In the wake of talks with the International Monetary Fund (IMF) for a possible deal on the bailout loan, the Government is set to restructure key loss making state owned enterprises (SOEs) with backing of ruling politicians, official sources confirmed.
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 CPC stood at Rs. 549 billion in the first four months of 2022.
During the first four months of 2022, State Owned Enterprises (SOEs) encountered significant operational and financial challenges.
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.
Whilst the recent adoption of cost reflective pricing in the fuel sector is a positive step towards the operational sustainability of the Ceylon Petroleum Corporation (CPC), there remain a multitude of issues that require resolution.
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.
SriLankan Airlines (SLA) is another SOE that has significant fiscal implications. SLA’s losses for 2021/22 reached Rs. 171 billion, creating a going concern issue for the entity.
Owing to the significant increase in the generation cost, CEB has incurred a large operating loss of Rs. 47,190 million in the first four months of 2022 compared to the loss of Rs. 7,515 million in the same period of 2021.
The treasury is paying 86 percent of its tax revenue on the wages and pension bills of the public sector which includes one public official for every 16 people.
Sri Lanka has more than 1.5 million public sector employees at present, the size having doubled over the past 15 years, according to official data.
Efficiency in the public service is lower compared to that of Sri Lanka’s peers in Asia, despite there being a public servant for every 14 citizens.
Most state owned enterprises (SOEs) have become a dumping yard for politicians to recruit their supporters, resulting in more employees with very little do in spite of a monthly payments and pension scheme.
Power and Energy Minister Kanchana Wijesekera on Saturday (27) called for restructuring of all SOEs.
“All SOEs need restructuring. Political decisions, political appointments, misadministration and incompetence have led to the downfall,” he told in his twitter platform.
He said while there are capable & efficient workers at Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), and Ceylon Petroleum Storage Terminals Limited (CPSTL), the majority are inefficient & incompetence.
“A good 500 workforce instead of the 4200 could do the job efficiently at CPC- CPSTL & half of the 26000 workforce at CEB. Trade Unions thrive on inefficient members.”
Sri Lanka has already announced that it may have to shut loss making SOEs which are overstaffed.
“In order to come out this crisis, we need to increase our income. Restructuring will have to be done,” Cabinet Spokesman Bandula Gunewardena told reporters at the August 23 weekly cabinet briefing.
“We may have to shut down some losses making state enterprises or take other action,” Gunawardane said.