Treasury Secy. reveals shocking state of State-owned enterprises

• Says successive governments have pumped in Rs.1, 150bn up to 2017
• Sri Lanka has 400 SOEs and out of that only 55 strategically-important 
• In 2017, Treasury channeled Rs.41bn to the 55 strategically-important SOEs
• Out of this, only 39 made profits, while 16 made losses to the tune of Rs.87bn
• The return on asset of the strategically-important SOEs is merely 0.64 percent.

Successive Sri Lankan governments have pumped in a colossal Rs.1, 150 billion for the upkeep of the strategically-important State-owned Enterprises (SOEs) up to 2017, the Finance and Mass Media Ministry Secretary Dr.R.H.S. Samaratunga said. 

He said this during a conference held for the chairmen of SOEs organized by the Public Enterprise Department of the Finance and Mass Media Ministry and the Australian High Commission in Colombo, yesterday.

Sri Lanka has about 400 SOEs of which 55 are considered strategically-important and are generally referred to as State-Owned Business Enterprises (SOBEs).

The secretary said during 2017 alone, the General Treasury had to inject Rs.41 billion to these 55 SOBEs. In 2017, they recorded a turnover of Rs.1, 755 billion, which is about 13 percent of Sri Lanka’s Gross Domestic Product (GDP), while their total asset base grew 13. 6 percent over the previous year—about 57 percent in GDP terms. 

But only 39 of these SOBEs made profits, which amounted to Rs.136 billion, while the remainder 16 made a cumulative net loss of Rs.87 billion.

Dr.Samaratunga, noted that although the SOEs occupy a significant presence in the economy, as reflected by the figures presented by him, the return on asset of these 55 SOBEs is merely 0.64 percent.

“This is a good indication that they are not performing to their full potential,” he said.

 
According to Dr.Samaratunga, reasons ranging from the general lack of governance practices, lack of accountability mechanisms, issues associated with lack of clear policy and legal frameworks and weak supervisory roles played by the management and board of directors of these entities have contributed to the current plight of the SOEs.

He mentioned that Committee of Public Enterprises (COPE) has many a time pointed out the need to address the critical issues relating to recruitment, procurement of goods and serves, lack of governance practices, absence of annual reports that are plaguing the SOEs.

Improper financial planning, lack of cost accounting systems, unsatisfactory debt management, violation of advanced payments and overstaffing are a few other concerns expressed by COPE members had highlighted over and over in their reports.  Another peculiar practice by the SOEs has been the practice of incorporating subsidiaries without Treasury approval. 

While highlighting the deficiencies in appointments to important managerial positions and director boards of SOEs, Dr. Samaratunga noted that recruitments to SOEs take place without the approval of Management Services Department of the Treasury, a practice that should be immediately stopped.

 
“All SOEs across the government—public corporations, statutory board or government-owned companies—have effected recruitment without proper approval of the management services,” he said. 

Out of the 400 SOEs, 264 are monitored and supervised by the Department of Public Enterprises of the General Treasury and the remainder 136 SOEs fall under the Department of National Budget of the General Treasury. 

The dismal performance of SOBEs has become a huge burden to Sri Lanka’s US $ 82 billion economy, which require massive budget allocations each year for their sustenance, funds otherwise could have gone for other important areas such as education, healthcare and infrastructure.

In 2017, total government revenue declined from 14.2 percent to 13.8 percent influenced by 50 percent decline from SOE revenue by way of dividends and levies, compared to the previous year.

The main four loss making SOEs in 2017 were Ceylon Electricity Board, SriLankan Airlines, Sathosa and Agriculture and Agrarian Insurance Board, which recorded a combined loss of Rs.84 billion.    

Sri Lanka’s association with SOEs dates back even prior to the country’s independence in 1948 with SOEs like Kankasanthurai Cement Factory and Paranthan Chemicals. 

But the number of SOEs rose with the introduction of Business Undertakings Acquisition Act in 1971 brought in by Sirimavo Bandaranaike government, which nationalized a lot of privately owned businesses.

But with the J.R.Jayawardena government, which introduced an open economy to Sri Lanka in 1978, felt the burden of the SOEs on government coffers and started a privatisation drive in 1987. 

This privatisation drive continued till late 1990, during which the country saw the liberalisation of the country’s telecom sector and the partial privatisation of the national carrier SriLankan. 

The 2005-2015 period however saw a reversal of this process under Mahinda Rajapaksa government, where some of the privatised entities were expropriated under a controversial law in 2011.

With the assistance of global multilateral agencies and development lenders, the present government has embarked on a progarmme to restructure key SOEs in a bid to make them commercially-viable ventures with accountability. 

The government said Public Private Partnerships (PPPs) will play a key role in restructuring these SOEs,  and the budget allocated funds to operationalise the National Agency for Public Private Partnership, which will be the single facilitation point for all stakeholders in designing and implementing PPPs.