The topic of restructuring loss-making state-owned enterprises (SOEs) has once again come to the limelight with the appointment of President Wickremesinghe and perhaps the possible influence of the International Monetary Fund (IMF).
Whilst the topic is in national interest due to the fact that the losses from a vast majority of the SOEs are unbearable to the economy, the general public, in its entirety, hails such a move by the Government as early as possible.
It is no secret that, if not all, most of the SOEs are inundated with political appointees from top to bottom. Historically, SOEs are institutions where politicians fulfil their election pledges to voters who support them at an election. Hence, a vast majority of employees are political henchmen who are “dumped” into various SOEs by winning political parties soon after an election is over.
According to Government sources, there are over 400 state-owned enterprises (SOEs) in Sri Lanka. (The precise number is disputed). The Government has complete ownership and control of these entities. The contribution of SOEs in Sri Lanka is negligible, whereas in comparison, according to records, the contribution of SOEs to GDP in China is around 30 percent, 38 percent in Vietnam, 25 percent in India, and above 40 percent in a number of Central Asian countries.
Obstacle
Traditionally, the biggest obstacle to restructuring SOEs in Sri Lanka has been the trade unions that are controlled and manipulated by some of the political parties. Whenever there is a proposal to develop an SOE, these dubious elements, with the support of insiders with vested interests, organise protest campaigns or strikes to disrupt such attempts. This has been going on for decades, and most governments have been forced to abandon their efforts.
The slogan of these elements most often is that the Government is trying to privatise local entities. They always mislead the general public by stating that once privatised, these institutions become private businesses and provide products or services only for profit.
They never reveal to the public that private-sector institutions provide funds for public welfare through various taxes they pay to the state. They knowingly suppress the salient fact that the private sector’s contribution is much greater than that of the state sector in economic development and public welfare in the country.
Those who oppose the idea of restructuring attempt to give a message to the public that any modifications or developments are harmful to the country and society. They hide the fact that, whatever the loss, it directly affects the general public. The workers of these enterprises try to protect their personal gains while the political parties engaged in opposing restructuring moves do so for political gains.
It is common knowledge that SOEs are mostly unproductive and their management efforts are exceedingly weak. These loss-making institutions are often managed by political appointees who are largely unqualified and inexperienced and have never run a profitable organisation. Another unforgivable factor in relation to SOEs is the lack of proper auditing. Let alone auditing, according to media reports, most of these institutions have not even submitted their annual reports for years.
The controllers of these institutions are so ignorant that they are not bothered about auditing or submitting yearly accounts as they are not personally responsible for expenditures. Hence, usually, they run wild with organisational assets without fear or remorse. They are also oblivious or ignorant of the fact that their respective institutions are funded by the tax income of the state and each member of society pays such taxes directly or indirectly.
In contrast, private sector organisations that are operating on similar product lines or services show adequate profits. For example, Lanka IOC recorded a profit of 3.37 billion rupees in the March 2022 quarter, while Ceylon Petroleum Corporation recorded losses of billions of rupees every month. Both organisations sell the same product at a considerable disparity between the sizes of their respective operations. (Lanka IOC operates at 20 percent of CPC capacity).
Similarly, the cumulative loss of Sri Lankan Airlines is a shocking 302 billion rupees since 2008. The airline is said to have a staff of over 6,000 people to operate a fleet of twenty-one aircraft. Ironically, Mihin Lanka, another airline that was created for reasons unknown, and later became a complete flop, has transferred its cadre to the national carrier, making it worse.
Expenditure
Meanwhile, according to research, the gross expenditure of Government institutions is more than 70 percent higher than that of the private sector. The already overcrowded public service unjustifiably consumes 80 percent of the government’s revenue, in addition to the colossal losses made by SOEs. Despite the complete dependence on the treasury, the hierarchy of the loss-making SOEs, vastly swamped with political appointees, knowingly ignores this fact and receives maximum perks regardless of such losses.
Another factor to consider is the inter-organisational debts between the SOEs. For example, whilst running on treasury funds or overdrafts, the Electricity Board owes the staggering amount of eighty-six billion rupees to the Petroleum Corporation. Also, according to media reports, the Minister of Power and Energy has declared that state institutions owe over 140 billion rupees collectively. However, the irony is that, despite heavy losses, the workers of none of these establishments are ready to accept any type of reform or compromise their perks even when the country goes downhill.
The large gatherings that demanded a “system change” recently are deaf and blind to the protests against the restructuring of SOEs. There is no doubt that they have made a sizeable impact on politicians through their protests. If not for the shallow political intentions of two political parties that hijacked the campaign, the final result would have been more fruitful. It is those who have stolen the “Aragalaya” who campaign against the restructuring of SOEs for the common good.
As a private sector employee for over forty years and having witnessed its efficiency and productivity, this writer’s opinion is that the best option available is to privatise the loss-making instructions. However, it will be a hard task that requires very strong leadership decision-making.
The government can start the restructuring drive of loss-making SOEs immediately by appointing suitable appointees with private sector experience who can positively turn them around. Most certainly, all types of political influence must be completely removed as the highest priority.
The public needs the best service at the best price and definitely not the comfort of those who create losses. Creating competition and making SOEs profitable is perhaps the only solution the government currently retains. If not, very soon the government will not be able to pay even salaries for the workers as the coffers are empty at this point. Indeed, the country cannot afford any more financial losses from failed SOEs that run into billions of rupees, month after month.
On a positive note, the incumbent President seems to be dealing with the trade unions adequately on the subject of restructuring. He seems to be taking the public interest into consideration rather than the threats of trade unions. The entire nation (except those who gain politically by disrupting positive changes) will back him up in restructuring efforts of loss-making Government institutions.
It is time to introduce optimistic and effective reforms by establishing a more effective institutional framework. It is the only workable option the Government has to improve SOE performance. If successfully implemented, the country will be relieved of the burden of maintaining these white elephants.