Eliminating burden of state-owned enterprises on Sri Lankan people

No-one seems to know precisely how many business enterprises the government owns. Official government figures suggest 55 businesses, but these are only those which are considered to be strategic.

The Mid-Year Fiscal Position Report - 2019 issued by the Minister of Finance suggests that there are 422 state-owned enterprises (SOEs), whilst the a research based on data obtained under the Freedom of Information Act undertaken by a think tank found that there could be as many 527.

What is already published and known is that in 2018 the top 55 SOEs made a staggering loss of Rs.27,405,000,000 (Rs.27.40 billion) and nobody knows how much the remaining SOEs cost the state and the people, because most SOEs do not publish their annual accounts as per the statutory requirements.

A research by ‘Advocata’ has revealed that only 10.4 percent of SOEs provide financial information on their operations. While there is no substantial financial contribution to the state, many, if not all SOEs are overstaffed, poorly managed and under-performing. In the final analysis they have become a severe burden on the people of Sri Lanka.

Mismanagement, fraud, corruption, misappropriation of funds and negligence in SOEs have been highlighted in the recent reports of the Auditor General and COPE. During the first four months of the year 2019, losses incurred by a few key SOEs are as follows:
Ceylon Electricity Board (CEB) have incurred where operating losses Rs.23,114,000,000,
Ceylon Petroleum Corporation (CPC) with operational losses of Rs.4,294,000,000
Sri Lankan Airlines (SLA) which lost Rs.12,961,000,000 in the first quarter of 2019

Sri Lanka Ports Authority (SLPA) has made profits of Rs.10,505,000,000 during the first four months of 2019 but had debts amounting to of Rs.11,957,000,000 for the same period.
There are, of course, many more SOEs that have been registered under the Companies Act avoiding scrutiny by the General Treasury and therefore do not fall within the restrictions imposed by the budget. It is a well-known fact that such enterprises are great recruiting grounds for the families and friends of politicians and cronies.

Against this backdrop, the Pathfinder Foundation recommends that the new government should:
1: Instruct the General Treasury to identify each and every entity within government that falls under the category of SOEs, including those registered under the Companies Act.

2: Ensure that SOEs are independent of the government’s budgetary support including bank guarantees. The appointment of the Board of Directors should also be independent of the individual Ministers.

3: Make it mandatory that each and every one of these businesses produces audited accounts for 2018 within six months and that these accounts are published in full for Sri Lankan public for their scrutiny.

4: Also, it is necessary that annual publication of economic and financial performance data.

5: In the case of natural monopolies, adopt appropriate international benchmarks by relevant independent regulators as key performance indicators (KPIs).

6: Call in auditors to identify the quality of governance, management, the degree of internal controls, any structural deficiencies and then publish the reports for scrutiny by Sri Lankan public.

7: Non-strategic SOEs should be privatised or formed into public-private partnerships to ensure eliminate waste of scarce public resources and/or enhance contribution to the economy.

8: Remove all Board Members from those companies that have consistently failed to generate reasonable return on investment or reach international standards of good business.

(This is of the Pathfinder “Economic Disruptors”, and of the hope that policymakers will seriously take these into consideration in their policy formulation process. Comments are welcome at ‘pm@pathfinderfoundation.org’)