By Shabiya Ali Ahlam
State-owned enterprises (SOEs) have come under harsh criticism in the recent past for their poor performance, productivity and profitability, and it is the public that paid the price.
With the change of government, and the appointments of fresh leaders, it is hoped the troubled entities would rectify their dismal performances and stop enlarging the hole in taxpayer’s pocket.
In an attempt to get a clear picture as to what the fate of these institutions will be, Mirror Business sat down with State Enterprise Development Deputy Minister Eran Wickramaratne— a former banker and a highly respected figure in the private sector— this week for a comprehensive interview on what path the ministry would take to accomplish the strenuous task.
Following are the excerpts of the interview.
What prompted the new government to pool all important SOEs under one ministry?
I would like to start by saying that the government’s interest with regard to state enterprises should be in policy and regulation. Where there is market failure it could intervene. Over a period of time there has been rampant politicisation, particularly in the last decade, which means that the objective for which the state enterprises were set up was lost.
The objective is to provide the highest quality products and services at the lowest possible price, since it is for the citizens. For that it is essential to have a professional management that must make decisions based on the objectives that I just outlined.
In the recent past, the management of these entities were overridden by politicians and political authorities, which resulted in making non-commercial decisions.
You will find that in an enterprise given to a minister in the past, he would have employed people purely to strengthen his political base to get re-elected the next time round. While the political objective of the minister has been achieved, the larger public has been at a disadvantage. Lots of these enterprises have been making huge losses, and the taxpayer pays for that. One person is gaining at the cost of everybody’s loss.
The logic that drove the leadership to create this ministry is to get these entities restructured, bring into the management more efficiency and reduce the dependence on taxpayers.
What are the areas of concern for you and your minister?
I would like to rephrase this question to what the customer expects from state enterprises. If it is a good product or service that is being provided, it doesn’t matter to the customer who is offering it. They are interested in high quality goods and services for reasonable prices. In a rare situation, where the market forces do not offer high quality products for competitive prices, government intervention takes place. Public transport service is an example.
But there are some areas where the state need not be involved, and doing so only takes away income generating opportunities from a number of segments such as private businesses, home businesses and others. If the government gets involved, it becomes unfair competition, and that is what has been taking place. There is a crowding out effect.
All sectors are needed in the economy but the government should only get involved where necessary.
In this ministry we have a number of industries. There is no ‘one shoe fits all’ solution. Each will have to be looked at separately and all the hard questions will have to be asked. And on that, we should look at what is the best model that should be taken up by that particular industry.
In that case, is privatisation considered as an option?
Privatisation is not a panacea for all the problems in state enterprises. Bus services were privatised long time ago but we need to question if the consumer is happy with it. Largely speaking the consumer is not happy and there are reasons for that.
If we talk of privatisation in the sense of ownership transfer, it is not a solution. It may work in some cases, whereas for others it may not. It’s a lot more than that. I would not even use the word privatisation because of the wrong connotation linked to it. In some cases we might need to raise more capital, for which we have to look at ways and means of bringing it in. In other situations, we say the government owns it, but it may be better for the public to own it. There is a distinction since government ownership would mean government authorities or politicians like I would be at the driving seat. If the public owns it then the markets and the regulators will look into the interests.
Who owns it is not the biggest issue. The issue is in having a knowledgeable and efficient management. If efficiency is not available in the current setup of SOEs, then we need to be open to bringing those skills in from outside as well. Not doing so will make it challenging to improve.
Again, this we will look at on a case-by-case basis.
Productivity and profitability are key areas of concern in SOEs. Despite their bloated status, they haven’t been able to achieve either of them. Your comments?
If the objectives are clear then the board of directors and the senior management have to drive towards that. It is pretty clear that productivity will have to improve. There are various ways of measuring this, either by productivity per employee or productivity per unit of capital employed. Whichever way you look at it, productivity will have to be increased and how it will be done would depend on the industry.
We will make sure that all these entities will be pushed into a state of competition as that is a factor that drives productivity.
You mentioned these entities are bloated. If productivity is an objective, then the people will have to be gainfully employed or increase their output.
Will voluntary retirement schemes (VRS) be considered an option?
We haven’t talked about VRS at all. We are open-minded. I would like to emphasise that while we will certainly do justice for the public, which is our first and primary goal, we will ensure there will be justice for the employees. There are various ways of meeting that objective.
What is your approach towards state sector trade unions going to be? Would you agree that it is almost impossible to bring changes to SOEs without their co-operation?
I don’t see trade unions as adversaries. I see they have a legitimate role, which is to safeguard the rights of workers. When it comes to managing an institution and driving its commercial objectives, it is the responsibility of the board and senior management. Success of the institution means success for employees and this is something that is not well understood.
