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Resuming privatisation: Need to privatise more efficiently

29 May 2022

  • Privatise loss-making SOEs now: Prof. Colombage
  • Poor privatisation experience pinned on past malpractice
  • State cannot privatise all sectors: Prof. Senarath
  • Regulations need updating to streamline privatisation
By Vinu Opanayake  With the economy heading south, privatisation of idling State assets and loss-making State-Owned Enterprises (SOEs) that are weighing down State expenditure has become more important, according to local economists. Privatisation is not a new phenomenon in Sri Lanka and is certainly not popular amongst the public or politicians, with the latter seemingly having an uncontrollable urge to ensure State monopoly in key industries as far as possible. However, economists are of the view that this culture has to change, especially given the state of the nation at present. Advocata Institute Chief Operating Officer Dhananath Fernando told The Sunday Morning that privatisation had not been witnessed under this Government or the Government before it, adding that even attempts of privatisation that were carried out by former governments had not resulted in much success due to unsolicited proposals to do so. “We have not seen privatisation under the last Government and even the Government before it did not carry out any privatisation. A competitive process has to be ensured in privatising State assets. For example, the leasing out of the West Container Terminal cannot be called privatisation,” Fernando pointed out.  He noted that Sri Lanka should have opted for open tender processes when looking for investors to invest in and privatise State-owned assets.  However, he added that the State had privatised Sri Lanka Telecom (SLT) to an extent, along with South Asia Gateway Terminal (SAGT), and SriLankan Airlines – until Emirates decided to exit the airline in 2008. Since then Sri Lanka has stopped privatisation of State institutions. SAGT, SLT and SriLankan SAGT commenced operations at Queen Elizabeth Quay in 1999 as the first Public-Private Partnership (PPP) container terminal operator in Sri Lanka and is one of four container terminals in the Port of Colombo. The company is a Board of Investment (BOI) flagship entity with nearly 60% of Sri Lankan shareholding, backed by John Keells Holdings, APM Terminals, Sri Lanka Ports Authority (SLPA), and Peony Investments (a subsidiary of Evergreen Marine Corporation). The privatisation of SLT involved a purchase of a 32.5% stake by NTT Communications Corporation of Japan in 1997, for a sum of $ 225 million or approximately Rs. 13.5 billion. Air Lanka, the State-owned airline which is today known as SriLankan Airlines, was privatised in April 1998. The Government sold a 40% shareholding to Emirates Airlines, which was also contracted to manage the company for a period of 10 years. After the end of the contract, Emirates left the operation.  Privatisation priorities  Fernando stated that he did not advocate privatising every State enterprise but noted that preparing a priority list of loss-making SOEs that were also difficult for the Government to manage would be helpful in terms of choosing which to prioritise first. He even questioned the rationale of holding on to a State enterprise that was loss-making and thereby doing no benefit for the public but causing a dent in Government expenditure.  Meanwhile, Open University of Sri Lanka First Chair of Social Studies Prof. Sirimevan Colombage told The Sunday Morning that at a time most State enterprises were running at losses, resuming privatisation was not even a question to ask as it was a must and should be carried out immediately.  “Privatisation relieves Government expenditure significantly and also facilitates free market activity. As far as privatisation is concerned, Sri Lanka does not have good experience due to various malpractices that have been carried out in doing so in the past few decades,” Colombage added.  He added that some of the previous attempts to privatise were not transparent and if a State enterprise was to be privatised, transparency was an important component. Colombage added that in privatising, Sri Lanka could follow the success stories of East Asian countries and also highlighted the recent privatisation of Air India, which he termed as a “success”. “State enterprises are a burden to Government expenditure and also to the banking sector of Sri Lanka as these enterprises heavily borrow from the Bank of Ceylon and People’s Bank and cause losses. There is no question about privatisation, but it has to be done without corruption and malpractice,” he added. Meanwhile, University of Colombo Faculty of Arts Department of Economics Senior Lecturer Dr. Shanuka Senarath told The Sunday Morning that privatisation was a prominent tool in modern economic management. However, he added that there were businesses and sectors a government could privatise and those it could not privatise.  “For example, you cannot privatise defence, you cannot privatise the police. Education cannot be fully privatised. You can partially do that and have regulations imposed to monitor that. When it comes to privatisation, the burden on the Government goes away because it needs revenue to fund the loss-making entities. For example, if the Government is operating a loss-making railway system, it has to put a lot of money into that,” Senarath added.  Citing the country’s privately-run public transport system as an example, Senarath stated that privatisation had not worked well in Sri Lanka due to a lack of regulations to monitor the privatised sector.  “Look at the private buses in the country. They are not properly regulated and that is a problem. But privatisation is essential in my point of view because the Government should not take part in each and every aspect of the economy. It can provide the framework, law and order, and infrastructure and make sure things are running smoothly,” he added.  Senarath stated that the Government was finding it extremely difficult to pay State sector salaries and meet expenses and when it could not meet expenses, it had to print money.  Inflation to soar Last week, during an interview with an international media, newly-sworn-in Premier Ranil Wickremesinghe, who is also the Minister of Finance, stated that Sri Lanka had no rupee revenue and now the Government has to print another Rs. 1 trillion ($ 2.7 billion), warning that annual inflation could rocket past 40% in coming months, putting further pressure on Sri Lankan households already grappling with high prices.  “Macroeconomic inflation is going up just because the Government has a huge Government sector employment. Even at the current point, privatisation is a must, but it should be properly monitored. That is what we are lacking. We privatise and just let it go. Privatisation means that it is done by the private sector, but is closely monitored by the Government. With that condition, as an economist, I believe that most of the things the Government is carrying should be privatised. Even the banks are not efficient – look at People’s Bank and the Bank of Ceylon,” Senarath stated.  The Sunday Morning also spoke to an official from the SriLankan Airlines after Wickremesinghe announced plans to privatise the National Carrier, but was told that no official discussions had taken place so far on this matter.   


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