Public enterprise reforms vital

by Sunil KARUNANAYAKE

"The impact of disturbances arising from adverse external developments including price movements of commodities such as crude oil could also be lessened through the implementation of reforms to the institutional framework of key public enterprises to operate them more efficiently and in a commercially sustainable way to reflect market conditions." (Central Bank of Sri Lanka annual Report 2010)

Reforms to the public sector were undertaken by successive governments through PERC and SEMA for the past two to three decades. However, the situation has not improved much. Perhaps no government could take a bold step due to the high sensitivity of the trade unions that did not want to de- link from the government.

Fortunately the Government in power in 1992 took a bold and courageous step to privatise the plantations with lesser degree of control by the Treasury. Today, these plantation companies that were making huge losses and being funded by tax payer's funds, are performing extremely well with good returns to the state revenue and stakeholders and have also given a facelift to ruined plantations.

Unfortunately, due to the current global financial turmoil exports are performing below potential. Though the nationalisation mania emerged in the post-1956 era, politicisation of the public service was given a boost by the first Republican Constitution of 1972 that ensured the appointment of ministry secretaries by the Prime Minister, thus diluting the public service.

Time and again COPE and the Public Accounts Committee of Parliament have highlighted the deficiencies of state-owned enterprises but little has been done to rectify the shortcomings and colossal waste of public funds. It is heartening to note that at present COPE and the Parliamentary Committees have become more vigilant thus making the heads of state enterprises to be more proactive.

The second Republican Constitution went a step ahead of the first, and introduced the executive presidency and a highly complicated elections system. This step was followed by the 13th Amendment to the Constitution that gave rise to the Provincial Council system providing more opportunities for politicisation at every sphere of governance. The ministries expanded, the category of non cabinet ministers came in to play and Cabinets expanded. As a result of these constitutional complexities, today the public has to bear a heavy burden in supporting these top heavy structures. The tax regime naturally became complex with the introduction of ESC, VAT, NBT , PAL and a plethora of cess taxes. Today the public sector is too heavy and it cannot be said that the output expanded proportionately.

Loss-making public sector giants such as the CTB, CEB, and Petroleum and the CGR continue to struggle with losses to survive. They are highly dependent on fuel imported at tremendous cost. The modifications being done to the Sapugaskanda refinery too are not complete yet. Perhaps the completion of this project could provide some relief to the CEB and the Petroleum Corporation. 2012 has seen very little rainfall and the drought has further complicated matters with a lot of money being spent on thermal power and vast damage to the agricultural sector.

That the financial management of most state enterprises continues to be poor as they are unable to attract competent personnel due to poor compensation systems and reward schemes. Consequently, financial systems are weak, information is inadequate and obsolete audits and annual reports are delayed by years.

In this vicious cycle, further losses will keep on escalating. The Treasury in the meantime has put pressure on public institutions that are continuously delaying Annual Reports.

The Central Bank should be lauded for emphasising the necessity for reforms to the public sector. This an enormous task is utmost priority. The crucial need is to depoliticise the public enterprises. Eliminating corruption, nepotism and waste in the public sector could deliver substantial financial benefits to the state that could be invested for public benefit. Sri Lanka Telecom is another good example that came off very well after privatisation, providing a good return to the Government.

The Public Service is fortunate to have in their ranks the cream of the country's intelligentsia; with little more motivation their productivity could be enhanced. Public servants are also at an advantage as the state provides them opportunities to pursue higher studies in globally reputed universities.

In India, the Public Service is known as the 'steel framework of India' as they are known to be strong irrespective of the ruling party.