Govt. mulls mass public sector reforms

Economic downturn

Government efforts at Public-Private Partnerships (PPPs) have to be uncomplicated and centered on reality checks of past failures said panelists who participated in the closing session of the Sri Lanka Economic Summit 2016, organised by the Ceylon Chamber of Commerce (CCC).

Development Strategies and International Trade Minister Malik Samarawickrama, Foreign Minister Mangala Samraweera, JVP leader Anura Kumara Dissanayake and Performance Management and Delivery Unit (PERMANDU) Malaysia Chief Executive Officer (CEO) Dato Sri Idris Jala sat in on the discussion, which tackled the grave need to reform State-Owned Enterprises (SOEs) to reduce Government debt and encourage development.

Taking a candid and eloquent approach to the key economic concerns currently gripping Sri Lanka, Janatha Vimukthi Peramuna (JVP) leader Anura Kumara Dissanayake told the gathering at the Sri Lanka Economic Summit 2016 that the public had genuine concerns over the Government’s plans as they were not clearly communicated and were not underpinned by effective implementation.

“We understand the Government has to find solutions to repay debt. But we must also remember that Sri Lanka has a small economy and in such a constrained space it is very easy to set up monopolies that will negatively impact the poor. This is why we feel that at key levels State intervention is necessary to regulate the market.”

Failed privatisation 

Taking the example of rice, Dissanayake pointed out that the dominance of two companies was driving up the price of rice while driving down the price of paddy, resulting in both the farmer and the consumer suffering.

However, he acknowledged that the JVP would support the offloading of non-essential public enterprises that were not directly improving the living standard of the poor.

“The Prime Minister has said in Parliament that 43% of Sri Lanka’s population lives on less than Rs. 200 a day. What a terrible indictment of the development of this country. How can your businesses be sustained or developed in such an environment? These are issues that need to be seriously considered.”

Dissanayake defended the masses resistance to privatisation by pointing out that while the Government was keen to recall the successful privatisation of Sri Lanka Telecom (SLT) they were averse to talk about numerous ventures such as the Sevanagala and Kanthale sugar plantations, Kankasanthurai cement factory, paper mills and handloom factories in Pugoda; all of which went into bankruptcy after privatisation.

“The public have logical concerns because they have seen these bad experiences. That is why they are against privatisation. This Government talks about sweeping reform but has failed to even put together a clear Budget. There are huge implementation bottlenecks. Forget a five-year plan, give us a Budget that can be followed for just one year without amendments,” he told Foreign Minister Mangala Samaraweera and Development Strategies and International Trade Minister Malik Samarawickrama.

Public Enterprise Act forthcoming              

Samarawickrama in his turn noted that public enterprises were part of the public wealth of the people of Sri Lankans. Therefore it was absolutely necessary to set up a framework to help State-Owned Enterprises (SOEs) manage and operate as efficient commercial enterprises based on prudent commercial principles with resources on par with or greater than comparable enterprises in the private sector.

With this objective in mind, the Government will shortly introduce a Public Enterprise Act in the next month. A Public Enterprise Board has also been indentified and will compromise representatives of the private sector and members of the public sector and members of trade unions and will be chaired by a private sector individual.

“The large loss incurred by SOEs over several decades has been a major drag on the development prospects of the country. Reducing these losses make a significant contribution to releasing resources needed to achieve the development objectives of our Government. These losses undermine fiscal consolidation of our Budget and balance sheets of State Banks. While it is true that some of the SOEs have made profits I believe they do not meet their full potential. These are certainly not run as efficiently as they should be,” he said.

The first channel through which the general population is affected by these losses is through the Government Budget. This means the Government has to raise tax revenues to meet these losses or else the Government has to borrow the money domestically and from broad. These debts have to be repaid by the people through future taxes. One way or another people have to bear the cost of financing these debts, clearly the revenue for these losses has to come out of the pockets of all citizens of Sri Lanka, the Minister noted.

“The second channel through which SOEs constrain national development involves state banks financing these institutions and carrying their accumulated losses on their balance sheets. This leads to an increase in the interest rates fixed in the two State banks. The private banks enjoy a free ride by following the money market trends set by the two State banks, which are the two main players in the banking sector here in Sri Lanka. This results in higher lending rates for all customers. While this has an adverse impact on all business sectors, it has the strongest impact on SMEs that have a lower negotiating capacity. I must reiterate that ultimately it is the people who have to bear the costs of loss-making SOEs through higher taxes and higher interest rates.”

