Restructure of State Owned Enterprises

Upon transformation of the selected interests, the State should retain its responsibility to ensure 

services are offered in a timely manner as anticipated by the public, unabated 

Preamble

Restructuring of Sri Lanka’s State-Owned Enterprises (SOE) has been a hot topic widely discussed in Parliament and elsewhere by the Government. The restructure was mooted to increase the productivity, profitability or divest underperforming interests. Some opposites blame this as a conspiracy of IMF and a precursor for signing off the bail-out package. Whatever has been said, the restructure has been loosely defined by the politicians, and primarily aiming to reduce the head-count, manage the recurrent expenditure, and divest holdings that had become a heavy burden on government budget but also profitable interests in order to repair deficits quickly. 

Restructure is not only confined to the above narrow lines; the prime popular requirement as citizens expect is to eradicate corruption, mismanagement, the ill culture, the ill-governance in the state organisation which spearheaded for the past two long decades with no accountability. The public servants have lost their sense of belonging, work as aliens for the salaries and exploit wherever opportunity arises to increase indirect income – not categorising all public servants as corrupt. Therefore, the restructure has to be carried out in multiple angles while addressing critical issues and transforming to clean, lean and agile agencies delivering services to the public with profitability.

Organisational restructure and transformation

Organisations resort to restructure to counter financial issues, amounting to high debt, high recurrent costs, address inefficiencies, reposition to the change of business environment and renewed organisation direction, etc. The main objective is to be efficient, competitive in delivering products and services and maintain sustainable growth. Prior to initiating discussions of any transformational process, it is vital to revalidate and assess the organisational governance framework, employee feedback, interaction, and internal processes for successful outcome.   

The successful restructures in general are carried out bottom up where all levels of employees are involved and briefed the situation of the organisation from the very early stage. The top to bottom approach is likely to face resistance from the employees and trade unions alike with high risk of ending up in a stalemate. From the government communique, it appears the restructure is thrust on employees and will force them to accept government schemes against public will, employee discontent. It is imperative that the involvement, association, communication with staff during the restructure process are vital thus creating a sense of belonging and arriving at a successful plan of action. 

The restructuring of SOEs is not the same as that of private institutions. Broadly, the triggers for change come from various factors and for SOEs it may differ to the overall scheme of things but fall into very specific areas of improvement. Restructure could also be planned in stages so that the management be given the time to assess its effects.

Nonetheless, some of the factors listed below for change may not be applicable to SOE environment, the list provides an overarching reason for change [A] and mode of carrying out change [B].

[A1] Changing the business environment;

[A2] New methods of operation;

[A3] Buyout; and

[A4] A different direction.

[B1] Mergers and Acquisitions;

[B2] Financials;

[B3] Repositioning;

[B4] Cost reduction;

[B5] Legal; and

[B6] Turnaround. 

With respect to Sri Lankan SOEs the most critical amongst drivers is a cultural change, and the rest are; cut down waste, optimise operating expenditure, debt restructure and merging organisations under one umbrella organisation, delivering similar functions and establishing offices across the country for public convenience in obtaining state services. Decentralisation is to deliver services through various geographical networks of outlets with central processing at the headend agency. These arrangements are in existence in many developed countries as opposed to maintaining individual agencies for each individual service with similar, identical processing and issuance.

Cultural change

A balanced organisational culture is a necessity to be a successful organisation; in Sri Lanka the main reason was lack of recognition and urgently restoring the employees’ sense of belonging. If employees are not valued both laterally and hierarchically, it leads to frustration, inefficiencies ending up with bribery and corruption. The customers, both internal and external, have to be treated equally and not based on friendships and bribes. People with influence and connections tend to get their services promptly as opposed to innocent folks who come for service.

In general, corruption and indiscipline are rooted in the Sri Lankan society, people have no patience to wait in a queue even in a supermarket but try to override others. In the SOE environment, anyone can bypass the queue if one throws money. Therefore, strict rules have to be enforced; as per my personal experience, in Australia public servants, one can only accept not more than $ 5 as a gift, otherwise it must be declared; a Premier of a state lost his job for accepting a wine bottle. Rules must be implemented and the crooks should be exposed as lessons to others. Even with the restructure it is hard to believe this behaviour diminishes unless the rules are enforced without culprits slipping away. Eradication of such behaviours is necessary before any reorganisation and restructure to take place.

The recruitment process to SOEs is totally corrupt, they are to be straightened. Corruption grew since the 1970s where recruitments were based on political connections. In the absence of a robust scheme of promotions aligned with merits and skills, many can hide themselves under the cover of “team work – team performance” without personal contributions. In government service, the increments and promotions are based purely on seniority and not on merits and skills of individuals.

