• Prof. Rohan Samarajiva and Prof. Charitha Herath call for national discourse and attitudinal change regarding SOE reforms   

The factors that have brought many State enterprises to near-bankruptcy are not purely financial, and therefore, the reforms that need to be initiated to salvage these enterprises cannot be purely financial either.

Among these non-financial aspects are short-sighted plans, politically motivated decisions and projects, the unscientific establishment of Government enterprises, nepotism, undue perks, not having identified the true objectives of various State enterprises, and the lack of motivation within the public and political authorities to initiate effective reform processes. According to two experts who have been vocal about State sector reforms – LIRNEasia Chair Prof. Rohan Samarajiva, and Committee on Public Accounts (COPA) ChairmanMP Prof. Charitha Herath – above all, there is a pressing need of a national level discourse and attitudinal change about these reforms. They discussed this during an online discussion organised by the National Movement for Social Justice.

Attitudes towards State enterprises

Prof. Herath explained how the Government’s attitudes towards State enterprises conducting businesses and the private sector’s involvement in businesses remained stagnant even after considerable changes in the economy that changed the two sectors’ role in businesses. 

“Before the introduction of the open economy in 1977, the understanding of the private sector was a very passive one, and between 1948 and 1978, the growth of private entrepreneurship was very slow. In this context, based on the idea that the Government should carry out all economic activities, it gave itself the place of the main customer or the entrepreneur of the country. However, this attitude did not change in parallel with the 1977 economic change. From the perspective of trade unions, State entrepreneurship is considered a necessary element of the State. That is a result of not having recognised within what limitations State entrepreneurship becomes a part of entrepreneurship, and whether the State could conduct businesses in parallel with the 1977 economic openness. This is one of the issues that emerged in the discourse on State entrepreneurship.”

Prof. Herath added that at present, there are 30 ministries, 40 State ministries, 98 departments, 214 corporations, 125 State-owned companies that are not categorised as corporations, eight State banks, and 65 State funds, which are identified as aspects of State entrepreneurship. Even though various initiatives, including the appointment of various institutions, were taken from time to time after 1978 in order to reform, streamline and privatise some of these institutions that make up State entrepreneurship, he stressed that many of them did not bear fruit.

Meanwhile, Prof. Samarajiva explained attitudes towards State enterprises in the present context, pointing out that State enterprises have not received the adequate amount or type of support that they need. He explained the concept called the “cost of money” (which refers to interest rates and other such payments that are applicable to certain uses of money such as for investments or loans), adding that regardless of the emphasis on getting the private sector’s support in national level initiatives, the State could procure funds at a lower cost of money. He added that therefore, in various projects such as drinking water or road construction projects, it is important to ensure that the State plays a role in them. 

“However, in the context of the ongoing crisis, that factor (the State’s role) has been forgotten. In any State enterprise, there is a lack of investments that has led to issues, including such enterprises not being adequately developed to cater to even the existing needs,” he said, adding that even the investments that have been made are largely for the maintenance of the workforce and not for infrastructure development. 

Three crucial steps

According to Prof. Herath, Sri Lanka’s approach to reforming State enterprises should comprise three steps, namely, building national-level consensus on the type of reforms necessary, strengthening the existing Parliamentary mechanisms with regard to managing State enterprises, and creating a discourse on the process of reforming State enterprises. 

Opining that national consensus is necessary with regard to reforming State enterprises and institutions, which some governments claim to have done but did not, Prof. Herath explained: “First of all, a strong social consensus should be built around this matter. There is however an issue surrounding State enterprises. All these institutions are eventually linked to the Executive Presidency. The person that is holding the Executive Presidency appoints Cabinet Ministers, and therefore, it is the Executive Presidency that controls them. In this context, if we look at whether the Parliament has been able to follow up on the financial management of these institutions, I am of the opinion that it is at a very weak level.” 

Quoting the relevant clauses of the Constitution, Prof. Herath said that even though those Constitutional provisions have provided for the proper management of State enterprises, especially financial aspects, to some extent, he is of the view that it has not been successful. 

