SriLankan corruption scandal shows need for deeper structural reform at SOEs: Advocata

Wednesday, 5 February 2020 01:05 - - {{hitsCtrl.values.hits}}

Think-tank says weak governance has led to large-scale corruption at State enterprises
SriLankan Airlines has made Rs. 169 b in losses since nationalisation in 2009

Think-tank Advocata yesterday called on the Government to attend to the deep-rooted issue of systemic misgovernance embedded within Sri Lanka’s State-Owned Enterprises (SOEs), which has been brought to the fore through the $ 2 million corruption scandal involving the national carrier.

Advocata, in a statement issued yesterday, welcomed President Gotabaya Rajapaksa’s decision to order an investigation into the bribe paid by Airbus. However, it also pointed out that SOEs such as SriLankan Airlines continued to exert some of the heaviest burden on Sri Lanka’s debt-ridden Treasury.

SriLankan Airlines has accumulated a net loss of Rs. 17.2 billion solely for 2018, according to the Ministry of Finance’s Annual Report for 2018. To date, the airline has accumulated losses of Rs. 169 billion since nationalisation in 2009.

In 2018, a special report on the airline by the Auditor General’s Department found various accounts of malpractice across the enterprise, including:

Failure to follow procurement guidelines in the selection of consultative companies

Failure to introduce formal control systems for the implementation of plans

Lack of a proper cost-benefit analysis in validating expansion of the fleet of aircraft

Failure to conduct proper analysis on the method of selection for acquiring aircraft

Failure to follow Government procurement guidelines in the acquisition of aircraft

Advocata’s recent report The State of State Enterprises in Sri Lanka reveals that SOEs are vulnerable to mismanagement and corruption because of potential conflicts between the ownership and policy-making functions of the Government, and undue political influence on their policies, appointments, and business practices, as evidenced by the recent Sri Lankan Airlines scandal.

Recommendations to address serious problems in procurement:

Proper functioning of the National Procurement Commission. The commission should be independent and enforce its mission of formulating “fair, equitable, transparent, competitive and cost-effective policies, procedures and processes for the procurement of goods and services, works, consultancy services and information systems performed by Government Institutions in a timely manner”.

Implementing E-Government Procurement to address prevailing constraints in Sri Lanka’s public procurement marketplace pertaining to information asymmetries, anti-competitive practices and high transaction costs (Verité Research, 2017)

Introducing Procurement Auditing to public procurement to prevent fraud and ensure reliable financial reporting (Sri Lanka Auditor General’s Department Procurement Audit Manual, 2016)

“There is no pride in having a corrupt and loss-making airline burdening the taxpayer. It’s a national liability rather than a national asset. A national financial crime rather than a national pride. There is institutionalised corruption, mismanagement and a lack of accountability at these enterprises that demand urgent reform,” said Advocata Institute Chief Operating Officer Dhananath Fernando.