Financial Times

Future of privatisation


With the euphoria over recent judgments in the Sri Lanka Insurance (SLIC) and Lanka Marine Services (LMS), public interest activists are now setting their sights on challenging other cases where state companies were privatised.

Among them are plantation companies. Politician Vasudeva Nanayakkara, petitioner in both the SLIC and LMS cases in which both companies reverted back to the state, is calling for a commission of inquiry to go into these past privatisations and in the event this doesn’t happen, he may challenge these privatizations in court.

Accountant Nihal Sri Ameresekere, a respondent in both cases, is joining Nanayakkara in calling for accountability in these transactions. Nanayakkara, while saying that public assets should not be allowed to be frittered away by the state and its organs, says however that a lot of money is needed as lawyers fees to challenge these cases.

Ameresekere, on the other hand who joined the vibrant politician in fighting these issues in the public interest, appeared in person as a respondent and made long and successful submissions in both cases pitted against a battery of top lawyers including six President’s Counsel deployed by businessman Harry Jayawardena and other respondents.

Jayawardena, who escaped any strictures or penalties in the judgment unlike John Keells Holdings Chairman Susantha Ratnayake (in the LMS case), said in his chairman’s review (2007) of the Distilleries Co (DCSL) report that, … “Your Company has defended these allegations (against SLIC) vigourously through an eminent team of legal luminaries.”

Cocky as ever, Jayawardena is also reported to have told the Distilleries board meeting this week that the government had offered him ownership of the company (SLIC) – meaning re-privatisation and first choice to the company which the Supreme Court faulted for a fradulent deal.

His statement is however unlikely to be true as President Mahinda Rajapaksa is a known opponent of privatisation and the so-called offer that Jayawardena got would be a slap in the face of the judiciary!
On the other hand there are reports that the aggrieved parties in the LMS and SLIC judgments (Harry & Co, Ratnayake & Co and Dr P.B. Jayasundera) are contemplating contesting the judgments before a fuller bench of the Supreme Court.

In a recent television interview, Chief Justice Sarath N. Silva, a few days after his retirement, was asked about this issue and his response was that the courts have now recognised the (doctrine of) public trust. He said that the executive holds in trust public assets and if that trust has been breached, the people have every right to get it back. This is clearly stated in the constitution and proved in these cases and the courts are not going to reverse these decisions. “There will always be those who don’t like these judgments,” he said on television.

Among the key full and part privatisations in the past are Ceylon Oxygen Ltd, Lanka Milk Foods (CWE) Ltd, Asian Hotels Corporation Ltd, DCSL, the two development banks, plantations/sugar and salt companies, Colombo Dockyard Ltd, Shell Gas Lanka Ltd, National Insurance Corporation, Sri Lanka Telecom, SriLankan Airlines, LMS and SLIC.

Given Nanayakara and Ameresekere’s appetite for challenging privatisations, will the clock be turned back? If so how would the government pay back (like in the SLIC case) monies received for these privatisations? Privatisation was for two reasons – an easy route to collect money for state recurrent and capital expenditure, and to reduce government debt due to inefficient management. However since the global financial crisis last year where the state had to bail out many companies in the US, the focus is shifting to state intervention in companies that collect money from the public – like banks, finance companies, etc.

In the Sri Lanka case too several finance companies faced a crisis of confidence compelling the Central Bank to step in and bail them out. Seylan Bank, part of the crisis-hit Ceylinco Group, also came under the Central Bank which asked the Bank of Ceylon to manage the private bank. Thus privatisation is unlikely to be on the cards in the future (even under a government sans Mahinda Rajapaksa) unless management expertise is brought in for a fee or well-paid managers are recruited to run state companies in a professional manner. On the other hand, there are no state companies to privatise except for the Ceylon Electricity Board and the Ceylon Petroleum Corporation, both of which are considered essential services.

The rating outlook by RAM Ratings Ltd on SLIC also confirms this position – intervention of the state. RAM said it has revised the outlook on the Claims-Paying Ability rating of SLIC to ‘positive’. “The positive outlook reflects the stronger level of financial flexibility that SLIC is expected to enjoy in the form of government support,” RAM said in a statement last week.

While Nanayakkara and Co. are gung-ho about reversing these privatisations, the other problem would be where will a cash-strapped government find billions of rupees to pay back if the courts returns these companies to the state? Furthermore can the state run these companies? On the other hand if there were fradulent deals involved in these transactions the guilty must be brought to book. These are not easy issues to resolve and needs a rational and pragmatic approach from public interest activists and the authorities.

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