Value of Sri Lanka Telecom today is about Rs. 160 billion based on the market price
Commercial state entities should make profits
There are also some entities which are doing absolutely nothing, so they will be liquidated
Suresh.K.Shah, who heads the State Owned Enterprises Restructuring Unit, in an interview with Daily Mirror, spoke about the progress of the programme to restructure the government entities.
Q: As far as the reforms in the state sector are concerned, how far have you progressed in your work?
There are a couple of areas that we are looking at. We are looking only at the commercial entities- the State Owned Enterprises (SOEs) which are commercial. It means they are revenue sources, and fundamentally for profit. Whether they are making a profit or a loss currently is a different story. But these entities should be making a profit. So, for example, Sri Lanka Airlines generates revenue and it should make a profit as a commercial entity. The same goes for Sri Lanka Telecom and Sri Lanka Insurance.
People talk about 400 SOEs -500 SOEs. There are around 130 commercial SOEs, more or less. That is the lot that we are looking at from a number of different perspectives. One perspective is which of these 130 entities should remain with the government. That is one.
Then, which of these entities should be better served in the private sector? And thirdly, there are also some entities which are doing absolutely nothing, so they will be liquidated.
We have submitted the policy paper to the government outlining how these entities should be managed and run. The fundamental intention is that they should provide better goods and services to consumers at acceptable pricing. On the other hand, they should not be a burden on the government’s economy and the budget.
Q: How do you propose to manage those deemed to be with the government?
We have given a policy paper approved by the government. There are certain things that need to be done. Those will have to get implemented. Then there are the entities that do not need to remain with the government. So, those we will put into the hands of the private sector through a divestiture process. And then thirdly of course, those entities that need to be wound up should be wound up.
Q: In terms of the institutions that should remain with the government, what is the business model you propose?
These are all commercial entities, so they should generate revenue and earn a profit. They should do this by providing better goods and services to customers. That is fundamentally what it is. Yes. So, depending on the competitive nature of that particular entity, each one will have its own strategy. We cannot say that all the entities will have the same strategy.
Q: How many such organizations have been identified at the moment?
Again it depends on how you look at it. Right? If you take a purely commercial and economic perspective, there are maybe 20-25 entities that need to remain with the government.
Q: Actually, what is the criterion for you to decide on that?
Very simple. First and foremost, it should provide an essential product or service from a consumer or citizen perspective. Electricity, for example, might be what you call an essential product or service like water. But, the production of cashew nuts is not. But, the government has the cashew corporation growing. Does the government need to grow cashew nuts? The answer is no.
Secondly, there are different ways in which the government can make sure that the citizens have access to these products and services. If there are more effective and efficient ways of providing those essential goods and services to citizens, the government does not need to be involved.
For example, you eat fish. Do you catch the fish you eat? I am asking you a stupid question. It is like that. What you need is to have access to the fish. There are different ways in which you can buy the fish. You can either go to the fish market or you can get it from the fishmonger who comes on the bike. Or you can visit the supermarket. Or else, you can order it online. How you will decide in terms of getting the fish is how you will see which way is going to cost you the least or the most convenient and effective. Yes. So, similarly when the government provides electricity, it has to make sure that the citizen has access to electricity. It has different ways in which it can make sure that citizens have access. One is that it can run its own electricity business. Or, it can tell somebody else to run the electricity business.
We have certain rules and regulations around the supply line to make sure that citizens have access to quality electricity at reasonable prices. When you switch on, the electricity must be there. These are the questions the government needs to ask itself to decide on whether an entity should be with it or not.
There may be a situation where there is a natural monopoly, right? Now, monopolies are not good from the citizens’ perspective because it allows them to charge a higher price despite the quality being poor. In that kind of scenario, the government might say it will get involved. Whatever the reason, there is a need for essential products and services which the private sector is not willing to provide.
For instance, education is an essential service. Now, the private sector might be willing to put up schools in Colombo and charge a fee, but not in doing so in Giranddurukotte because it cannot make a profit out of it. Then, the government has to be involved.
Q: Have you categorised all these institutions based on your criteria?
Then, like in any country, there is a political angle. Yes. So, once you look at it from a political perspective, the numbers may change a bit. But that is down the road. Now, there are three areas.
One is how we manage the entities that remain with the government. What do we do with the entities that we do not need to keep in the government? And what do we do with the entities that are doing nothing, and should be wound up? We have a policy in place approved for the first one. We are now drafting the legislation to implement that policy framework.