The climate created over a long period of time almost suggests that the objectives of the workers and that of the institution are always opposed. We have been fed this germ. I see it differently. To me they go hand in hand.
Having said that, a performance-based culture should be introduced. The time has come for us to shift the debate and look at it differently. We need to ensure that our enterprises actually succeed. When problems do arise, various regulatory mechanisms and law enforcements takeover but with an enlightened management, entities won’t reach those levels.
So employees need to be given the assurance that success of these enterprises would spill over to them?
Yes. Without seeing the success of the enterprise as their own, it is going to be difficult to motivate.
Since you and your minister now have all the powers on the most critical SOEs, would you allow political appointments?
No. The management decisions will be taken by the entities themselves. We will hold them responsible for delivering on the goals set. If they don’t deliver, then they must not be rewarded. That means we will have to get in new directors.
Where the minister and I are concerned, we will certainly hold the boards responsible.
What are the plans for SriLankan Airlines? Will it continue to be maintained with taxpayers’ money?
We are getting away from the idea that these are political plans. This is going to be the plan of the board of SriLankan Airlines. We will engage them thoroughly and debate their plans. Where we have to agree or disagree, we will do so. But it is the board’s plans and they will be held responsible.
One thing I must say is that state subsidies will not be given. The board has to conceptualise a plan to make the national carrier not dependent on the taxpayer.
They are given a challenge. If not, there was no necessity for the Prime Minister to allocate this subject to this ministry. He made it clear that these losses cannot be financed at the expense of the taxpayer.
We understand that some of these entities can turnaround quickly, whereas others need more time. We will be sensitive to that.
All state banks and Sri Lanka Insurance Corporation (SLIC) fall under your ministry. Will there be political pressure when it comes to appointing directors, senior officials?
I haven’t had any political pressure. Who knows about the future?
It is observed that in state banks and SLIC, there was some discontent towards some of the board level appointments carried out during the interim government. Will your ministry review such appointments?
The board appointments will largely stay in place. However, if there are any serious concerns about the suitability of an individual for a particular task, then naturally there will be a review. Ultimately, to drive the objectives that have been set by the government, it is essential to have the right people at the right job. If there are individuals who don’t have the requisite education, skill level or experience level for a task, it will be reviewed and put in places where they are likely to serve better. You can’t have square pegs in round holes.
How do you plan to inject the expertise of the private sector into the public sector to revive some of the SOEs?
Talking about it from a general perspective, the public sector has some of the cleverest minds. Those at the top of their game in university are the ones who join the public sector. What lacks is on-going training. If you stop learning you get left behind; it is a must to keep abreast with the changes.
What has gone wrong is that there has been sever underinvestment in the public sector training. The private sector focuses on this greatly. I am a strong believer in the development of human resources.
It is not the fault of the people; it is the fault of the policy. We need to increase training budgets of these state enterprises and up the skill level.
It is not only skills, education and training, exposure is also needed. Those in the state enterprises also need international exposure since some of their products have to be sold internationally. All employees need some level if training based on what is needed.
So we have to find ways of curing that. The longer-term plan is to keep that constantly going. The more short term and immediate is that area where you have lack of skills to basically get it from outside. That will be the quicker way to fix it and I think people are open to it.
At the end of the day, the objective of SOEs should be to offer a good service, good product, high quality and competitive price. To get there, if we lack a skill, we would need to bring it in.
Will there be an increase in budgets for SOEs?
It will be left to each company and board to decide, but if I were to make a more generalised statement, there will have to be. Without investing in your people there are no better results. You have to believe in your people. For me that is a given principle in management.
People are what they are because of the opportunity or the lack of opportunity they have. That’s a paradigm shift we require.
It is imperative to make these employees financially independent. Employees understanding their role and what are expected from them that will bring about change in the system. Else we will keep hearing cliché like privatisation is the solution. The problem is more complex and deep rooted but it can be solved.
Sri Lanka in 25 years can take its place in the South East Asian league as a front runner, that is, only if we make these right decisions. If we don’t, we are still going to be comparing ourself with South Asia. Necessary is a change in mindset. We must not let people approach SEOs with a political agenda. We need to identify the economic agenda and move forward. It’s time we be more open about it
Being given the responsibility of state enterprise development, what is the message you would like to give out to the public and business community?
For the public I would say that I would like to convert state enterprises to public enterprises. That means the public’s interest must be paramount. We will take decisions looking at all stakeholders; it will be driven by the public and consumer.
To the business community I would say that if the country is to progress and the economy is to grow, the private sector and the public sector need to grow together. In doing so, we will have to allow the private sector much space to do business. We need to be open to public-private partnerships.
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