28 December 2023 12:00 am Views - 484
Today, 28th December, all major trade unions – some affiliated to political parties – are scheduled to meet at the postal auditorium to discuss strategies to oppose government plans to divestiture State Owned Enterprises (SOEs). The trade unions are totally opposed to what they see as the government’s attempts to privatise public enterprises and state assets under ‘various guises’. Among the SOEs lined up for divestiture are those in the sectors of power, fuel, banking, insurance, telecommunications and postal services.
According to the Advocata Institute, there are 527 State Owned Enterprises in the country. However the percentage of SOEs where financial information is available is limited to 10.4 percent. There are 55 strategically important SOEs as classified by the Treasury.
The cumulative profits of the 55 SOEs between 2006-2017 was Rs. 964 billion. Unfortunately, the study also reveals the cumulative losses of the 55 SOEs during the same period amounting to Rs. 795 billion
Fifty-twoSOEs have been identified as State Owned Business Enterprises (SOBEs) as they are regarded as strategically important to the functioning and transformation of the economy. SOBEs include Bank of Ceylon, People’s Bank, Sri Lanka Insurance Corporation Ltd, Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), Sri Lanka Ports Authority, SriLankan Airlines, Sri Lanka Transport Board and State Pharmaceuticals Corporation, among others.
According to the Central Bank report, despite their pivotal role in the economy across strategic sectors, the poor financial performance of SOEs has become a heavy fiscal burden with significant macroeconomic implications.
The report adds, excessive reliance of SOEs on the banking system to fund their losses has not only crowded out productive investments but has also rendered the financial system vulnerable to their weak financial performance. Macroeconomic stability is also threatened as their burgeoning financial losses weigh down on their ability to smoothly fulfill the domestic demand for essential goods and services.
For instance, Public Finance.lk reports of Ceylon Petroleum Corporation(CPC), a state owned enterprise, having the largest accumulated losses – estimated at Rs. 335 billion as of 2020. The CPC has also borrowed up to USD 3 billion from two state banks in Sri Lanka. (News Cutter, 27 Dec. 2023).
Sri Lankan Airlines has suffered a loss of Rs. 71,306 million compared to Rs.163,583 million in 2021/2222, according to the latest annual performance of the national carrier posted recently on its website
This newspaper (Daily Mirror) reported on 10 June 2023, the Sri Lanka Transport Board(SLTB) - the state-run bus service - is reeling from staggering losses of Rs. 1 billion per year, attributed to rampant corruption, irregularities and accidents involving its fleet. Currently, the SLTB has a fleet of 6,800 buses, but only 5,800 are operational.
Fitch Ratings maintains People’s Bank’s National Rating of ‘A(lka)’ on Rating Watch Negative (RWN). At the same time, on 29 Nov 2023, Fitch Ratings has placed Bank of Ceylon’s Viability Rating (VR) of ‘cc’ on Rating Watch Negative (RWN). At the same time, Fitch has affirmed BOC’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CC’, in layman’s language – “very bad”.
It has also been revealed, Sri Lanka Posts suffers an annual loss of around Rs. 8 billion annually
For one reason or the other, SOEs have over the years been a drain on the economy. With the economic meltdown and the country announcing its bankruptcy, the national treasury cannot be expected to maintain loss-making SOEs as it did in the past.
Today’s reality is that there is basically no cash to be doled out to loss-making government enterprises. As at June 2023, our outstanding foreign debt stood at US $ 52.4.
The question the unions face when they meet on 28th December is what alternative they can suggest to the state’s divestiture plans.
The usual round of strikes and blocking roads during peak traffic hours will not work. The challenge facing the unions is whether they can offer a workable plan to turn these loss-making bodies into profitable ventures within a specified timeframe without depending on state aid or bailouts.