Restructuring loss-making enterprises

Improving efficiency and eliminating corruption:

By Sanjeevi Jayasuriya

The government will take steps to turn-around loss-making enterprises to relieve the burden on the public and thereby improve efficiency and eliminate corruption, Deputy Minister of Public Enterprise Development Eran Wickramaratne told Business Observer. “Inefficiency is a real drawback in this regard,” he said adding that when turned-around these enterprises will be of better service to the public.

The State-owned enterprises (SOEs) taken as a group, are a burden on the national economy. Wastage and inefficiency have made them huge loss-making entities, he said in an interview.

The Ministry has done a detailed study of loss-making institutions and prioritised institutions such as SriLankan Airlines and plantation companies for restructuring.

“We are working through these enterprises to ascertain how to restructure them to enable better performance. We will also make the State banking and financial sector more competitive and strong with efficient management and improved performance,” he said.

There will also be emphasis on the plantation sector where there is a large population. The government has a social obligation to make the plantation sector more economical and productive while simultaneously looking at other SOEs that need restructuring, the Deputy Minister said.

The SOEs need reforms on a case by case basis and one single solution may not suit every enterprise, he said.

“The organisations will be dedicated to economic development through free-markets and will promote sound policy ideas compatible with a free society in Sri Lanka.

There is no one solution to reform SOEs. We are currently looking at it, industry-wise and institution-wise,” he said. Even though the Treasury says there are 245 SOEs in Sri Lanka, the performance of around 190 SOEs remain unknown since the Treasury classifies only 55 institutions as strategically important.

Some SOEs incurred Rs 636 billion in losses from 2006 to 2015, while others contributed Rs 530 billion in profits. Deputy Minister Wickramaratne said to reform SOEs there should also be limitations on borrowing from State-owned banks.

The 2014 performance report shows that bank borrowings by the 55 strategically important SOEs stood at Rs 471.2 billion as at end of 2014.

Wickramaratne said under the Basel III Convention banks will have little room for these activities as it needs to reveal more information on the capital adequacy criteria. By the end of 2014, these 55 SOEs had obtained Rs 126 billion in budgetary support and Rs 47.6 billion in Treasury guarantees.

The report called upon the government to keep the privatisation option in the policy mix if the government is serious about reforming SOEs.

The government has reiterated that no SOE will be privatised simply as a means to increase revenue and instead will follow a more strategic approach, where the SOEs will be strengthened and made independent.

The 2016 Budget initially proposed to bring all SOEs under a government-owned holding company similar to that of Temasek Holdings of Singapore.

The shares of these enterprises will be passed on to a Public Wealth Trust, where the Secretary to the Treasury and the Governor of the Central Bank will be the custodians.