Immediate need for structural reforms in SOEs

Buddhist monks have taken to the streets in recent weeks to protest rising electricity tariffs and called for subsidies for religious places following the recent tariff hike. This week, the Ministry of Power and Energy announced that it is willing to implement a project to install solar panels at places of worship. The cost of the installation is to be paid for by the connection holder. 

This is a more astute move than giving into demands for tariff concessions for places of religious worship. However, it also demonstrates the dire need for structural reforms in the energy sector and in the overall State-Owned Enterprises (SOEs) which have become financially unsustainable. 

The 75% tariff increase by the Ceylon Electricity Board (CEB) recently was the first in eight years. Such an irrational financial model could only be expected in a SOE which is not held accountable for its financial performance.

Losses incurred by SOEs has long been an issue that has worsened fiscal problems in Sri Lanka which has contributed significantly to the current economic crisis. Prolonged losses by SOEs, partly due to unsound decisions made by policymakers, have resulted in large budget deficits; and despite the need to reform critical SOEs, successive Governments have failed to achieve this in a genuine and sustainable manner. 

The lumbering giants such as the CEB, and the Ceylon Petroleum Corporation have become a burden on the taxpayer and a drain on the country’s finances. In 2018, the CEB incurred a loss of Rs. 31.9 billion, that number rose to Rs. 85.4 billion in 2019, and Rs. 62 billion in 2020. The CPC carries a negative equity. SriLankan Airlines is saddled with $ 1 billion in debt and other dues apart from massive losses. 

Exacerbating the issue is the fact that there are hardly any audit reports for the numerous SOEs. Even obtaining a complete list of SOEs is a challenge with limited information in the public domain and the Department of Public Enterprises has not released an annual report since 2018. Right to information requests often go unanswered. 

In the past, reports compiled by COPE and the Auditor General have highlighted repeated instances of fraud, mismanagement, corruption and negligence. The issues no longer appear to be isolated incidents of opportunistic behaviour by individuals, or occasional lapses in control, but point to deeper structural weaknesses, which need to be addressed by reforms.

Political appointees, poor governance and management, absence of market-based pricing and powerful trade unions that scuttle both good and bad reforms have been some of many perennial issues plaguing Sri Lanka’s SOEs for decades. However, reforms, which could include public-private partnerships or outright privatisation, come with political dangers that the current Government which does not have a popular mandate may be reluctant to tackle.

With the country in the midst of an unprecedented economic crisis, the public coffers can no longer afford to be burdened with financing such inefficient entities. Addressing the matter of SOEs must go hand-in-hand with the rest of the Government’s economic priorities if Sri Lanka is to emerge clear from its current economic crisis. 

The CEB, CPC and SriLankan Airlines are good places 

to start this much-needed reform. It would be a true 

measure of the Government if it could finally deliver on these much-needed reforms.