• COPE welcomes Govt. plan to restructure SOEs: Dr. Charitha Herath
• Suggests PPPs for National Carrier, Railways
• Subsidised fuel and non-payment by SOEs have left CPC in debt
• Govt. needs to pass long-term power generation for CEB through Parliament: Dr. Herath
• Handunnetti calls for feasibility studies on failing SOEs and competent ministers for portfolios
• Robust counter corruption mechanisms needed

By Skandha Gunasekara Following a Government decision to restructure a number of State-Owned Enterprises (SOEs) that have been running at a loss, The Sunday Morning looked at what has been plaguing organisations such as the Ceylon Petroleum Corporation (CPC), the Ceylon Electricity Board (CEB), and the National Carrier – SriLankan Airlines. At a time when the country is facing its most severe financial crisis borne out of a massive foreign exchange shortage, mitigating losses of SOEs – particularly these three – which need foreign currency to conduct operations and services will certainly be beneficial. The need for public oversight, transparency, and credible management without political interference in the running of SOEs is vital for the troubled organisations to be reformed and become more efficient.  Over the years, the CEB, CPC and SriLankan Airlines have been heavily criticised by the Parliamentary watchdog committee – the Committee on Public Enterprises (COPE) – for mismanagement and corruption, leading to heavy financial losses. SriLankan Airlines Chair of the most recent COPE, Dr. Charitha Herath, speaking to The Sunday Morning welcomed the Government’s decision to restructure and noted that SriLankan Airlines was one of the main loss-making institutions. “Firstly, it is a welcome move if the Government is going to restructure the key SOEs. The second thing is that I think out of all the SOEs, SriLankan is one of the major agencies that any Government should look at. I don’t know what plan the current Government has on this issue, but I think it will be focusing on SriLankan Airlines as one of the priorities.” Dr. Herath pointed out that the COPE Committee had gathered reports on SriLankan and was ready to discuss proposals just before Parliament was prorogued prematurely, expressing hope that when the Parliament recommenced its duties, the next COPE Committee would continue with the process where the last one left off. “The COPE had instructed the Ministry of Aviation and SriLankan Airlines to submit three separate proposals. One was the proposal from the current SriLankan Airlines Director Board laying out how their business will be effective, productive, and profitable in the future – their plan. The second proposal we have requested, which was submitted, was from the State Minister of Aviation, and they have come up with their plan in the proposals. The third proposal that we requested was the expert committee’s observations and proposals and that also was submitted back to the COPE. At the time the ninth Parliament’s first session was prorogued by the President we had all these three proposals on our table. Unfortunately, we were not able to discuss them since the Parliament was prorogued and I think the next committee will take up this issue and the reports and will conduct further discussion,” the COPE Chairperson opined, adding that in the case of the loss-making National Carrier, options were available to change the status quo. Dr. Herath said one of the three options discussed regarding improving the profitability of SriLankan Airlines was a Public-Private Partnership (PPP). “Actually, there are three main positions. One is to run the business as it is with more plans and strategies. This season they made a lot of good progress, but still there are a lot of issues to settle. The second position is to revise and reform the existing arrangements and identify a couple of different entities within this one main entity, like catering service, ground handling, and fuelling. These can be looked at as three separate different companies. Then the main airline transportation business could be reformed; that is another way. The third one is to look at this as a Government venture and reform it through a PPP, with public and private stakes.” Ceylon Petroleum Corporation With regard to the CPC, Dr. Herath pointed out that most of its losses were due to it subsidising other State enterprises, explaining that other SOEs or departments would get fuel on credit from the CPC and fail to repay. “The CPC has a heavy issue since it is being used by the Government, and has been used by almost all governments, to subsidise many other facilities. The CGR – Railways Department – was supported by the CPC and it was not paid back. The aviation and the airline businesses are supported by the CPC where it had given fuel to airlines, but it was not paid back. The Aviation Department has collected foreign airlines’ money as international currencies, but it is repaying the CPC in local currency. Therefore, the CPC has to buy back foreign currency to pay its bills,” Dr. Herath said. He added that the CEB was also guilty of obtaining subsidised diesel