• Despite economic revival programme, questions loom over transparency and propriety of process

In the aftermath of one of Sri Lanka’s worst economic crises, exacerbated by the Covid-19 pandemic, the Government has initiated a new project to restructure State-Owned Enterprises (SOEs). While these reforms are touted as necessary for economic revival, they have sparked a contentious debate over the transparency and propriety of the process and the looming impact on the country’s workforce.

For decades, Sri Lanka’s SOEs have been pivotal in the country’s socioeconomic development, providing essential services and infrastructure that drive economic growth. However, they have also been plagued by inefficiency, corruption, and financial mismanagement, making them a significant burden on the national budget. In response to the economic crisis, the Government established the SOE Restructuring Unit (SOERU) in 2022, earmarking Rs. 200 million for the initiative.

The SOERU has identified 60 key SOEs for restructuring, including high-profile entities such as the Ceylon Electricity Board (CEB), Sri Lanka Insurance Corporation Ltd. (SLIC), and SriLankan Airlines. The Government has already drafted a comprehensive SOE policy and initiated the process of divestiture for several entities, attracting significant interest from local and foreign investors. However, the haste and manner in which these reforms are being implemented have raised alarms among trade unions and employees.

Trade unions up in arms

Trade unions have been vocal in their opposition, accusing the Government of lacking transparency and failing to adhere to proper procedures. 

Lanka Viduli Sevaka Sangamaya (LVSS) President Ranjan Jayalal expressed deep concern over the exclusion of major employee unions from discussions. “No one’s listening to the employees. This is the Sri Lankan workforce. How can they ignore the local workforce completely?” Jayalal lamented, highlighting the uncertainty surrounding the quota for local employees in the restructured entities.

Ceylon Petroleum Common Workers’ Union (CPCWU) President Ashoka Ranwala echoed similar sentiments. He alleged that senior officials at the Sapugaskanda Oil Refinery, Sri Lanka’s sole refinery, had been promised lucrative positions in the new company, incentivising them to support the restructuring. 

“If they go ahead with this move, a number of employees will lose their jobs,” Ranwala warned, noting that only about 200 of the current 650 employees would be retained in the new SOE, with the rest placed in a pool for future consideration.

Despite these criticisms, the Government maintains that the restructuring process is being conducted in accordance with stipulated procedures.

Government stance

SOERU Director General Suresh Shah emphasised that the reforms were essential for the long-term viability of SOEs and the country’s economic stability. He pointed to the successful completion of the SOE policy draft, the issuance of requests for Expressions of Interest (EOIs) for divestitures, and the appointment of transaction advisors as evidence of progress.

“Seven entities were approved for divestiture and we have already received proposals for three of them,” Shah stated. He added that new laws governing SOEs were being drafted and would be submitted to Parliament early next year. These laws are expected to streamline the restructuring process and ensure that it is conducted transparently and efficiently.

The restructuring of SOEs is poised to have a profound impact on Sri Lanka’s workforce. The immediate concern is the potential loss of jobs, as seen in the case of the Sapugaskanda Oil Refinery. The uncertainty surrounding job security is causing anxiety among employees, who fear being left in limbo without clear communication from the Government.

Moreover, the exclusion of trade unions from key discussions exacerbates these concerns. Without a seat at the table, employees feel disenfranchised and vulnerable to decisions that may not be in their best interest. The lack of transparency in the process has further eroded trust between the Government and the workforce, complicating efforts to achieve a smooth transition.

Opportunities

While the restructuring of SOEs is fraught with challenges, it also presents opportunities for revitalising Sri Lanka’s economy. Successful divestitures could attract significant foreign investment, modernise key sectors, and improve the overall efficiency and productivity of these enterprises. 

For instance, the keen interest shown by local and foreign investors in acquiring stakes in Lanka Hospitals Ltd. and Hotel Developers Lanka Ltd. underscores the potential for strategic partnerships that could drive growth and innovation.

As trade unions continue to raise their voices, restructuring is imperative for the Government to foster a collaborative approach that balances the need for reform with the rights and well-being of employees.

IMF stance

In such a backdrop, the International Monetary Fund (IMF) has shown cautious optimism regarding Sri Lanka’s proposed Temasek-type holding company for SOEs, emphasising that robust governance is crucial for its success. 

According to the IMF, while the holding company model aims to improve governance by removing direct management by line ministries, it also carries risks of adding layers that could compromise transparency and accountability.

The IMF acknowledged that the forthcoming SOE Act aligns with good governance principles and could improve fiscal and governance outcomes for commercial SOEs if implemented properly. Key factors for success include the independence, competence, and diligence of the holding company’s board and management, as well as effective oversight mechanisms like an advisory committee free from political influence. The IMF recommended model performance contracts and transparency measures such as quarterly accounts and annual reports to enhance accountability.

Aims of proposed bill

As reliably learnt by The Sunday Morning, the proposed bill, being finalised by the Attorney General, aims to reduce the financial stress on State banks from Treasury guarantees for loss-making SOEs and increase the transparency of SOEs. It includes provisions for regular financial statement publications and addresses employee issues like overstaffing. Approximately 80 SOEs will undergo restructuring, with some granted a grace period for revival.

A senior Government official who wished to remain anonymous said that all commercial SOEs would be subject to divestment, except in matters of national security or where private participation was not feasible.

The State will hold shares in commercial entities only through a holding company, ensuring professionalism, productivity, and competitiveness. All commercial SOEs will be registered under the Companies Act and managed by holding companies, ending the current system where the Ministry of Finance retains full control.

Attempts to contact State Minister of Finance Shehan Semasinghe, Finance Ministry Secretary Mahinda Siriwardana, and Treasury Deputy Secretary Priyantha Rathnayake were futile.