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Privatising state enterprises: Is this the opportune time?

26 May 2022

  • Taxpayers share their ideas on easing the burden from public entities
BY Sumudu Chamara To revive the collapsed economy, as newly appointed Prime Minister Ranil Wickremesinghe stated, Sri Lanka will have to take a number of difficult decisions in the coming few months and years. Hinting about one such decision, in his first address to the nation, the Premier reiterated a step Sri Lanka had been discussing for years, but did not implement – the privatisation of loss-making state-owned enterprises (SOEs).  As a first step, the Prime Minister said that he proposes to privatise SriLankan Airlines, which has suffered a staggering loss of Rs. 45 billion in the 2020-2021 period, and a total loss of Rs. 372 billion by March 2021. Against this backdrop, The Morning looked into what the general public – taxpayers who have contributed to keeping loss-making state institutions afloat – thinks of the Government’s privatisation plans.   Political and societal support Discussing the necessity of turning loss-making SOEs into profitable institutions, retired public sector worker Wasantha K. Kumara opined that even though privatisation seems a good option when all other options are unlikely to help Sri Lanka, it could be too late for Sri Lanka to opt for privatisation. Kumara blamed two types of politicians for making Sri Lanka take time to consider the privatisation of loss-making institutions an advantageous option.  “There were politicians who wanted to take undue benefits from any state institution that they could interfere with. They were hesitant to do what is necessary to make these institutions profitable, because it would affect the benefits that they receive, and this directly contributed to increased debts. In addition, there were politicians who were against the idea of privatisation, sometimes because of ignorance, or because of strong nationalistic sentiments, and were too confident about Sri Lanka’s ability to revive loss-making institutions. I do not think that this second type of politician gained undue benefits, but they are responsible for not doing what needs to be done.” He noted that therefore, before trying to make any SOE a profitable institution, Sri Lanka should consider changing its political culture. He stressed that sending to Parliament people who make decisions based on scientific facts, not on personal interests or personal beliefs, is of extreme importance. What is more, Kumara noted, these political culture-related issues are closely associated with the society’s attitudes.  He explained: “I am saying that this issue is related to our political culture and societal attitudes, because Sri Lanka’s existing political and social cultures play a huge role in whether privatisation plans materialise or not. Let us assume that the Prime Minister actually wanted to go ahead with the plan to privatise SriLankan Airlines. First, those in the Opposition parties who are determined to oppose anything and everything that the Government does will oppose the move, without even offering to discuss any concerns they may have. Secondly, a large number of nationalistic organisations and activists will come forward telling the Government not to privatise state institutions, as such will pave the way for foreign entities or companies with anti-nationalistic agendas to enter Sri Lanka. Most importantly, the general public will remain confused when this discussion takes place, because Sri Lankans are regularly told by the two above-mentioned groups that privatising SOEs is greatly detrimental to the country, and they have heard very little about how privatisation can help revive loss-making institutions.” Furthermore, he opined that even if a SOE was privatised successfully, the lack of support and faith from the general public and politicians could affect those institutions. Mere privatisation vs. Vision-driven privatisation Meanwhile, Eng. Kalana (name changed on request), also expressed concerns about politicians’ influence on privatisation-related processes. He noted that merely handing over an SOE to a private entity alone would not render them profitable, and that privatisation has to be done with a vision. He explained: “To those who know the benefits of privatisation, it is a concept that gives an impression that loss-making institutions will be made profitable after privatisation. However, it is not that simple. The main reason why we think that privatisation is good is because private entities always take steps to make profits, and they refuse to continue while suffering losses.  “At the same time, they make scientific decisions that are actually beneficial to their business. It is important to understand that privatising SOEs should happen with private entities that are serious about the said aspects of a business, and not just with any private entity. When it comes to large-scale SOEs such as SriLankan Airlines, we need private partners that have the knowledge and experience about this particular field, not just about business.” He opined that if politicians choose private partners based on how much money the former could get in the form of commissions for the transaction, and not on the latter’s credibility, stability, vision, and experience, the country would not see any benefits from the privatisation of loss-making institutions. Adopting private sector-like management structures However, according to some, privatisation is a short-term measure that is not always beneficial, and what the Government should actually