“The existing Parliamentary mechanism aimed at managing State enterprises must be further strengthened. What is more, in the event of restructuring of State enterprises, that should not be turned into a separate business. This is the next serious issue. Thus far, restructuring processes have reduced the weight on the State. However, these processes, which started as an initiative aimed at reducing the burden on the State, resorted to nepotism. In fact, only a handful of such processes were free of nepotism,” he explained, emphasising that due to the above mentioned situation, a discourse on the process of restructuring is also necessary. 

He added: “President Ranil Wickremesinghe stated that certain State enterprises should be restructured. I questioned the basis on which that statement was made, and later, he said that the present Government is of the opinion that it cannot conduct business. Even if we accepted it and the Government thought that it should sell certain assets that are operating under it in order to make United States Dollar based revenue, a consensus on the structure, through which it should be done, is necessary. There is no point in turning this into a project of handing over State assets to the friends of those in the Government.”

Priorities and objectives

The matter of what sort of reforms should be introduced to State enterprises depends mainly on what the objectives of various elements of the State sector are. Having wrong priorities and objectives, according to Prof. Samarajiva, is one of the main reasons that Sri Lanka is in a state where it has to look into reforming a large number of State enterprises. 

He explained: “It is important to look into where to obtain funds amidst the crisis. I was involved in water supply-related projects for around two years. During that time, there was an idea that money was essentially limitless, because the Government led by then-President Gotabaya Rajapaksa had given priority to providing drinking water to the people. The engineers that were involved were under the impression that the Treasury provides unlimited funds that need not be repaid. That era has come to an end, and it is not possible to provide funds in that manner any longer. 

“What is more, our country has gone bankrupt. Such a country cannot obtain loans from banks. In this context, there is no option but to look into alternative sources of funding. If we keep these institutions with no investments and to satisfy the employees merely because they are owned by the State, not only will they not develop any further and will continue to not function in dire situations, but they will also collapse.”

He pointed out that if Sri Lanka continues to depend on borrowed money instead of investing in long term, sustainable projects such as renewable energy projects, even if the country gets out of the prevailing economic crisis, the country will still find itself in a debt crisis. Adding that such a situation would prompt the country to seek the International Monetary Fund’s (IMF) assistance again, he opined that it would make recovery impossible. Although a number of steps need to be taken to avoid that, Sri Lanka has to do that within certain limitations. 

Prof. Samarajiva explained: “In this context, we have to prioritise the nature of fresh steps that we could take within the limits that have been created in the context of the ongoing crisis, over various agreements including those with trade unions and employees, social contracts, and the people’s expectations. One thing that we tend to forget about is that various sectors have various objectives. For example, we think that maintaining a National Airline is our objective, when, in reality, our objective in this regard should be to have a transport system that is suitable for the people, tourists and those visiting the country for businesses. Within that system, at some point, we can ask whether we want a State owned Airline. However, the main question should be with regard to a transport system.”

In addition, Prof. Samarajiva pointed out that at certain points in history, various steps have been taken with no nationally beneficial objective due to politically motivated reasons; one example being the creation of the Mihin Lanka Airline. 

“As a person that has served as a Head of a State Institution, we assign a massive importance to maintaining peace within those institutions with no strikes or disputes. We can see its repercussions. Certain institutions such as the Ceylon Electricity Board and the National Water Supply and Drainage Board, increase salaries by 25% once every few years with no performance reviews. Even the Pay As You Earn tax, which should come from employees’ salaries, is paid by the State institution in which they are employed. We can see how the objectives of these institutions have become keeping their employees happy while deviating from the main objective.”

He also spoke of how national security related concerns have been linked to various projects for the public, especially those funded by foreign countries and entities, and how questionable such concerns could be. He opined that in such situations, it is crucial to identify what exactly the threats are that such initiatives could pose to national security and to take measures to deal with them, instead of mixing up national security with foreign investments. 

Overall, Prof. Samarajiva added that there is no blanket solution to improve the situation of all the State institutions that need to be looked into, and that tailor made solutions that match the state of various institutions are necessary. 

Bullet points

• A national-level consensus on necessary State enterprises reforms, the strengthening of Parliamentary mechanisms for managing State enterprises, a discourse on the process of reforming State enterprises, necessary for successful State sector reforms:  Prof. Charitha Herath
• SL has to prioritise nationally beneficial reforms over keeping State sector employees and people happy: Prof. Rohan Samarajiva