Tuesday, September 27, 2022

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Govt. earmarks loss making SOEs for restructure, merge and liquidate

The government will soon implement a special scheme for salvaging loss- making State-Owned Enterprises (SOEs) via restructuring or privatization opening up its management or ownership while liquidating failing institutions with insolvency issues that cannot be resolved efficiently.

Some of these 39 institutions out of 55 business enterprises with similar functions or covering the same business area will be merged under this scheme .

Re-activate the Statement of Corporate Intent (SCI) process for key 52 SOEs, excluding CEB, CPC, and Sri Lankan Airlines, as they are under different efforts to restructure, to closely monitor the set targets.

These difficult but necessary measures pertaining to SOEs will no doubt be challenging to address, but failing to do so would create catastrophic risks, particularly for financial sector stability, and will entail even higher taxation burdens on the public in the future,

At least 10 out of 55 SOEs are earmarked for liquidation following recommendations of the Auditor General’s department and five of the 55 SOEs classified as “strategically important “will be restructured under a public private partnership model, an order issued by the Public Enterprises Department Board revealed.

The 10 bankrupt SOEs earmarked for liquidation are Sri Lanka Rubber Manufacturing & Export Corporation, Janatha Fertilizer Enterprises Ltd, Lanka Salusala Ltd, State Trading Corporative Wholesale Co. Ltd, Lanka Fabric Ltd, North Sea Ltd, Ceylon Ceramic Corporation, Lanka Cement Company, Lanka Cement Corporation and Lakdiva Engineering Co. Ltd.

During the first four months of 2022, the key 52 SOEs out of the total of 55 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, a Finance Ministry fiscal report indicated.

SOE reforms is more essential for the country at present in view of the much-needed economic recovery, where the financial system should support and incentivise other important public sector institutions that face financial difficulties, a senior Ministry official said.

The new administration has given priority to improve the productivity of SOEs and it has identified 39 SOE’s with poor financial performance for restructuring due to, transparency and accountability issues and those entities have become a burden to the state coffers.

Therefore, structural reforms are necessary to make such SOEs more financially viable, competitive, productive and innovative, he added.

The major structural reforms in loss-making state enterprises for economic stability were one of the commitments that Sri Lanka has to fulfill in accordance with the economic reforms programme agreed upon with the International Monetary Fund (IMF).

Taking prompt action towards this end, the government has taken measures to establish a new unit to restructure troubled SOEs.

The move was an immediate fulfillment of a 2022 interim budget proposal with an allocation of Rs. 200 million for the implementation of public enterprise reforms via this new unit at the finance ministry.

It was proposed to re-activate the Statement of Corporate Intent (SCI) process for 50 key SOEs, excluding the Ceylon Electricity Board (CEB), the Ceylon Petroleum Corporation (CPC), the national carrier— Sri Lankan Airlines and Transport Board , as they are currently undergoing the restructuring process.

The objective of the new unit is to help to identify ways to reduce the financial burden on the Treasury and to provide necessary guidance and support in the restructuring process of the SOEs.

It also added that this situation has led to severe pressure on the Treasury, and thus an alternative mechanism should be introduced for the efficient and effective functioning of Government-operated businesses.

Adding to the problem, only one in 10 SOEs have made their financial information public , raising questions of transparency.

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