Many SOEs have no commercial value - Think tank | Page 2 | Sunday Observer

Many SOEs have no commercial value - Think tank

23 June, 2019

The Advocata Institute has commended President Maithripala Sirisena’s directive to shut down the loss-making, state-owned enterprise, Salu Sala.

“While we commend this decision, we are also anticipating the official gazette enacting this statement,” a spokesman for Advocata said.

The Salu Sala, now a white elephant to society, was once the only state textile trading enterprise in the country. As the only provider of textile during the closed economy, Salu Sala received heavy protection.

In 2011, the First Committee of Public Enterprises Report (COPE) revealed that for the year 2009/2010, Lanka Salu Sala Ltd. made a loss of Rs. 30 million. The reason for this loss, as identified by the report, was due to salaries paid to staff who had been sent on compulsory leave during the restructuring process of the organisation. However, Advocata has been unable to track the financials of Lanka Salu Sala, thereafter, as there has been no Annual Reports or Performance Reports published and made available to the public.

The Advocata Institute believes that the state should have no role in running business enterprises using taxpayer money, particularly in industries with enough private investment and competition. Advocata encourages the government to look at other ‘white elephant’ State Owned Enterprises (SOEs), and divest and exit industries that serve no strategic purpose. Of the 527 SOEs identified by Advocata’s 2018 State of State Enterprises report, only 54 are classified as being ‘strategic’ by the Government.

While the policy debate in Sri Lanka on SOEs has focused on ‘privatisation’, many of Sri Lanka’s SOEs have no commercial purpose, riddled with corruption and mismanagement and, in the core justification of existence, is not attractive to private investors looking for profit making ventures. Advocata urges the government to exit enterprises of this nature and release the resources they occupy into more productive sectors of the economy, while awarding fair compensation to public sector employees of these enterprises.

In the case of Sal Sala, the Treasury has allocated Rs. 340 million to pay compensation for 217 employees under a voluntary retirement scheme. This is a model the government should consider adopting in cases where paying compensation is more economically viable than continuing to keep a loss making enterprise afloat.

Lanka SaluSala is not the only State Owned Enterprise (SOE) that is a fiscal strain on the economy. Non Strategic SOEs, such as Sri Lankan Airlines, Lanka Sathosa and Agriculture and Agrarian Insurance Corporation are in need of immediate reform.