State interest in SOEs should be in policy and regulation
Deputy Minister of Enterprise Development, Eran Wickramaratne in an
interview recently said that the government's interest in State
enterprises should be in policy and regulation.
The general thinking worldwide today, especially after the financial
crisis, is in line with Wickramaratne's thinking that governments should
not run commercial enterprises, no matter whether they are profit-making
or not, and the government should only limit its involvement to simply
running essential public utilities.
We all know it's not the government's job to run businesses. It
should act as a regulator and facilitator. Over the years successive
governments have dumped hundreds of millions of rupees to prop up
loss-making State-run corporations and as a result increased our public
debt many times over. The new Ministry of Enterprise Development has
been given almost 75% of the SOEs.
The mandate, according to the Deputy Minister is to get the SOEs
allocated to the ministry restructured, bring into management more
efficiency and reduce the dependence on taxpayers. Currently the
institutions that are under the purview of the Parliamentary Committee
of Public Enterprises (COPE) are:
Banking and Finance - Bank of Ceylon, People's Bank, National Savings
Bank, State Mortgage and Investment Bank, Housing Development Finance
Corporation (HDFC), Lankaputhra Development Bank, Pradeshiya Sanwardena
Bank, Sri Lanka Savings Bank, and Employees Trust Fund Board.
Insurance - Sri Lanka Insurance Corporation, National Insurance Trust
Fund, Sri Lanka Export Credit Insurance Corporation, Agriculture and
Agrarian Insurance Board, Energy Ceylon Electricity Board, and Ceylon
Ports - Sri Lanka Ports Authority. Water - National Water Supply and
Drainage Board. Aviation: Airport and Aviation Services (SL ) Ltd,
SriLankan Airlines, and Mihin Lanka.
Commuter Transport - Sri Lanka Transport Board. Construction - State
Engineering Corporation of Sri Lanka, Central Engineering Consultancy
Bureau, State Development and Construction Corporation.
Livestock - Milco Ltd, National Livestock Development Board.
Plantations - Sri Lanka State Plantations Corporation, Janatha Estates
Development Board, Kurunegala Plantations Ltd., Elkaduwa Plantations
Ltd., Chilaw Plantations Ltd., Kalubovitiyana Tea Factory Ltd., and Sri
Lanka Cashew Corporation.
Non Renewable Resources - Lanka Mineral Sands Ltd., Lanka Phosphate
Ltd., Kahatagaha Graphite Lanka Ltd. Lotteries - Development Lotterries
Board, National Lotteries Board. Health - State Pharmaceuticals and
Manufacturing Corporation of Sri Lanka, Sri Lanka Ayurvedic Drugs
Corporation, State Pharmaceuticals Corporation, and Sri Jayewardenapura
Media - Independent Television Network Ltd., Sri Lanka Rupavahini
Corporation, Sri Lanka Broadcasting Corporation.
Marketing and Distribution - Sri Lanka Handicrafts Board, State
Timber Corporation, STC General Trading Company, Lanka Sathosa Ltd.,
State Printing Corporation, Ceylon Fisheries Corporation, Ceylon Fishery
Harbour Corporation, Ceylon Fertilizer Company Ltd., Colombo Commercial
Fertilizer Company Ltd., and Hotel Developers Ltd.
Many of the institutions vested in the new ministry have been moved
out from other ministries. It may have been prudent, however, to have
allocated them on the basis of similarity of subjects. For example, the
Central Bank of Sri Lanka, which regulates all banks and financial
institutions, is under the Ministry of Economic Affairs and Policy
Thus the monetary and financial policy of the Government has to be
implemented by two totally different Ministries. This may result in
conflicts. It would have been prudent to have have one cluster for all
the State Banks and the Central Bank.
Similarly, other State-owned enterprises would have been better
managed if they were allocated to Ministries with related functions.
This clustering of institutions with similar functions in one Ministry
will automatically ensure the concentration of experts in the field in
Management scholars such as Henri Fayol, argued that principles such
as specialization of labour and the right span of control results in
optimal organizational performance. The right mix would also enable the
Minister in charge to take a long-term view and optimize the income
generation potential of the institutions under his purview.
Making SOEs profitable
Governments usually fail in business because politicians, not
business executives, run Governments. Politicians generally make
political decisions, not economic ones. Generally, cost management does
not work well with bureaucracies. Indeed, when cost efficiencies are
inescapable, bureaucracies often make cuts that inconvenience the
public, generating political pressure thereafter, to reverse the cuts.
The CEO of a private sector company generally has the power to manage
independently. He decides on company policy, recruits the right people,
and allocates resources as he thinks best to achieve the set objectives
for the year.
The Board of Directors, generally does nothing more than review the
strategy, the risks, challenge some of the initiatives of the CEO and
then ratify his moves, and will certainly fire him, if he fails to
deliver the promised results.
This allows a company to act quickly when needed. The next issue is
that the government is regulated by the government. It is the
government's job to make and enforce the rules that allow a society to
But it has a dismal record of regulating itself. To paraphrase
Winston Churchill's famous description of democracy, it's the worst
economic system except for all the others. But the inescapable fact is
that often it is the profit motive and competition that helps to keep
enterprises lean, efficient, innovative, encourage meritocracies and
stay customer-oriented, and this is often not the case with SOEs.
Therefore, the Deputy Minister certainly has a big challenge on his
hands first, to ensure he finds the right talent to run SOEs, second, to
ensure that SOEs gradually become less of a burden on the taxpayers and
eventually all SOEs pay for their upkeep.
The writer is a senior company director.