Anti-privatization statements will depress bid prices: Will JVP be held accountable?

1 April 2024 12:01 am Views - 1068

Sunil Handunetti, a senior and respected leader of the JVP, has urged the government not to sell (and potential buyers not to buy) state-owned enterprises such as the SriLankan Airlines, SLT and Litro, for which requests for proposals have been called. 
He implicitly threatens to expropriate the sold entities. The Ceylon Electricity Board (CEB) is also mentioned, but there is no such process underway for it.
Policy mistakes


This coincided with the government taking USD 210 million in dollar loans and LKR 41.4 billion in rupee loans off the Airline’s books. This has, understandably, angered many members of the public. They argue that wrong decisions led an airline that once paid dividends to the Treasury to come to this sorry state. They argue that those who made these decisions should be held to account.


The wrong decisions began with the forcing out of Emirates in 2007 for a petty reason. The person responsible, President Mahinda Rajapaksa, was reelected subsequently, which suggests that there is no political accountability. 


More mistakes were made, such as appointing an incompetent brother-in-law as chairman. Still no harm to his popularity. Perhaps what the aggravated individuals want is some kind of judicial process, but there are no penal provisions in our law against making bad policy decisions at the highest levels.
Nothing can be done about policy mistakes other than trying to prevent them using means such as policy interventions like this, and court cases. If that fails, the wronged public must vote out the perpetrators. 

 

The wrong decisions began with the forcing out of Emirates in 2007 for a petty reason. The person responsible, President Mahinda Rajapaksa, was reelected subsequently, which suggests that there is no political accountability. 

 


Consequences of statements

The JVP’s public statements seek to halt an ongoing process of selling SOEs that are badly managed, and are therefore yielding less-than-benchmark returns at best and burning up public money at worst. The process is governed by a Cabinet-approved divestiture policy. It is being conducted transparently and properly as indicated by the recent decision by Lycamobile to withdraw its challenge to some of the privatizations.


If the JVP succeeds in halting the sales, the negative outcomes will not go away. For example, the debt incurred by SriLankan Airlines and guaranteed by the Treasury will still have to be paid by the taxpayer, because SriLankan cannot. The Airline will continue to be unable to provide high-quality service without significant infusions of funds from its only shareholder, the Treasury. If the Treasury cannot give the required sums, the delays and cancellations will increase, resulting in erosion of business and further increase in losses. This will lead to greater use of Treasury-guaranteed debt (precluded by the IMF agreement) or bankruptcy. Recall this is not the first time the government has bailed out its airlines.
Risk among bidders

 

 Even if the government does not halt the sales, these kinds of statements will increase the perceptions of risk among the bidders. 


Even if the government does not halt the sales, these kinds of statements will increase the perceptions of risk among  bidders. This will depress the offer prices and lower the yield from the sales. It’s not that the government will sell these enterprises at low prices, but that the JVP would have talked down the prices that would have been bid.


So, it appears that the JVP is making a policy mistake that taxpayers will have to bear the consequences. The immediate question is whether we can stop the government from acceding to the pressure from the JVP and assorted parties and protect ourselves from further debt and hopefully have a functioning airline that carries the name SriLankan. We must dissuade the JVP from these kinds of harmful interventions. 
If these actions fail, are we willing to hold the JVP accountable politically for aggressively promoting an obvious policy mistake and depressing the bid prices? Or are we going to give them a free pass like we did to President Rajapaksa?