Throwing good money after bad

Clearly, staggering losses and blatent mismanagement of public finance has few repercussions. Mihin Lanka has been a bleeding sore since the day it was launched, incurring losses of a whopping Rs. 8.5 billion since its inception five years ago under the authority of President Mahinda Rajapaksa. Yet there has been no attempt made by authorities to stem the haemorrhage.

To make matters worse the company wants Rs. 597 million to repair engines and return planes. The Cabinet has been called upon to approve more than Rs. 597 million to repair two aircraft engines of the Mihin Lanka budget airline It was reported that the cash-strapped budget airline has suffered a loss of two billion rupees during this financial year alone, according to the Auditor General. Interestingly the Auditor General has observed that although the company is running at a continuous loss, the annual remunerations paid to the six-member Board of Directors have increased over the years. Rs. 11 million has been paid to directors as remunerations last year – an increase on the Rs. 4.9 million paid for the previous year. The Mihin Lanka Chief Executive Officer (CEO), who is also the CEO of SriLankan Airlines, is paid Rs. 500,000 a month by each of the institutions as remuneration.

Both the organisations are severely loss making, with significant maladministration that has seen the national carrier especially losing clients in recent years. Despite promoting itself as a low cost carrier, Mihin has regularly delayed flights, low levels of service and a culture of inefficiency that has been boosted by mismanagement.

The Auditor General observes that such heavy losses have been incurred by the company for the last five years despite grants and concessions by the Government in substantial quantities. The Treasury granted Rs. 507 million this year; Rs. 406 million last year; Rs. 1,508 million for 2010, Rs. 2,882 million for 2009, Rs. 500 million for 2008 and Rs. 250 million for 2007. The loss sustained for the financial year 2007/2008 was Rs. 3.1 billion; Rs. 1.3 billion for 2008/2009; Rs. 1.2 billion for 2009/2010; Rs. 940 million for 2010/2011 and Rs. 1.9 billion for 2011/2012. The Government has repeatedly justified Mihin Lanka as providing low cost travel solutions for middle class and lower middle class people wishing to travel, especially on pilgrimage to India and work to the Middle East. Officials have pointed out that subsidies given for railway and bus transport should also be extended for air travel without considering the accumulative pressure it has on public finance.

Moreover, judging by the money spent on renting aircraft, paying employees, and giving golden handshakes to its Board of Directors, the Government might find it cheaper to buy air tickets for its low income passengers rather than continuing to run Mihin Lanka. The Parliamentary Committee on Public Enterprises (COPE) discussed the Auditor General’s report on Mihin Lanka on Monday, but has repeatedly failed to adequately address the fallout. It is obvious that COPE needs to do more than simply review financial performance. Since State-run companies come before COPE annually, it must demand explanations as to why losses are increasing and remedial measures are ignored. COPE should also question Budget allocations given to companies that are repeatedly making losses and establish a mechanism that makes top officials directly culpable for mismanagement of public finance. At the very least it should ensure that a performance-based pay structure is implemented for the Board of Directors and other top appointees. Mounting losses of State-Owned Enterprises clearly show that COPE is ineffective in its mandate of making SOEs more financially accountable. Even though the 2013 Budget insists that 46 out of 70 enterprises have transformed into profit making state, the larger losses continue to be piled on with little change in sight.