping my second mug of tea, I reflected on the huge financial burden that the public has to bear owing to the billions of rupees in losses by state commercial ventures, a burden that is funded by the tax money of the public.