Editorial

The announcement this week that the Government reached a staff-level agreement to support an Extended Fund Facility of USD 2.9 billion with the International Monetary Fund (IMF) to restore macro-economic stability and lay the groundwork for growth in the country including addressing “corruption vulnerabilities”, must surely be welcomed by a vast majority of the people.

Kudos to the Government negotiators for successfully wrapping up a deal on the macroeconomic framework without further delay. Yet, it is only the beginning of the long road to receiving funds. The disbursement of IMF money, an urgent need, is conditional on getting financing assurances from official and private creditors to ensure external debt sustainability – a formidable task that the Government must lead and bring to closure early. This includes debt relief as well as additional financing from multilateral partners to meet the financing gaps on the external front.

There are miles to go with the rescheduling of outstanding loans worth US$12 billion at the end of 2021 with official bilateral creditors. These are generally longer-term loans payable over the next 10 to 20 years. Japan’s offer to “coordinate” with them and with China’s anticipated participation in the process, one can see a faint light at the end of the dark tunnel. But the key would be the negotiations with private creditors on unsettled high-interest ISBs (International Sovereign Bonds) of US$12.5 billion, all of which this country has to pay back by 2030 with arrears on interest.

The President’s Interim Budget speech this week (in his capacity as Finance Minister) was a pointer to the way the Government is addressing the unprecedented economic crisis hammered by external factors beyond its control together with domestic incompetence and runaway corruption in recent years. The IMF help is a sine qua non in building foreign reserves and goes hand-in-hand with assistance from the Government and official donors for immediate relief for “protecting the vulnerable” segments of the population.

There will, no doubt, be cause for anxiety among a section that will be threatened by impending reforms to stabilise the broken economy. One of the segments will be the trade unions of the ‘Big Three’ government outfits – SriLankan Airlines, the Ceylon Petroleum Corporation (CPC) and the Ceylon Electricity Board (CEB).

SriLankan Airlines has long been a massive drain on the economy and a Government decision to sell off 49 percent of its stake comes as no surprise. This has been tried even before, but there were no takers since any investor would first want the Government to take over all, or the bulk, of the Airlines’ huge debt.

The only time the airline did a financial turnaround was when it had a profitable partnership with one of the world’s fastest growing airlines, Emirates. In 2008, when the partnership ended following a churlish spat instigated by the power drunk cohorts of President Mahinda Rajapaksa, the Airline made a profit of  Rs. 4.4 billion. Then again, it started to lose money. Now, the national carrier has to cringe and crawl behind a buyer for its 49 percent stake at a time when all world airlines are facing financial issues. It hopes to sell the only profit-making ventures of the airline, i.e. its catering services and ground handling, to settle debt.

A JVP spokesman this week claimed credit for what he said was the stopping of the privatisation of the Electricity Board, CEB in 2005. Over the last five years alone, CEB has cost the people of this country Rs 250 billion on top of which it faces ‘red notices’ from unpaid bills and loans amounting to Rs 500 billion by the end of 2021 to banks, the CPC and independent power producers.

From 1997 to 2004, it was the senior management of the CEB itself that was the key stakeholder that drew up a scheme to reorganise the loss-making institution. Led by the Asian Development Bank (ADB) with support from the World Bank and the Japan Bank for International Co-operation (JBIC), a tortuous process was gone through to reach consensus on reforms. The functions of the CEB and LECO were to be separated and transferred to several companies, the main ones being two for electricity generation and transmission and five for electricity distribution as the CEB Act of 1969 was to be replaced.

These companies were to be managed and operated independently with a view towards maximum focus and efficiency. To ensure uniformity of policy, protection of consumers and the regulation of the industry, a licensing authority was to be incorporated under the Public Utilities Commission Act.

With all the stakeholders in agreement, the Ministry of Power and Energy put forward a Cabinet paper for the reorganisation of the electricity industry in early 2004 to the Economic Policy Committee chaired by the then Prime Minister Ranil Wickremesinghe, but President Chandrika Kumaratunga dissolved Parliament prematurely that year and everything went into limbo. Now it is back to the drawing board discussing reforms 18 years later with the CEB recording colossal losses and growing debt in the meantime.

The JVP claims that it prevented privatisation of the CEB is a misnomer as it was not privatisation, but a reorganisation scheme. A great chance of organisational reform of the electricity industry was squandered, and the CEB continues to be a drain on the very people the JVP claims it represents.

Similarly, with the CPC, an opportunity for reform and competition in the petroleum distribution system was lost in 2004 as we noted in a July 3 editorial. The CPC, in the meanwhile, recorded operating losses of nearly Rs 200 billion over the last five years and unsettled bank dues of Rs 700 billion by end 2021. It is good to see that the Ministry of Power & Energy has shortlisted around 20 firms for oil distribution and the sooner it selects two or three to enter into the domestic oil market the better it will be for the consumer. Sri Lanka Telecom after its Private-Public Partnership venture worked out by Minister Mangala Samaraweera is no longer a burden on the Treasury which illustrates a useful lesson from the past on how to foster competition in oligopolistic markets. Why not others follow?

The ultimate winners will be the state, its citizens – including the workers.