• IMF says company model depends on effectiveness of governance

Sri Lanka’s proposed Temasek-type holding company for the State-owned Enterprises(SOE) governance under the new SOE law has risks if not structured and governed properly, the International Monetary Fund(IMF) said.

Accordingly, the success of the holding company model will depend upon the effectiveness of its governance and that there is a risk if the holding company is not well structured and governed.

“Its existence will only add a further layer to the governance structure of SOEs and therefore further undermine their transparency and accountability,” IMF said.

The Government expects to promulgate a SOE Act in the coming months to give legislative authority and operational effect. 

IMF said that the principles elaborated in the reform policy broadly align with good practice and, if realised, should result in improved fiscal and governance outcomes from commercial SOEs.

“While commercialisation should help in removing line ministries from the management of state-owned firms, the success of the approach is very much reliant on the independence, capability and diligence of the holding company board and its management and the oversight of the holding company itself,” It said.

Furthermore, it said that under the SOE reform policy, there is a critical role for an “advisory committee” in the appointment and oversight of the holding company and the proposed Articles of the holding company provide for the appointment of the Advisory Committee devoid of political influence.

IMF also said that there is equally a strong need to establish model performance contracts to support more effective leadership of state companies. All commercial SOEs should publish quarterly accounts and an annual report similar to listed entities.