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The slow train of SOE reforms

The slow train of SOE reforms

21 Nov 2023

Sri Lanka has attempted to reform the state sector many times before, with little success. On many such occasions, the lack of political will played a key role in deciding if the reforms agenda was limited to speeches and ministerial discussions or if it was going anywhere. Today, after a long period of political turmoil, economic crisis and in the face of bankruptcy, the Government seems to have found a measure of political will to effect change. This was reflected in the Cabinet of Ministers yesterday (20) approving the Electricity Sector Reforms Bill, which is expected to be gazetted soon and tabled before Parliament.

The State-run utility provider, CEB is in the current state due to failures in swiftly integrating renewable energy sources, weak policy formulation and enforcement, an outdated transmission network, competing interests, strong trade union movements, corruption, politicisation of generation and cost, and over-reliance on expensive coal and fuel-powered power plants over the years. Such a climate of decision-making and putting politics before national interest have made Sri Lanka’s energy security vulnerable, as experienced by us during the last two years, where the power supply wreaked havoc on day-to-day life, commerce and industrial performance.  The high dependency on coal and fuel to meet generation requirements has compounded Sri Lanka’s economic recovery efforts, with the island nation requiring stocks close to $ 600 million per month in fuel alone for transport and power generation last year (2022). Sri Lanka also needed around $ 600 million to import coal for the annual coal-powered generation requirement during the height of the economic crisis last year.

State sector reforms and in particular restructuring of State-owned enterprises (SOEs) like the Ceylon Electricity Board (CEB) has long been delayed due to lack of political will. So, there is no victory lap in yesterday’s decision. Sri Lanka hit rock bottom due to poor governance, ad hoc policies and playing politics with national and strategic decisions. However, the forward momentum in the reforms agenda, which has now allowed more privatisation of the retail fuel sector, and now with the approval of the Electricity Sector Reforms Bill, should be commended. It is better late than never. 

However, the real acid test for the Government's commitment to move further with reforms, will come in the coming months, where with restructuring of the CEB, the bloated staff numbers will have to be dealt with. As such, the Governments’ performance in trimming the SOEs’ employee fat during an election year will be telling of their intent to pursue reforms with other state entities.

The delay in restructuring SOEs over the years had resulted in an uncertain situation where prospective investors were discouraged, and used to think twice before investing in Sri Lanka. Even if some SOEs’ had indicated that they were making profits, they are essentially incurring losses because some of their debts and the relevant interests are borne by the Treasury, which is not sustainable. The excessive delays in restructuring SOEs create some uncertainty among prospective investors and workers of the enterprises. Further, due to the inefficiency of those institutions and the higher number of workers in such entities, prospective investors were worried that they would not be able to get a reasonable return on investment.

According to Minister of Power and Energy Kanchana Wijesekera, the new Bill “Once approved by Parliament, the new Electricity Act, will enable the unbundling of CEB services, restructure CEB, improve efficiency, transparency and accountability and will allow private sector participation across generation, transmission and distribution”. Given the conflict of interest, corruption and lack of accountability which was seen to plague the power and energy sectors in the past, how the Government unbundles, reduces size of staff and effects a new regulatory system will be the “report card” we should look out for. Let us hope that with such reforms, begins a new culture of governance, which has foresight and is far thinking, with the national interest given priority. 

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