Transforming State-Owned Enterprises in Sri Lanka: Enhancing Efficiency and Performance Optimization through Public-Private Ownership

Introduction

State-Owned Enterprises (SOEs) in Sri Lanka are undergoing significant reforms to improve their efficiency and performance. In particular, public enterprises engaged in commercial activities are being optimized through public-private ownership. Former Finance Minister Ravi Karunanayake revealed that these reforms aim to generate revenues for the state, reduce administrative burden, and distribute ownership and management to the private sector. This article explores the current state of SOEs in Sri Lanka, the need for reform, and the potential benefits of public-private ownership.

Current State of SOEs

Sri Lanka has a total of 527 SOEs, with 52 of them identified as strategically important. Out of these, 39 are currently making profits, while 13 are still facing losses. The losses incurred by these 13 institutions amount to Rs. 1,029 billion, while the profits made by the remaining 39 enterprises reach Rs. 218 billion. These figures highlight the urgent need for performance optimization and financial restructuring within SOEs.

Benefits of Public-Private Ownership

By introducing public-private ownership, the government aims to strengthen the governance of SOEs and make them financially viable. This approach also helps alleviate the burden on public finances. Under public-private ownership, selected strategically important institutions will operate with private sector investment, allowing for revenue generation, improved efficiency, and wider distribution of ownership and management. This model draws inspiration from the successful Temasek model in Singapore, which emphasizes competitive operations and minimal government intervention in business.

Diverse Restructuring Options

The reform process includes various options beyond full or partial privatization. These alternatives include private sector contracts, Public-Private Partnerships (PPPs), holding companies, stock market listings, and Employee Stock Ownership Plans (ESOPs). The government recognizes the importance of considering Sri Lanka's past experiences with SOE restructuring to learn from both successes and failures. This approach ensures a flexible and comprehensive strategy tailored to the specific needs of each institution.

Reforming SOEs for Financial Viability

With Sri Lanka facing economic challenges, enhancing the performance of SOEs through optimization procedures is essential. Transparency and accountability are crucial during this recovery phase. As part of its IMF program commitments, the Sri Lankan government is devising a comprehensive strategy to restructure the balance sheets of key SOEs, including the Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), the Road Development Authority, and SriLankan Airlines. These reforms aim to achieve self-financing for SOEs and reduce dependence on the treasury.

Government's Commitment to Reform

President Ranil Wickremesinghe is leading the government's efforts to restructure SOEs and reduce the roles of the government and SOEs in the economy. The successful implementation of SOE reform, as prescribed by the IMF, requires the support of both the government and the opposition. The government has already short-listed transaction advisors for the divestiture of four SOEs within three months. These include Sri Lanka Insurance Corporation, Hotel Developers Lanka (Hilton Hotel Colombo), Canwill Holdings (Grand Hyatt Hotel), and Litro Gas Lanka Ltd.

Strengthening SOE Governance

The reduction of government and SOE roles in the economy will lead to a more efficient allocation of resources, foster competition, and boost productivity. Strengthening SOE governance is a critical first step in this regard. The government aims to seek cabinet approval for a comprehensive strategy to restructure the balance sheets of major SOEs by June 2023. Additionally, the publication of audited financial statements for all major SOEs will be enforced, and measures will be taken to limit foreign exchange borrowing by non-financial SOEs.

Successful Results from Past Privatization

Sri Lanka has experienced successful results from the privatization of several state entities in the past. Privatized entities, such as Sri Lanka Telecom (SLT), have undergone performance optimization and generated more profits compared to when they were under state control. These success stories further support the ongoing SOE reform agenda.

Conclusion

Transforming State-Owned Enterprises in Sri Lanka through public-private ownership is a crucial step in enhancing their efficiency and performance. The comprehensive strategy aims to make SOEs financially viable, reduce the burden on public finances, and improve service quality. By learning from past experiences and adopting diverse restructuring options, the government seeks to achieve transparency, accountability, and sustainable growth for SOEs. With strong commitment and support from all stakeholders, Sri Lanka is poised to create a more productive and competitive business environment.