 

Improved management 

There are of course a number of recommendations, which have been made to improve the performance of these enterprises. Management practices need to be inculcated that demand accountability and transparency of these decision-making processors of boards.

In parallel, operational independence needs to be increased to respond to market signals thereby reducing the need for Government assistance at a time when fiscal space is constrained and increasing competitiveness of services and lowering prices for consumers. The performance of SOEs, particularly monopolies, should be benchmarked against international standards. Efficiency can also be enhanced through competition through private participation, performance and management contracting as done in China.

“As you are aware the Government is also examining the relevance of Singapore’s Temasek model for us in Sri Lanka. We hope it will enhance competition and push them to enhance efficiency of service delivery. The balance sheets of some SOEs such as the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) have been undermined by what are effectively Government subsidies. These subsidies need to be rationalised and limited by the Government Budget. The traditions of shifting parts of the Government Budget deficit to the balance sheets of SOEs and State Banks should be disconnected. The financial health of these enterprises can also be improved by addressing funds that are owned to them from other Government agencies.”

The balance sheets of two State banks from losses incurred by SOEs would facilitate the reduction of interest rates and boost investment and enhance the profitability of these enterprises. It would also lead to a lower interest rate regime. The disposal of non-strategic State assets would have positive fiscal impact at a time when the Government finances are being constrained by lower and commercial SOEs listing on the stock exchange will increase disclosure thereby leading to the improvement of operational efficiency.

– See more at: http://www.ft.lk/article/559206/Govt–mulls-mass-public-sector-reforms#sthash.0T3qQjqi.dpuf

Five-year plan

“Let me also say something in the encouragement of public services. Public-Private-Partnerships (PPPs) have added advantages on tapping into new technologies and expertise. Risk sharing in contracts PPPs can also contribute to reduction in costs and delays in construction. In addition, PPPs can increase the capacity of the industry and bring more innovation to specific sectors. Several countries including Chile, Brazil, Malaysia, Peru and South Africa have developed comprehensive frameworks for including PPPs in development projects. Experience also shows that a strong PPP framework, which clearly lays out policy, legal and institutional obligations for contracting PPPS goes a long way for creating the enabling environment to attract PPP. Our Government is working with the Asian Development Bank (ADB) and the World Bank to create such a framework.

“Over the next few months it is our intention to dispose of hotels, Lanka Hospitals and private commercial property in Colombo business districts via the stock exchange or through requests for proposals. Various options are also being considered for SriLankan Airlines on an urgent basis. We are also in the process of finalising PPP or joint venture arrangements of the Hambantota Port and Mattala Airport, thereby reducing the heavy debt burden. These transactions will be conducted in an open and transparent manner.”

The Prime Minister in his forthcoming presentation of the five-year plan will set out strategies for SOE reform and disposal of non-strategic state assets, Samarawickrama stated.

“By way of a final word let me emphasise that it is no longer viable for the Government to allow continued loss-making by the SOEs, the lack of fiscal space indentified by the debt burden simply does not allow for this. Through a combination of restructuring and the sale of non-strategic private assets, the Government is determined to effectively address this longstanding problem which has been a major drag on the development of the country.”

Government efforts at Public-Private Partnerships (PPPs) have to be uncomplicated and centered on reality checks of past failures said panelists who participated in the closing session of the Sri Lanka Economic Summit 2016, organised by the Ceylon Chamber of Commerce (CCC).

Development Strategies and International Trade Minister Malik Samarawickrama, Foreign Minister Mangala Samraweera, JVP leader Anura Kumara Dissanayake and Performance Management and Delivery Unit (PERMANDU) Malaysia Chief Executive Officer (CEO) Dato Sri Idris Jala sat in on the discussion, which tackled the grave need to reform State-Owned Enterprises (SOEs) to reduce Government debt and encourage development.

Taking a candid and eloquent approach to the key economic concerns currently gripping Sri Lanka, Janatha Vimukthi Peramuna (JVP) leader Anura Kumara Dissanayake told the gathering at the Sri Lanka Economic Summit 2016 that the public had genuine concerns over the Government’s plans as they were not clearly communicated and were not underpinned by effective implementation.

“We understand the Government has to find solutions to repay debt. But we must also remember that Sri Lanka has a small economy and in such a constrained space it is very easy to set up monopolies that will negatively impact the poor. This is why we feel that at key levels State intervention is necessary to regulate the market.”

Failed privatisation 

Taking the example of rice, Dissanayake pointed out that the dominance of two companies was driving up the price of rice while driving down the price of paddy, resulting in both the farmer and the consumer suffering.

