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SOEs face fresh operational and financial challenges amidst political turmoil

Sri Lanka’s State Owned Enterprises (SOEs) are encountering significant operational and financial challenges for its survival in unprecedented political turmoil amidst the weakest state of the economy at present, recent report of the Finance Ministry revealed.

The lack of foreign exchange liquidity has adversely affected the supply chain management of many key SOEs, particularly in the energy and transportation sectors. The negative impacts of this have been experienced across the entire economy.

During the first four months of 2022, the key 52 SOEs reported a significant loss of Rs. 859 billion which is a significant deterioration compared to the loss of Rs. 13 billion in the corresponding period in 2021.

The key driver of the loss is the foreign exchange loss of CPC due to the depreciation of the currency. The exchange loss of Ceylon Petroleum Corporation (CPC) stood at Rs. 549 billion in the first four months of 2022, the report disclosed.

The primary concern is the legacy debt of CPC that is predominantly in foreign currency, resulting in frequent foreign exchange losses for the entity which in turn results in additional fiscal stress for the government and financial stress for the state owned banks.

As a result, the CPC has negative equity of Rs. 986 billion as at end April 2022. The Ceylon Electricity Board (CEB) has also not revised electricity tariffs for close to 8 years, contributing to an accumulated loss of Rs. 236 billion.

The rising cost of fuel and coal in the global market coupled with the depreciation of the currency has contributed to a spike in the CEB’s operating cost, which calls for an urgent adjustment of pricing for this sector.

It is important to address the financial position of these two key energies related SOEs in order to ensure a stable and sustainable supply of energy to support economic activity across the board, the Finance Ministry report suggested.

As a result, the CPC has negative equity of Rs. 986 billion as at end April 2022. The Ceylon Electricity Board (CEB) has also not revised electricity tariffs for close to 8 years, contributing to an accumulated loss of Rs. 236 billion.

Sri Lankan Airlines (SLA) is another SOE that has significant fiscal implications with losses for 2021/22 reaching Rs. 171 billion, creating a going concern issue for the entity, the report added.

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