CCC calls on govt. to partially or fully divest SOEs capable of performing better under private ownership

• Says the primary objective of SOE restructuring agency is to separate the State’s ownership functions 
• from its policy-making and regulatory functions
• Stresses need to minimize the scope for political interference and bring greater professionalism to SOEs
• Says the agency must be shielded from short-sighted government interferences
• Calls for privatization to be carried out via a well-structured, open, and transparent process

The Ceylon Chamber of Commerce (CCC) yesterday called on the government to fully or partially divest State-owned enterprises (SoEs) that are purely engaged in commercial activities that have the capabilities to function more effectively and efficiently under private sector ownership.

The chamber stressed the need for the endeavour to be carried out via a well-structured, open, and transparent process.
“Addressing the suboptimal performances of SOEs by inculcating a performance-oriented culture whilst ensuring transparency and accountability are warranted at this difficult juncture of trying to recover from economic turmoil,” the CCC said in a statement to the media.

To push the SOE restructuring agenda forward, the Public Sector Reform Steering Committee of the CCC, through its sub-committee recently presented to policymakers a set of proposals that included details of a suggested model for a SOE restructuring/reform agency. The objective was to provide the agency with the required authority and power to carry out and execute the reform agenda.

According to the chamber, the objective of the SOE reform agency should be to separate the State’s ownership functions from its policy-making and regulatory functions in order to help avoid or minimize potential conflicts of interest.

The second is to minimise the scope for political interference and bring greater professionalism to SOEs.  And the third is to promote greater coherence and consistency in applying corporate governance standards and performance management systems across all SOEs.

“It is imperative to ensure that the SOE agency would not be relegated to play a passive role with little authority over the SOEs. It should be able to collaborate with line ministries and other related agencies (including the Public Enterprise Department), and gather information related to SOEs,” the chamber highlighted.

Further, the agency should also be shielded from short-sighted political pressures and government interference in operational decisions and thus should have the freedom and authority to carry out the reform process without any restrictions.

As per the suggestions put forward to the policymakers, the ideal scenario for the SOE agency would be to have a holding company established under the Companies Act No 7 of 2007 and bring all the SOEs under the control of the holding company.

Therefore, as the parent company, the holding company will have the authority and power to control entities directly under it. Moreover, a company-type structure will also have a separate legal identity, and its own governance bodies, and will be exempt from cumbersome government policies relating to remuneration policies and procurement processes, the chamber said.

The chamber stressed that all SOEs should move away from the complicated dual ownership model in which line ministries and other entities have ownership responsibilities. Instead, it is imperative for the SOEs to move to a centralized ownership model where all entities are under the holding company. As a first step, the chamber recommended gazetting all the SOEs under the Ministry of Finance (MoF).

After the SOEs are brought under the MoF then the conversion of the 36 corporations into companies should be looked at. This can be easily carried out with the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act, No 23 of 1987, it said. Further, the board of the holding company should be appointed in a transparent and independent manner to ensure those with high standing and no apparent conflicts of interest are selected.

If there is undue delay in setting up the holding company structure then in order to expedite the reform process, the chamber called for an alternative model to be looked at. 

In the event of a delay, CCC said the government should look at implementing in the interim period a sunset agency through an Act of Parliament similar to the Public Enterprise Reform Commission (PERC), which had many successes including the divestment of Sri Lanka Telecom, Distilleries Corporation, Cement Corporation, Ceylon Oxygen, and Orient Lanka, amongst others.  To select the SOEs that need to be restructured, the CCC, has conceptualised a framework. The framework looks at three criteria; whether the SOE provides an essential good or service; whether the private sector is capable of delivering it; whether sufficient competition is there to ensure appropriate quality and pricing.

In this regard, 19 SOEs have been identified as entities that require government ownership, 127 SOEs have been identified as SOEs that do not require government ownership, and 4 entities have been identified requiring decoupling of regulatory and operational activities after which some parts can be spun off and considered for divestment. A further 10 SOEs have been identified as those requiring more in-depth analysis using special expertise to restructure or liberalize.