However, he acknowledged that the JVP would support the offloading of non-essential public enterprises that were not directly improving the living standard of the poor.

“The Prime Minister has said in Parliament that 43% of Sri Lanka’s population lives on less than Rs. 200 a day. What a terrible indictment of the development of this country. How can your businesses be sustained or developed in such an environment? These are issues that need to be seriously considered.”

Dissanayake defended the masses resistance to privatisation by pointing out that while the Government was keen to recall the successful privatisation of Sri Lanka Telecom (SLT) they were averse to talk about numerous ventures such as the Sevanagala and Kanthale sugar plantations, Kankasanthurai cement factory, paper mills and handloom factories in Pugoda; all of which went into bankruptcy after privatisation.

“The public have logical concerns because they have seen these bad experiences. That is why they are against privatisation. This Government talks about sweeping reform but has failed to even put together a clear Budget. There are huge implementation bottlenecks. Forget a five-year plan, give us a Budget that can be followed for just one year without amendments,” he told Foreign Minister Mangala Samaraweera and Development Strategies and International Trade Minister Malik Samarawickrama.

Public Enterprise Act forthcoming              

Samarawickrama in his turn noted that public enterprises were part of the public wealth of the people of Sri Lankans. Therefore it was absolutely necessary to set up a framework to help State-Owned Enterprises (SOEs) manage and operate as efficient commercial enterprises based on prudent commercial principles with resources on par with or greater than comparable enterprises in the private sector.

With this objective in mind, the Government will shortly introduce a Public Enterprise Act in the next month. A Public Enterprise Board has also been indentified and will compromise representatives of the private sector and members of the public sector and members of trade unions and will be chaired by a private sector individual.

“The large loss incurred by SOEs over several decades has been a major drag on the development prospects of the country. Reducing these losses make a significant contribution to releasing resources needed to achieve the development objectives of our Government. These losses undermine fiscal consolidation of our Budget and balance sheets of State Banks. While it is true that some of the SOEs have made profits I believe they do not meet their full potential. These are certainly not run as efficiently as they should be,” he said.

The first channel through which the general population is affected by these losses is through the Government Budget. This means the Government has to raise tax revenues to meet these losses or else the Government has to borrow the money domestically and from broad. These debts have to be repaid by the people through future taxes. One way or another people have to bear the cost of financing these debts, clearly the revenue for these losses has to come out of the pockets of all citizens of Sri Lanka, the Minister noted.

“The second channel through which SOEs constrain national development involves state banks financing these institutions and carrying their accumulated losses on their balance sheets. This leads to an increase in the interest rates fixed in the two State banks. The private banks enjoy a free ride by following the money market trends set by the two State banks, which are the two main players in the banking sector here in Sri Lanka. This results in higher lending rates for all customers. While this has an adverse impact on all business sectors, it has the strongest impact on SMEs that have a lower negotiating capacity. I must reiterate that ultimately it is the people who have to bear the costs of loss-making SOEs through higher taxes and higher interest rates.”

Improved management 

There are of course a number of recommendations, which have been made to improve the performance of these enterprises. Management practices need to be inculcated that demand accountability and transparency of these decision-making processors of boards.

In parallel, operational independence needs to be increased to respond to market signals thereby reducing the need for Government assistance at a time when fiscal space is constrained and increasing competitiveness of services and lowering prices for consumers. The performance of SOEs, particularly monopolies, should be benchmarked against international standards. Efficiency can also be enhanced through competition through private participation, performance and management contracting as done in China.

“As you are aware the Government is also examining the relevance of Singapore’s Temasek model for us in Sri Lanka. We hope it will enhance competition and push them to enhance efficiency of service delivery. The balance sheets of some SOEs such as the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) have been undermined by what are effectively Government subsidies. These subsidies need to be rationalised and limited by the Government Budget. The traditions of shifting parts of the Government Budget deficit to the balance sheets of SOEs and State Banks should be disconnected. The financial health of these enterprises can also be improved by addressing funds that are owned to them from other Government agencies.”

The balance sheets of two State banks from losses incurred by SOEs would facilitate the reduction of interest rates and boost investment and enhance the profitability of these enterprises. It would also lead to a lower interest rate regime. The disposal of non-strategic State assets would have positive fiscal impact at a time when the Government finances are being constrained by lower and commercial SOEs listing on the stock exchange will increase disclosure thereby leading to the improvement of operational efficiency. (Daily FT)

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