State Owned Enterprise
02 April 2017
Public Enterprises Development Minister Kabir Hashim last week
disclosed some thought provoking numbers relating to State-owned
Enterprises (SOEs) at a breakfast meeting of the Sri Lanka Malaysia
Business Council which is linked to the Ceylon Chamber of Commerce.
Most Lankans believe that SOEs are a huge drag on the national economy.
That impression has been ballasted by frequent press reports on the
losses amounting to many billions in entities like SriLankan Airlines
which the government is trying to turnaround through a public-private
partnership. There are also losses made by monoliths like the Ceylon
Transport Board (CTB) and what is left of the Janatha Estate Development
Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC)
which took control of hundred of thousands of acres of plantation lands
following the land reforms of the early seventies. The minister in the
course of his speech revealed among other things that the revenue of
10 SOEs is as high as half the total revenue of the 295 listed
companies quoted on the Colombo Stock Exchange saying they have annual
revenues totaling as much as Rs. 2.2 trillion.
But there is
the flip side of the coin. Several SOEs are in deep distress and 42 of
them had received Rs. 215 billion budgetary support in 2012 and 2013.
In 2014 the figure was Rs. 123 billion and their losses in that year
were Rs. 60 billion – enough to build sixty 300-bed hospitals or support
a 100 schools, Hashim said offering an easy to digest comparison.
Pondering over the numbers offered in the speech, it is not difficult
to visualize the gigantic revenue generated by a few SOEs. For instance
the National Savings Bank (NSB) in which the vast majority of families
in this country have even a small account generates not only huge
revenues but also contributes many billion rupees annually by way of
dividends paid to Treasury coffers. In fact, we report in our business
pages today that the NSB has earned the biggest profit of over Rs. 13
billion in its 45-year history in the last financial year. The
state-owned Bank of Ceylon and the People’s Bank together account for
well over half the country’s commercial banking business. Their profits
are substantial and would be higher if they have not made bad loans to
cronies at political behest. The once state-owned but later privatized
Sri Lanka Insurance Corporation, now back under state ownership, grew
into what it has become following the conferring upon it of an
insurance monopoly.
Sri Lanka (then Ceylon) had a reasonably
good public transport system in the pre-Independence and the early
post-Independence years. But after the 1956 apey anduwa of Prime
Minister S.W.R.D. Bandaranaike there was a decision to nationalize the
bus transport system. The railway, of course, had always been a
government monopoly from British times with the Ceylon Government
Railway (CGR) was run very much like a large and efficient government
department. Undoubtedly the bus mudalalis were UNP supporters and the
new government took delight in hitting them hard. Companies like Sir.
Cyril de Zoysa’s South Western Bus Company were well run and provided a
good service to its customers along the southern coastal routes. There
were other similarly efficient though less visible bus operators, most
of whom ran tight ships; and government collected sizeable tax revenue
from them. The nationalization was popular among bus company
employees. The Bandaranaike government chose Mr. Vere de Mel, a former
member of the Ceylon Civil Service who took early retirement and
founded Quickshaws, the country’s first radio taxi company, as the first
Chairman of the CTB which ran the bus monopoly. He and his team did a
good job but things fell apart with the passing of years.
It
must be said that the CTB did an immense service to people living in
remote and inaccessible areas by providing them the public transport
hitherto denied them as private bus owners naturally demurred from
operating on unprofitable routes. The CTB worked on the premise that it
was socially equitable that the profitable urban services subsidized
the unprofitable rural routes. With the CTB, politicized and
mismanaged, unable to cope with the demands of an ever-growing
population, the J.R. Jayewardene government took away the monopoly and
allowed private bus owners to the business. With the railway too
becoming a shadow of its former self with the passage of time, public
transport services in the country have degenerated disgracefully. The
government has neither the financial muscle to invest in improving it
nor the management capability to ensure service delivery to commuters
and a return on the massive investment already made.
Minister
Hashim in his speech announced that legislation to strengthen
loss-making SOEs burdening the taxpayers was under preparation. He said
that a proposed board under the new law would endeavor to depoliticize
core public enterprises and staff them with professionals to help make
them viable and enhance profits. This objective, unfortunately, is
easier said than done. We already have a Fiscal Responsibility Act in
the statute and what we see on a daily basis is anything but fiscal
responsibility. Political opportunism has subordinated all else and
SOEs are seen by all politicians as a means of providing jobs for the
boys (and the girls) which is the most pressing demand they face from
their electors. Chairmen many SOEs are picked not for efficiency but
for their loyalty to their ministers. The boards are packed with stooges
ever willing to do their master’s bidding while feathering their own
nests.
Privatization is strongly resisted by both employees
and politicians for their own reasons. Nobody would (or should) quarrel
about profitable SOEs remaining in state hands under public ownership
if they are run efficiently and generate a reasonable return on equity.
The blind belief of some that private management is necessarily more
efficient than that of the public sector is not necessarily true. As
long time Finance Minister Ronnie de Mel used to often proclaim, the
magic is in the management. If the state owns an enterprise and ensures
that it is well managed and run efficiently, the public will have no
quarrel. In fact, if the state seeks social objectives in addition to
financial viability, state ownership against rapaciously profit seeking
private ownership would be desirable.
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