Recently, the Cabinet approved a proposal presented to formally close down 33 non-operational State-Owned Enterprises (SOEs) as part of the second phase of the Government’s State-sector reform programme.
Analysts welcome this move and believe that the decision could free some fiscal space, while highlighting the need to efficiently address the other concerns regarding SOEs in a financially viable manner.
The Sunday Morning learns from the Ministry of Finance that one key measure taken in SOE reforms is this move to close the non-functional SOEs, in addition to other restructuring measures that are in progress.
It was further confirmed that since these SOEs had been inactive, the process of handling them did not present significant issues, particularly concerning assets like human resources.
Speaking to The Sunday Morning, Frontier Research Senior Research Lead Arshad Ismail observed that the Government’s decision to liquidate the dormant SOEs could help cut off ongoing overheads that added no real value.
Since these are institutions that have either been inactive for years or no longer serve their original purpose, he highlighted that formally closing them down could mean some fiscal space was being freed up and that the Government was engaged in some form of reforms.
Moreover, Ismail explained that it would be interesting to observe how the Government would actually carry out the execution, which he emphasised should ideally be carried out in a transparent manner.
Responding to a question regarding how any infrastructure, assets, or human resources should be effectively handled in this process, he noted that there was only scope for a very few to be productively reused.
“Infrastructure with ongoing utility can be transferred to other public agencies or included in Public-Private Partnerships (PPPs) that the Government is engaged in, while any other properties can be auctioned. I feel the proceeds should ideally be directed towards debt reduction or covering restructuring costs, so that the long-term fiscal benefit is maximised.”
Addressing human resource concerns, Ismail observed that it was unlikely that a significant number of staff was available, since these were inactive SOEs. Hence, he noted that perhaps for the few staff present, resources could be redeployed into other areas of the public service where shortages existed, while others could be given retirement packages or voluntary exit options.
Furthermore, he stated that keeping a small caretaker group until liquidation was completed could help preserve the value of assets and ensure records were properly maintained.
“In terms of financial impact, the immediate benefit is the removal of recurrent costs that were going into keeping dormant entities alive. There may also be one-off revenue inflows from asset sales, though in practice these are likely to be very small since many of the SOEs in question may not hold high-value assets anymore. This can ease some pressure on Government finances,” he noted.
Eliminating wastage and improving fiscal discipline
The closures of the inactive SOEs are to be carried out systematically after the establishment of a special liquidation unit under the Ministry of Finance. Based on Government statements, the decision has been taken with the objective of eliminating wastage, improving fiscal discipline, and redirecting resources towards more productive sectors.
This also aligns with the Government’s broader strategy to streamline the public sector, reduce State expenditure, and enhance the efficiency and accountability of public enterprise.
The institutions to be closed under the first stage include Asian Games Ltd., Selendiva Investments Ltd., Lanka Logistics and Technologies Ltd., Commonwealth Games Hambantota 2018 Ltd., Magampura Port Management Company Ltd., Mihin Lanka Ltd., Techno Park Development Company Ltd., Media Training Institute, Lanka Cement PLC, and Expressway Transport Ltd.
Many of these SOEs have incurred significant losses. Mihin Lanka’s financial accounts from the time it ceased operations in 2016 show significant losses and accumulated debt. As of late 2024, the company still owes Rs. 3,201.77 million in unresolved debts, mainly to State banks. The airline never recorded an annual profit, with a total accumulated loss of Rs. 19,743 million as of 2016/2017.
The most recent publicly available financial information for Lanka Cement is from the Auditor General’s Department, showing a deficit of Rs. 5,319,223 for the year ending 31 December 2016. Commonwealth Games Hambantota spent a total of Rs. 702 million.
Additionally, the Government incurred losses of over Rs. 653 million due to penalties for delayed construction on the Galle and Kurunegala Techno Parks, according to a national audit report. As of early 2024, the company had unresolved outstanding payments to contractors and consultants, including a Rs. 18.17 million payment for the Galle Techno Park consultant and Rs. 36.19 million for the Kurunegala consultant.
Moreover, according to a statement made by the Cabinet Spokesman, Minister Dr. Nalinda Jayatissa, many of these entities were originally established to provide public services or promote strategic economic activities, but have since become incompatible with present-day requirements and market conditions. Several have failed to deliver meaningful contributions to the economy or public services, while continuing to drain State resources.
Reducing entities retained as SOEs essential
Sri Lankan SOEs encompass several categories, including aviation, retail, banking and finance, agriculture, ports, insurance, transport, energy, and chemical production. There are over 500 SOEs which account for approximately 250,000 employees in the country’s labour force.
Among the 500, only 130 have commercial interests. However, many of the SOEs have long been marked as heavily loss-making or heavily indebted, causing a significant burden on the Treasury. Moreover, Sri Lanka’s SOEs account for around 4.5% of the country’s total public debt.
