In a wave of business expansionism, the government created 138 new state enterprises in six years, taking the total to 245, and the Treasury only reports the performance of 55 of these. An independent think tank is calling for better reporting and privatisation to be brought into the reforms agenda as cumulative losses of the 55 enterprises during the period 2006-15 reached Rs636 billion, with five of the biggest loss makers accounting for 95%, higher than the cumulative profit of Rs530 billion.
“It is tempting to look at the net position – offsetting the losses (Rs636 billion) against the profits (Rs530 billion) – and conclude that the problem is small. This can only give rise to a false sense of security,” The Advocata Institute, an independent policy think tank in Colombo in a report ‘The State of State Enterprises in Sri Lanka’ claims.Although the Department of Public Enterprises is supposed to oversee governance in all state business enterprises, only 55 of them fall under its purview and are reported by the Treasury.
“Suffice to say that the published data on state enterprises performance is woefully inadequate, with the performance of around 190 enterprises remaining unknown. The information disclosed in the Treasury reports are not consistent, with information on 21 entities including the Janatha Estates Development Board (JEDB), Sri Lanka State Plantation Corporation (SLSPC) and Development Lotteries Board being unavailable prior to 2010,” Advocata says.
The five biggest loss makers accounted for 95% of the losses, with energy utilities Ceylon Petroleum Corporation and Ceylon Electricity Board, national carrier SriLankan Airlines, budget airline Mihin Lanka, and public bus operator Sri Lanka Transport Board combined reporting cumulative losses amounting to Rs605 billion, the report shows, arguing why the government should not be in business.
First, politicians are ill suited to make business decisions, tending to focus on short-term political mileage ignoring long-term economic consequences. Second, policymakers are not held accountable in the same intensity that shareholders of private companies hold board members. For both these reasons, politicians shy away from making tough decisions, and losses continue to mount as the public demand for below cost pricing for goods and services.
[pullquote]“It is tempt ing to look at the net position – offsetting the losses (Rs636 billion) against the profits (Rs530 billion) – and conclude that the problem is small. This can only give rise to a false sense of security,” The Advocata Institute, an independent policy think tank in Colombo in a report ‘The St ate of St ate Enterprises in Sri Lanka’ claims[/pullquote]
Third, state enterprises often enjoy monopoly status and have little incentive to improve service deliverables, or they receive subsidies and other special concessions that make it difficult for private sector businesses to compete. Fourth, the think tank argues that the government is ineffective in bringing down unemployment by generating more jobs in the public sector. This is because each new position created in the public sector has a tax obligation that takes away funds from private sector employers—in effect, a job created in the public sector causes an offsetting loss in the private sector. Finally, Advocata argues that state enterprises may have hidden subsidies, which result in costs being under reported.
State enterprise reforms are often talked about and occasionally attempted, but prevented by powerful vested interests and unions. As a first step, the think tank is proposing that the government be lobbied to regularly report on all 245 state enterprises so that citizens are better informed.
The Advocata Institute is also proposing that privatisation be looked at as a viable reform option. While the present government has announced that it is serious about reforming state enterprises, one obvious remedy – the privatisation option – appears to have been ignored. This, we believe, is a mistake,” it says.