SOE reforms: Public Commercial Businesses Act enacted
The Sri Lankan Government has undertaken the task of providing legal backing for State-owned Enterprises (SOE) reform policies by enacting a Public Commercial Businesses Act
These reforms have been undertaken by the previous administration in accordance with the IMF Extended Fund Facility -backed programme for the economic restructuring of Sri Lanka.
The Public Enterprises Department (PED) is now continuing the effort of drafting this legislation with a view to contributing to efficiency and combating corruption and strengthening the financial sustainability of the SOE sector.
The major thrust of the reforms is the establishment of a holding company to oversee state enterprises, which would eliminate preferential treatment and Treasury guarantees enforced upon them, thereby providing for good corporate governance and transparency.
The newly formed NPP government has pledged to restructure the loss-making state enterprises, and officials are now examining the ability of these enterprises to be listed on the Colombo Stock Exchange.
However, the government has suspended restructuring key SOEs that include privatisation of SriLankan Airlines and the transfer of Mattala International Airport.
The State-owned Enterprises Restructuring Unit (SOERU) has been brought to a standstill being the division of the government that was actively working on the divestiture of seven major state-owned entities.
These include Sri Lankan Airlines Ltd, Hotel Developers (Lanka) Ltd (Hilton Colombo), Litro Gas Lanka Ltd and Litro Gas Terminal (Pvt) Ltd, Sri Lanka Telecom PLC, Sri Lanka Insurance Corporation Ltd, the Lanka Hospitals Corporation PLC and Canwill Holdings (Pvt) Ltd (Grand Hyatt Colombo).
Established in August 2022 under the Ministry of Finance, the goal of the SOERU was to appoint professional consultants to manage transactions, due diligence, and share transfers. Initially, the unit shortlisted bidders to enter the RfP phase by April 2024, thereby completing this by August 2024. At present, these plans are stalled due to policy changes adopted by the new administration.
Earlier, 430 SOEs were identified by the previous government, with 50 selected for restructuring or privatisation for March 2023.
Presently, under the supervision of the PED, 287 SOEs, of which 54 are considered strategically important in sectors such as energy, water, ports, banking, insurance, transportation, aviation, and construction. Currently, the governance of SOEs in Sri Lanka is being governed under the Finance Act enacted in 1971 and Companies Act of 2007.
Reforms aimed at state enterprise restructuring gained momentum in 2023 under former President Ranil Wickremesinghe, following the economic crisis in the country in 2022.
However, SOE restructuring has been a contested issue for many decades, and privatisation initiatives of the late 1990s and early 2000s faced stiff resistance.
Critics argue that such reforms have often served as a facade under which privatisation deals go through for the benefit of a favoured few, rather than for the purpose of improving governance.
Opponents state that unclear processes for privatising major SOEs like SriLankan Airlines, the Ceylon Electricity Board (CEB), and the Ceylon Petroleum Corporation (CPC) may trigger corruption.
They add that these are national assets, and that transferring them into private hands without any checks may be injurious to the country.
The NPP government faces a difficult situation with the need to implement sensitive reforms while at the same time ensuring transparency and accountability in the processes, all amid strong public opposition to the changes in the SOE sector.
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