That will say how the SOE sector has to be managed. Then, for the entities that have to be divested, the Cabinet has given us in principle approval to divest seven entities.
So, for those seven entities, there is a process that needs to be followed starting with the appointment of transaction advisors or financial advisors. All of them have now been appointed. Hopefully, we should have the Expressions of Interest published by both the local and international press towards the end of September.
Q: There is an allegation about moves to privatise some ventures which are profit-making at present; for example, Sri Lanka Telecom. Why is it going to be privatised or divested?
So, like now when I was explaining to you in terms of how you decide what should remain with the government and what should not, I did not say anything about profit and loss. It was about an essential product or service. Does the government have different ways in which it can make sure that citizens have access to that essential product and service? So, those are the things the government needs to look at.
The government needs to invest in areas where others would not invest. If somebody else is willing to invest in something, why not get them to invest? Why must you put your own money when somebody else is willing to put money? As for this allegation about profit making enterprises, I really do not understand the fundamental issue people have with this. Why are people saying that profit making enterprises should not be sold?
Do you have an idea why profit making enterprises should not be sold? I think it is because of the cash that they think comes to the government annually. My answer to this is very simple. The profit does not belong to the shareholder or in this case the government. What the shareholder gets from a profit making entity is the dividends.
The dividend is relatively a small component of the profit. If you take Sri Lanka Telecom, for the last 10 years, the dividends that the government has received from Sri Lanka Telecom is about Rs. 950 million a year.
Sri Lanka Telecom is a listed company. The value of Sri Lanka Telecom today is about Rs. 160 billion based on the market price, right? The government’s share of that is 50 percent. If the government were to sell its 50 percent on the share market, it would generate Rs. 80 billion. If you put this Rs. 80 billion rupees into a fixed deposit at 10 percent, you will get Rs. 8 billion annually. But Sri Lanka Telecom over the last 10 years has paid only an average of less than 1 billion. Okay. So, from a purely cash flow perspective, by selling these enterprises, the government will get a lot more cash coming in than by keeping it with the government.
Q: What are the other state institutions that you have decided to liquidate actually? What are the organizations that can be rendered redundant?
I am not sure, but there is a list of about 50 and I think the public enterprise department has identified them. I am not sure about the exact number. But these are enterprises that are not doing anything. They can be closed down.
Q: So, how do you look at this national security element in the whole process?
That is another allegation being flaunted here and there. What is the national security issue? They have said there is a national security issue. They have not said at what point. Yes. Have you ever seen anyone going into the details and saying it is because of this reason that there is a
national security issue?
Q: But actually, has it been raised with you because you are in charge of the entire committee?
No, I wish they were able to raise it with us. From my understanding, in the telecom sector, there is no national security issue. Let us say you send an email from here to Bangladesh! You can have all the security you want in Sri Lanka, right? Do you know what the security level in Bangladesh is? So, then when it goes there, what happens to the information that you are guarding here, like gold, the moment it goes to Bangladesh? Anyone can access it. So, then there is security. If you take Sri Lanka Telecom itself, in 1997, it was privatised. First, it was bought by- 35% - bought by NTT of Japan. NTT had management control of Sri Lanka Telecom until it exited in 2008 or 2009, right? So, a foreign company had management control over SLT.
The 1997 - 2008 period was the wartime. What is the height of the war? If a foreign company could have control over Telecom during the height of the war, what is the national security issue now? You live in a house now. Okay. Who is responsible for maintaining the security of the house? The chief occupant. You need to be responsible for the security of your house. Yes. Right? Now, when we speak of data that is in the Telecommunication system, whose data is this? Yours and mine. Like you are responsible for the safety and security of your house, you also must take responsibility for safety and security of your data.
There are different tools and technologies that you can use to make sure that your data is secure. Simply, we use a password. Our phones have passwords, don’t they? Different users have different security requirements.
So, your security requirement and my requirement on our individual data are very different to the security requirement of a company. The defence establishment has a much more different security requirement than a company. We need to understand what the security threat is and what tools are there to safeguard our data. We need to implement security controls for ourselves.
You cannot mandate a telecommunication company to provide the kind of security that the defence establishment needs and must have. What the government can do is to, by regulation, establish a minimum level of security that Telecom needs to provide. That applies not just to a state-owned entity, but also to privately owned entities.