Legal reforms frame to handle sick SOEs
View(s):The government is to gradually withdraw from state ownership/management of State-Owned Enterprises (SOEs) by listing some of those in the share market, find strategic investors, resort to outright sale or private management as the country’s economic prospects are severely constrained by its underperformance. Legal reforms will be made in corporate bankruptcy laws to facilitate the handling of sick enterprises as maintaining the SOEs are the worst possible option for a country aiming to be competitive internationally, government sources said. Under the proposed amendments to bankruptcy laws, SOEs will be exempt from the application of the provisions contained in any section of the Act or determine that the passing of any resolution or exercise any power by the shareholders and for the Board of Directors of any SOEs should not be passed, done or effected without the prior approval of the subject minister and the approval of the Cabinet of Ministers.
A firm decision has been taken to close down and liquidate sick SOEs and restructure other entities except Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), National Water Supply and Drainage Board (NWS&DB), Sri Lanka Railways and a few others, official sources disclosed. For these public utility entities, the first step would be to move to cost-reflective-pricing. Social protection objectives should be met by targeted income transfers (and cross-subsidisation) rather than unaffordable subsidies. Options should also to be considered to greater competition to provide people with cheaper and better quality services, sources said. They said the International Monetary Fund (IMF) was of the view that state enterprises need to be run on a commercial footing – to avoid losses and the need for financing these losses from state banks.
To accomplish this, these corporations need to be run with the ability to set prices to cost recovery (plus a margin to service investment needs and debts). It is our understanding that the government is already considering automatic pricing mechanisms that could be used to this effect. This was also emphasised by Kalpana Kochhar , Deputy Director in the Asia and Pacific Department of the IMF in an exclusive interview with the Sunday Times. Sri Lanka’s 55 major SOEs out of a total of 127 are to be transformed to profitable ventures with a new management under an independent asset holding company like Singapore’s ‘Temasek Model’ to manage those entities, hopefully ending accumulated losses year after year. The present administration, which intends to follow the same format, is likely to transfer currently government-held shares of SOEs to an entity modelled in line with Temasek.
The past performance reports of the Department of Public Enterprises, Ministry of Finance, identifies a number of factors that contribute to the large losses incurred by the SOE sector. “Loss-making SOEs continue to incur losses due to lack of good governance, low productive use of employees, weak financial management, lack of internal controls and structural deficiencies. It is noted that Boards of Management of some key SOEs, which have often made decisions that were neither socially nor economically viable, violating government policies nor regulations, contributed significantly to the losses incurred by SOEs,” a government note on the issue has stated. -(Bandula)