According to an Advocata Institute report, approximately five large SOEs account for 80% of the losses. These include the Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), National Water Supply and Drainage Board (NWSDB), Sri Lanka Transport Board (SLTB), and SriLankan Airlines.
The Advocata Institute released a statement welcoming the decision by the Cabinet of Ministers to formally close 33 non-operational SOEs.
According to an Advocata statement, shutting down entities such as Mihin Lanka, Lanka Cement, Selendiva Investments, and Magampura Port Management Company provides a premise for the Government to pursue a broader rationale for SOE reform: addressing economic failures, supporting development, and safeguarding national interests.
It also notes that State ownership is warranted only where there is a clear economic or strategic justification, typically when market failures prevent private actors from efficiently providing goods or services. Accordingly, the number of entities retained as SOEs should therefore be significantly reduced, focusing solely on those that are strategically important or justified by clear economic, strategic, or development objectives.
While this closure is perceived as a welcoming move, Advocata also emphasises the need for a head start towards full or partial divestiture of commercially viable enterprises, as well as the the passage of the proposed SOE holding company bill, bringing most SOEs under a single holding company structure, paving the way for divestiture, PPPs, and, where appropriate, outright privatisation.
Further, speaking to The Sunday Morning, Advocata Institute Chairman Murtaza Jafferjee highlighted this as a good move, especially since the SOEs identified were non-functional or inactive.
He pointed out that there should be no issues regarding any employment concerns related to these SOEs. He further highlighted that since these entities were inactive, they should have been closed a while ago, and closing them would have no negative impact or revenue implications, as it was a procedural matter.
“This has been in the pipeline for a long time and the Government is finally completing the process. This basically reduces the hassle of doing the administrative paperwork for non-operating entities,” he said.
Efficiently maintaining SOEs necessary for investments
Commenting on the overall management of SOEs, University of Peradeniya (UOP) Department of Economics and Statistics Professor Ananda Jayawickreme pointed to the critical need to resolve issues with SOEs, particularly if options like attracting private investments or liquidation were being considered.
He stated that while vital SOEs should be maintained by the Government, others could be restructured or reformed in efficient ways. However, he emphasised the need for a proper, comprehensive assessment of SOEs to determine their financial viability and other conditions. Accordingly, Prof. Jayawickreme noted that proper attempts should be made to revive important SOEs before resorting to approaches like selling them, utilising proper expertise.
He added that strategically and properly managing SOE reforms, restructuring, or revival was an essential role for the Government. Additionally, he noted that privatising certain SOEs, especially strategic ones, could lead to negative consequences, including security concerns and market complications.
“If SOEs become totally inactive and non-functional, no attempts can be made to sell them or attract investments. Therefore, the Government should take the necessary measures to properly manage SOEs, running them efficiently without allowing them to weaken. This is especially important given that it is crucial to sustain operations and maintain the potential and significance of strategic SOEs,” he said.
Prof. Jayawickreme explained that in terms of operational capacity, the Government generally had more capacity than a private company. He further pointed out that not all SOEs were run exclusively for profit, as some could be operated at a break-even point or without losses.
“Thus, it is essential that the Government finds ways to operate necessary SOEs, at least at the break-even point without losses, ensuring they become operationally viable. Otherwise, inviting private investments or funds would be unlikely. In Singapore, SOEs operate with private capital, and decisions regarding them are made by considering the welfare of the people. Similarly, SOE operations and reforms must be carried out by putting people first, without being limited to profit consideration,” he noted.
Furthermore, Prof. Jayawickreme highlighted the need to efficiently maintain public investments, as this would stimulate private investment. He therefore emphasised the need to handle SOEs more efficiently.
Meanwhile, University of Ruhuna Department of Economics Senior Lecturer Dr. C. Gunasinghe noted that since the process was still in the first stage of liquidation, the second stage for SOEs may take time due to their many obligations. For example, he noted that Mihin Lanka had officially completed stage one in 2016, but stage two had not been carried out due to other issues, such as delayed tax payments and other legal matters.
Explaining the socioeconomic implications of this measure, he noted that despite these entities remaining largely inactive, certain allocations were required, as were contingent expenses and leakages associated with them, which placed pressure on the Treasury.
Dr. Gunasinghe further noted that there were also fiscal obligations. With 80% of Sri Lanka’s tax revenue coming from indirect taxes, he highlighted that funds allocated to inefficient entities effectively cost the general public and from a macroeconomic perspective, funding inefficient entities would impact the Government’s targets.
He added that there were several approaches to take when assessing SOEs, including the possibility of fixing them, formulating partnerships, or, lastly, exiting them. “Closing is financially helpful in these types of SOEs, especially as they serve no national purpose. It allows for the reallocation of assets for other development objectives.”
Attempts by The Sunday Morning to contact the Deputy Minister of Economic Development, Secretary to the Treasury, and Cabinet Spokesperson regarding further measures in terms of SOE reforms were unsuccessful.