Innovative methods of service delivery

With the COVID-19 pandemic, many organisations have changed from the traditional working model, leveraging the ICT-T resorting to online web-portals and apps for service delivery and changing to “Working from Home” arrangements. Although there are pros and cons, still this working model continues with hybrid arrangements. As most of the Sri Lankan SOE core tasks are centred on service delivery, a need for a fully integrated information system is vital to reap the full benefits prior to transformation. The peripheral services, for example, delivery of drivers’ licences, NIC and passports, motor registrations, and Samurdhi benefits, etc. can be easily decentralised or divested to gain efficiency and retain the core functions centrally with state control; viz.: processing, maintaining records and archiving. There is no essentiality to retain such subsidiary services within the organisation and centralised. As a first step of transformation it could be easily delivered through post offices, sub-post offices or divisional secretariats.

Cut down waste and increase productivity

Laying off employees has to be a continuous process weighing the merits and demerits thus creating a lean and agile organisation. Employees should be given the option to either accept voluntary redundancies, or retirement, with substantial financial packages. And also reposition some of them providing adequate training and upskilling within the same SOE or transfer across other agencies. It is also important to motivate and retain the able staff and prevent brain drain. Motivation is an essential ingredient for employee retention and is managed through job enrichment, empowerment, monetary or non-monetary rewards, workplace recognition, psychic rewards, employee security, autonomy to challenge status quo and bi-annual or annual performance management schemes.

Debt restructure

Nevertheless, this may not strictly apply to Sri Lankan SOEs; there are a few SOEs that fall into this category, for example SriLankan Airlines, Mattala Airport and Hambantota Harbour, Nelum Kuluna, etc. that were built under heavy borrowing at commercial rates without good business cases and understanding the financial returns. Along with the restructure and transformation process, it is an urgent need to have debt restructure done amicably with the debtors to negotiate debt to equity swap keeping the majority state over 51% with the Government.

Divesting – Merger and Acquisition

As highlighted previously, bringing services under one organisation can easily be interpreted as Merger and Acquisition. The service components of the selected SOEs to be acquired and merged with an umbrella organisation for delivering services of all types. This brings efficiency and synergies, as a result, the restructure to be carried out integrating and migrating resources, and systems and retiring the duplicate standalone systems thus saving operational costs. Leveraging the synergies of the merged agencies will enable us to swiftly plan out staff redundancies effectively.

Restructures take different forms; either bring to one umbrella organisation, offering similar services or divest multiple businesses. In the case of CEB there are distinct areas e.g. the power generation, high-tension transmission, the local distribution consumer network and the billing. These core businesses could be easily divested and transformed and turned into profitable multiple agencies. Furthermore, smart metering through real-time billing needs to be introduced to end manual collection of meter-readings. To prevent oversight of these divested agencies, the State could retain a reasonable stake in them for the purpose of auditing, scrutiny but not interfering with the activities. These arrangements are in place in Australia and work efficiently. The tariff structures of any utility services are determined and approved by a consumer commission based on CPI, usually annual basis and politicians have no say.

Productivity and resource utilisation

The productivity of the SOE sector undoubtedly is very low; uplifting both resource utilisation and occupancy is an urgent need to gain efficiency, productivity and be a path for recovering losses with strong cash flow, balance sheet and P&L. Ministers and top-ranking officials are to be held responsible for the losses hitherto recorded due to interferences. In this respect, Merger and Acquisitions provide tangible solutions opening the path for divesting some of the service units to operate by the private sector. Government should provide a roadmap identifying areas within SOE to be sold to experienced private operators. Back in the late 1950s and 1960s the nationalisation policy gained popularity arousing curiosity thus showing patriotism; this ideology regained momentum and became an election slogan from mid-2000 until Sri Lanka became bankrupt. These cheap moves ruined the country to the current state where it needs to borrow money to pay loans. 

Conclusion

Restructure or transformation are not only to privatise, divest interest or cease impact on state treasury but it goes further. For this reason, as said earlier the term restructure is loosely defined and spoken in local context. Upon transformation of the selected interests, the State should retain its responsibility to ensure services are offered in a timely manner as anticipated by the public, unabated. The new organisation should be lean and agile to withstand any turbulence by extraneous factors or change in operational landscape thus continue offering the services with quality. Will the restructure or the transformations proposed by the Government address all issues highlighted in this paper? I believe not, but to earn one off income by selling profitable businesses “cheaply and quickly” overlooking underperforming interest. The selling price will be determined by the demand, which encompasses stability of government, ease of doing business, legal framework and economy. Quo Vadis Sri Lanka!

Transformation, as most think, is not an easy process and cannot be done in a short period. Service integration requires a Fully Integrated Information System interconnecting and linking agencies with high level protection to prevent against cyber-attacks and unauthorised access to vital data, the random; isolated attacks are worrying issues of the Internet space. The implementation of the changes, restructure, transformations should be essentially carried out through program/project management, clearly defining tranches/stages with a competent team of professionals. If carried out on an ad-hoc basis for the sake of change, the consequences will be disastrous and will not be able to revert back easily.