SOEs reforms need bold and radical changes
State-owned enterprises will continue to be a huge financial burden on the country’s economy unless bold and radical reforms are carried out targeting the redesign of the very framework within which these institutions are presently managed, experts said.
This was said at the recent Sunday Times Business Club (STBC) discussion on state-owned enterprises (SOEs) reforms after the cabinet recently granted approval for the same mooted by the International Monetary Fund (IMF) criteria for the bailout package. The partners of the STBC are Movenpick Hotel, Colombo, Hemas Holdings and NDB.
Public policy specialist and Advocata Institute Senior Research Fellow Dr. Roshan Perera, a panellist at the discussion, noted that inefficiencies in SOE are large and they create imbalances within the economy due to the losses they make. She also noted that more than 50 per cent of banking sector resources go to financing these institutions and the government sector at large. She added that the welfare, education, and health sectors will benefit from the SOEs divestitures.
Ravi Abeysuriya, Director Senfin Securities Limited, noted that the weak and incompetent boards of directors and management appointed to lead these entities and also the total breakdown of governance in the management add to the losses they make. The national carrier SriLankan Airlines, he said as at the end of last year has an accumulated loss of US$1.6 billion. The airline owed $352 million to government banks, $299 million to Ceylon Petroleum Corporation (CPC), and $175 million to international bonds. There are also $775 million overdue and future payments to the lessors and suppliers of the airline. Mr. Abeysuriya said that the debt burden combined with important operational commitments puts further pressure on SriLankan Airlines’ already fragile liquidity position.
On the issue of the workers’ plight after the divestiture, Mr. Abeysuriya said the government should have a clear policy on it. “The investors should be allowed to offer a voluntary retirement scheme to rationalisation of staff. Like the one offered when 35 per cent of Sri Lanka Telecom was sold to Japan’s NTT in August 1997.”
He pointed out that there is so much baggage at SOEs. Most in their payroll are not doing any work. The SOEs are set up in a way that will lead them to fail, Mr Abeysuriya added, noting that there are no budgetary constraints with the Treasury supporting them.
Dr. Perera said 1.9 per cent of the country’s workers are at SOEs and that is about one-sixth of the country’s workforce.” It is clear that these institutions are absorbing a large number of workers.” She also said that it is important to backtrack on why the SOEs were established in the first place. “They were set up to address issues. Down the line, this aim was not fulfilled. Now, there isn’t a rationale for the government to be involved in things like hotels where the private sector is doing it better.”
Shiran Fernando, Chief Economist, Ceylon Chamber of Commerce said that it is important to start divestiture with something important, like something that is already listed such as the Lanka Hospitals.
He added that for some SOEs the government is looking at IFC as a transactional adviser. He also mentioned that Hilton will command a better premium than Hyatt which is still being built and highlighted the importance to attract genuine investors.
Mr Abeysuriya stressed on the crucial factors such as the intentions behind divestiture of SOEs. “If the politicians are trying to sell the public properties to the one who gives them the biggest commission, or the private owners are expecting government support to run monopolies in respective disciplines, then the citizens will not see much of a change in the country’s economy at all despite SOE divestitures.”
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