News
Finance Ministry revokes preferential treatment for SOEs and local companies
View(s):The Finance Ministry has revoked the preferential treatment granted by the previous administration to state-owned enterprises (SOEs) and domestic companies when purchasing goods and services for the state sector.
The ministry observes that the intended purpose was not served as “certain identified domestic manufacturing sectors have failed to deliver the
desired results, and this has led to certain market failures”. (Market failure is the inefficient distribution of goods and services).
The Gotabaya Rajapaksa administration issued circulars in October and November 2020 to support domestic industries and to grant “special preference to public enterprises when submitting bids under the competitive bidding procedure.”
It was decided that whenever a public enterprise submitted a bid under the competitive bidding procedure floated by a public entity, such enterprise would be granted a 15 percent special preference—at the financial, not technical evaluation, stage—over other bidders. The procurement committee was required to be satisfied that the relevant goods and services had sizeable value addition by way of domestic inputs such as local raw materials, labour and overheads.
A separate circular granted special preference to the domestic software and hardware, construction and furniture and allied products industries. For instance, when procuring application software where the estimated cost was less than Rs. 2 million, bids would be exclusively called from startups registered with the Information and Communication Technology Agency.
In the case of hardware products, the advantage was to be given to domestic firms, offering at least 25 percent local value addition in terms of manufacturing or assembling.
The Finance Ministry, under President Ranil Wickremesinghe, has rescinded these circulars, stating that their prevalence adversely affected a majority of suppliers of goods and services and restricted the broader participation of bidders.
However, preferential treatment granted in 2016 to regional construction contractors for the procurement of works up to Rs. 50 million remains valid. This provision was introduced by the Maithripala Sirisena administration to encourage contractors in the regions to participate in small and medium-scale construction and renovation works for the government. Accordingly, invitations for bids with a value of up to Rs 50 million will continue to be set aside for regional contractors.
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