do is to introduce a new management structure to SOEs. Private sector employee U.A. Chamara Sanidu added: “I do not think that we should think of privatisation as the best or the only solution. If we can understand the factors that cause some SOEs to suffer losses, and if we understand what needs to be changed in order to address those, why do we need the private sector’s involvement in state institutions? It is because the private sector has more money to invest, and it is determined to make profits and prevent losses. With regard to the financial situation, the Government can take loans, and it is not something Sri Lanka is new to. Regarding a proper vision and a willingness to make institutions profitable, that is something that should come from the Government’s side.” He said that the main step the Government should take, instead of privatising SOEs, is introducing a private sector-like management structure to public institutions.  “It will reduce losses, stop unwanted or unsuitable appointments, pay attention to plans that can help make profits, take steps to increase efficiency, and most importantly, it will keep people responsible and accountable for their actions,” he said, adding that for such changes in state institutions, all that the Government has to do is to make every public institution, including those that provide services for free, aware that they are in a competitive business, where failure attracts bad results and success attracts rewards.  “Most importantly, these institutions should be taught to respect service-seekers and know that service-seekers are paying taxes, which are ultimately used to pay public sector employees’ salaries,” he noted. Privatising major loss-making SOEs Although the Prime Minister only spoke about privatising SriLankan Airlines, businessman V.A. Samarasinghe said that the country’s economic situation is such that the Government should not take more time to privatise all other loss-making SOEs that cannot be saved with simple steps such as restructuring or replacing management. He noted that the Ceylon Electricity Board (CEB) and the Ceylon Petroleum Corporation (CPC) are the two main state institutions that should be prioritised in this process.  “SriLankan Airlines has been suffering losses for a long time, and therefore, privatising it is an understandable move. However, there are other loss-making state institutions such as the CEB and the CPC that have become an unbearable burden to the country’s economy. The only reason those institutions are not shut down is because they provide essential services. I think that privatising SriLankan Airlines and the CEB together will automatically reduce a considerable portion of the CPC’s losses, because the CPC’s provision of fuel to the CEB and the SriLankan Airlines for credit is one of the major reasons why it is suffering losses.”  He noted that the Government should take into account these connections between loss-making institutions, and should not wait any further to privatise them.  In addition, Udayanga, member of the general public, said that the privatisation of SOEs is merely one step in saving the country’s state institutions. He was of the opinion that the Government should take steps to prevent state institutions, which suffer increasing losses and are likely to go bankrupt in the near future, from getting into a situation where privatisation is the only option.  “Privatisation is what we do when we cannot suffer losses anymore, or in other words, when an institution goes bankrupt. The other crucial part of this discussion is taking pre-emptive measures. If the Government is ready to take long term measures to strengthen the economy, at least now, it must establish a proper system to look into public sector employees’ productivity, the efficient usage of resources in public institutions, factors that cause SOEs to suffer losses, and inadequacies in management or management structures of state institutions.”  Another crucial aspect of this matter Udayanga noted was putting an end to political appointments. Adding that political appointments are a menace that the country needs to get rid of, he said that while there is no guarantee about political appointees’ competency, political appointees’ political agendas have a direct impact on state institutions.  “If the culture of appointing politicians’ friends and relatives to high level positions does not end now, we will have to privatise more state institutions in the coming few years. In addition, the culture of corrupt officials getting away with what they did, should end,” he stressed. Getting the support of private partners to save the debt-ridden country has been a proposal for many years. Despite different opinions, past governments have privatised or entered into public-private partnerships with regard to various projects, some of which were successful. At this critical juncture, when the contribution of both the public and private sectors is necessary, the privatisation of loss-making SOEs could be a good start towards reviving the economy. However, as some who spoke with The Morning pointed out, the Government should go beyond SriLankan Airlines and take steps to get the private sector’s support to revive other major loss-making institutions, and prevent at-risk institutions from going bankrupt. In addition, developing a proper vision as to what Sri Lanka hopes to achieve, ensuring zero political interference, and getting rid of unscientific sentiments against privatisation, are matters Sri Lanka will have to deal with in the future. 

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