Reforms and rupee rise ramp up SOE profits

52 key SOEs net Rs.185 bn in first four months of 2024

Sri Lanka’s State-Owned Enterprises (SOEs) that come under harsh criticism for their financial inefficiencies have reported “robust performance” in the first four months of 2024, according to the Ministry of Finance.

The surge in profitability is attributed to the appreciation of the rupee and comprehensive SOE reforms. 

These reforms include the introduction of cost-reflective electricity tariff adjustments in 2022, the implementation of a fuel price formula, and the restructuring of balance sheets for key SOEs.

Accordingly, the key 52 SOEs recorded a total profit of Rs. 185.9 billion in the first four months of 2024, compared to the total profit of Rs. 144 billion recorded in the same period of 2023, data released in the Mid-Year Fiscal Report 2024 showed.

The collection of levies and dividends from the SOEs increased to Rs. 13.2 billion in the first four months of 2024, compared to Rs. 9.6 billion in the same period of 2023.

The report highlighted that key initiatives for major SOEs paved the way for the improvement in performance.
For State Owned Banks, the entities were pushed to enhance credit quality and improve monitoring and collections. While the banks were expected to be updated with the evolving regulatory landscape, implement necessary changes, and maintain transparent reporting practices, they were urged to adopt digital technologies to enhance operational efficiency, and improve customer experience, and expand the reach. 

Developing new products to assist existing customers and attract new customers was an area of focus, however, the entities were also urged to expand financial services to underserved population and promoting financial inclusion. 

One of the key initiatives was to strengthen governance and risk management practices as approved by the Cabinet of Ministers in order to make the State-Owned Banks more competitive in the market.

For the Ceylon Electricity Board (CEB), the Sri Lanka Electricity bill was passed on 6 June, which intends to unbundle the entity. This helps to ensure greater autonomy and transparency between the generation, transmission, and distribution segments of the entity, the Finance Ministry said.

At the Sri Lanka Ports Authority, a Collective Bargaining Agreement with employees for the next 3 years was approved and signed with conditions to achieve Key Performance Indicators (KPIs).

Meanwhile, the Airport and Aviation Services saw the approval of a separate salary structure for other staff excluding Air Traffic Controllers in 2024, to address salary anomalies. Similarly, Essential Carder was approved to improve the efficiency of the airport to cater the expanding demand on tourism.

Further, to make national carrier SriLankan Airlines attractive, the Cabinet of Ministers approved to transfer US$ 310 worth of loans to the government’s balance sheet. Rs. 5 billion worth of equity was infused into SLA to relieve working capital issues.

As Sri Lanka is gearing up for elections this year, key stakeholders of the economy and taxpayers have raised concerns on the possible slowdown of the reform process of SOEs.

State-Owned Restructuring Unit (SOERU) Head Suresh Shah has repeatedly asserted the need for the reform momentum to pick up pace as the current speed in which the efforts are being rolled out are not at satisfactory levels. Among the 16 recommendations highlighted by the International Monetary Fund, SOE reforms are reiterated to be of high importance, specifically the Holding Company as well as the need to include skilled and competent members for the advisory board.