Managing State mismanagement

By Uditha Jayasinghe

An ambitious plan by the Government to absorb 17 loss making Public Enterprises (PEs) into a new company and restructure them within three years could get off the ground as early as next week, with possible expansion to include other State companies.

Even though the Government plan was to set up the new company late last month, State Resources and Enterprise Development Ministry Secretary Dr. W. Gamage told the Weekend FT that his hands were tied until the director board was approved by President Mahinda Rajapaksa.

“The articles of association are prepared and I am planning to meet the President and obtain his approval mid-next week,” he remarked, adding that only a couple of days more would lapse before the board would be convened and the company launched, with an initial investment of Rs. 100 million from the Treasury.

The number of directors could span between nine and 11 depending on discussions with the President and Dr. Gamage assured that they would be drawn from a wide field of expertise to find the best way to deal with the challenge.

The ambitious project gained Cabinet approval in August following a paper presented by State Resources and Enterprise Development Minister P. Dayaratne. The company, which will be named ‘State Resources Management Corporation Limited,’ will be established under Act No. 7 of 2007, for the development of underutilised assets belonging to loss-making public enterprises and Rs. 100 million will be transferred from the Treasury as initial capital for the company.

According to the Cabinet Paper submitted for State Resources Management Corporation, overall the PEs in total possess assets amounting to around Rs. 800 billion.

The plan is for public ventures to transfer their non-performing subsidiaries to the new company, which will have powers to form new policies, lease assets and enter into partnerships with the private sector.

“The strategies for the company include guidance to public ventures by formulating new policies for development of underutilised properties, leasing land and assets for a period not exceeding 30 years and investing properties with private sector for a contract period on product-sharing basis and consolidating small enterprises into larger one,” Dr. Gamage said.

He added that the company would have flexibility to absorb companies beyond those under the State Resources Ministry. “This is a very important decision because there is an incredible amount of public money invested in these companies.”

The Cabinet Paper on the company noted that 21,000 hectares of land owned by Kantale Sugar Factory, five hectares of BCC Company in Colombo, Rubber Production and Export Development Company and National Paper Corporation, as well as over 35,600 hectares of underutilised land belonging to State Plantation Corporation and Janatha Estate Development Board, will be vested under the new company.

According to a Finance Ministry report released in July, the total number of commercial PEs in which the Government had controlling interest was 107 in 2009. In addition, the Government has invested directly or indirectly in 52 subsidiary companies and 20 associate companies of the above parent PEs.

The Government has also purchased shares in 49 companies and is the minority shareholder of those companies.

It also has Golden Share Holding Right in 23 Regional Plantation Companies, of which three companies are owned by the Government, with 100 per cent controlling interest.

The 107 enterprises in which the Government has interest can be classified based on their business as 26 – finance, six – infrastructure, five – port and aviation, nine – trading, nine – agriculture, three – fisheries, 11 – plantation, 16 – construction and manufacturing, 16 – service and six – healthcare.   

During 2009, PEs recorded a turnover of Rs. 793,496 million from their operational activities, which is 16.8 per cent of GDP. The 107 commercial PEs have provided employment to 140,500 persons, which is two per cent of the labour force of Sri Lanka. The Treasury has collected Rs. 2,504 million by way of dividends and Rs. 15,379 million by way of levy during 2009 from the commercial PEs.