As the year draws to a close, concerns are mounting over the restructuring mechanism adopted by the Government for State-Owned Enterprises (SOEs), with critics pointing out that the process is still in its early stages.
Initiated early last year, the restructuring process has achieved certain milestones, including the completion of the drafting of the SOE policy. A notable step forward in the process is the issuance of requests for Expressions of Interest (EOIs) for divestitures.
Despite these initial achievements, concerns have been raised about the perceived slow pace of implementation. Critics argue that the transformation of SOEs is time-sensitive and requires swift, decisive action.
According to the SOE Restructuring Unit (SOERU), the next step in the process is to introduce new laws governing SOEs. SOERU Director General Suresh Shah told The Sunday Morning that the new regulations governing SOEs, which are set to undergo a comprehensive restructuring process, would be ready by early next year.
The restructuring efforts will encompass four SOEs, namely Sri Lanka Insurance Corporation Ltd., Canwill Holdings (Pvt) Ltd. (Grand Hyatt Hotel), Hotel Developers Lanka Ltd. (Hilton Hotel Colombo), and Litro Gas Lanka Ltd., including Litro Gas Terminals (Pvt) Ltd. (LPG retailing). Additionally, the restructuring initiatives extend to Lanka Hospitals Corporation PLC, SriLankan Airlines Ltd., and Sri Lanka Telecom PLC.
In 2022, President Wickremesinghe established the SOERU to restructure SOEs and allocated Rs. 200 million to implement the proposal. The SOERU has studied 60 key SOEs and has come up with a number of recommendations and the new holding company will be established to carry out the restructuring.
Divestitures underway
Commenting on the progress, the SOERU Director General said seven entities had in principle been approved for divestiture, and transaction advisors had already been appointed to advise on all seven divestitures.
An SOE policy was drafted and subsequently approved by the Cabinet, and requests for EOIs have been published for five of the seven entities. In January, the remaining two will be published. Proposals have been received for three of the five entities. Bidders have been shortlisted for the RFP stage in two of the three entities. An SOE law is being drafted and will be submitted to Cabinet shortly. If approved by Cabinet, it will be submitted to Parliament, he told The Sunday Morning.
Recently, local and foreign investors have displayed keen interest in acquiring two prominent Sri Lankan businesses; Lanka Hospitals Ltd. and Hotel Developers Lanka Ltd. – the owning company of the renowned Hilton Colombo five-star hotel.
The SOERU recently called for EOIs, drawing responses from nine potential investors for Hotel Developers Lanka and eight for the Government’s 51.34% stake in Lanka Hospitals.
For Hotel Developers Lanka, the SOERU is currently evaluating the nine EOIs, with transaction advisors Colliers International Consultancy and Valuation (Singapore) Ltd. and Platinum Advisors Ltd. guiding the divestiture process. The EOIs were submitted by a diverse group of local and foreign investors, reflecting the strategic interest in the hospitality sector.
Simultaneously, eight parties, including both local and foreign companies actively engaged in healthcare, have expressed interest in acquiring the Government’s majority stake in Lanka Hospitals Corporation. The Request for Qualification (RFQ) deadline, which concluded last week, saw the submission of eight RFQs. The SRU will now assess these RFQs based on special guidelines approved by the Cabinet in July.
The competitive interest from investors underscores the appeal of Sri Lanka’s healthcare and hospitality sectors.
The RFQs were initially solicited on 18 October through international and local media platforms, marking a crucial step in the Government’s efforts to restructure and optimise SOEs.
The nature of SOEs
SOEs have played a key role in the socioeconomic development of countries. Healthy SOEs have made significant contributions to employment creation, poverty alleviation, fiscal stability, development of a sector or geographical area, environmental protection, and even sector regulation as witnessed in several countries.
Although during recent decades there has been a growing consensus in favour of privatisation and deregulation, the role of SOEs has not diminished, especially in developing countries. However, SOEs in the developing world tend to be straddled by low productivity, while distorting competition and being afflicted by corruption. It is essential that Sri Lanka remains wary of the performance of its own SOEs in this context.
Currently, there are over 400 SOEs operating in several key sectors in Sri Lanka, including power, energy, finance and insurance, water, aviation, health, and education, among others.
While a large majority of SOEs are regulated by the Administer Part II of the Finance Act No.38 of 1971, in recent times, several have been established under the Companies Act No.7 of 2007. Of these, 52 SOEs have been identified as State-Owned Business Enterprises (SOBEs) as they are regarded to be strategically important to the functioning and transformation of the economy.
SOBEs in Sri Lanka include the Bank of Ceylon, People’s Bank, Sri Lanka Insurance Corporation Ltd., Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), Sri Lanka Ports Authority, SriLankan Airlines, Sri Lanka Transport Board, and the State Pharmaceuticals Corporation, among others.