from the CPC and failing to clear its debt over the years. “There are other State-related institutions which are using CPC facilities and have not paid back. The CPC story is very sad; its losses were not mainly based on its inefficiencies or issues but on Government policies. Half of the issues are faults of others that have been put in its lap. For example, the Government policy to give consumers fuel at a low rate – then the losses should be repaid by the Government to the CPC. However, such repayment was not done. Then the airlines taking fuel is another issue. This has resulted in the CPC having to borrow money to buy stocks. Now it has to fuel the CEB plants but the money for such fuel sales have not been recovered from the CEB. The CPC is in a very sad position due to the faults of other enterprises.”   Ceylon Electricity Board Commenting on the State electricity provider, the CEB, Dr. Herath alleged that successive governments had failed to identify a main source of power generation and that forces within the enterprise with ulterior motives were holding back the development of cheap sources of energy generation.  “The CEB issue is a completely different and very complicated issue. At the moment we are using almost all the sources to generate energy – hydro, thermal, coal, and wind. We use almost all the sources, but none of these have been highlighted or identified by the Government as main sources. It is a complicated industry under the Government and should be revisited.” He said the best way to resolve the issue was to have Parliament pass a long-term power generation plan so that such a policy could not be interfered with. “I’m talking about the generation plan for the next 20 years. There are different kinds of plans – engineers have developed one and the Cabinet has approved one and so on. But what we need to do is get this plan approved by Parliament, not by only Cabinet; that is my point. Then it can be passed as another type of regulation.” Railways and Postal Departments In addition, he said the Committee on Public Accounts (COPA) had also identified the Railways Department as loss making and that the Government should look at a PPP for that too, taking the success of Sri Lanka Telecom as an example. “Reviews by COPA have revealed that some of the departments are making huge losses to the State. One is the Railways Department, which is a very important department, but no measures have been taken to revise and reform this very important institution. There should be a revolutionary policy intervention to reform the Postal and Railway Departments, which could become very profitable industries, even under State ownership.  “We have very good examples of PPPs between the State and outside partners – for instance, the reforming of Telecom. It was a Telecommunication Department before 1994. It is now a very successful case that we have seen. I think the Postal Department and Railways Department could look at that story and see how they could develop their agencies in order to provide good services to the country and good profit to the State.” Reforming the right way Meanwhile, COPE Chairman during the period of the previous Parliament, Janatha Vimukthi Peramuna (JVP) MP Sunil Handunnetti said that feasibility studies of each enterprise were essential before going for restructuring. He charged that subject ministers without proper knowledge of the issues intervening had caused more problems than solved them over the years. “A feasibility study must be done for each State enterprise first if a restructuring of any sort is to be carried out. Whether an enterprise needs restructuring, privatisation, or whatever other changes, a minister or ministers cannot decide that on their own. A proper study and audit must first be done to see what the problems are and what the solutions to those problems are. The issue has been that these enterprises have been incurring losses all these years because ministers interfere and take wrong decisions. What level of restructuring should be done? What can be done to minimise losses? Are there issues with management? Are there issues regarding political interference? All these things must be first found out through feasibility studies and a series of vetting processes of each enterprise.” He questioned how and why SOEs were incurring losses, especially since all of them charged consumers for their respective services. “If you take the CPC, it has no competition other than the Indian Oil Company – that too was brought down by the Government. There are no private sector oil companies in Sri Lanka to provide domestic competition and an alternative to the CPC. Similarly, the CEB too is the same – LECO (Lanka Electricity Company) is mostly State-owned. The same goes for SriLankan Airlines – there are no local private airlines in Sri Lanka. So SriLankan is a State-sponsored enterprise with financial protection of the Treasury which also gets fuel subsidised from the CPC. CEB also gets diesel from the CPC on credit. There must be a reason for these enterprises to be incurring such massive losses, especially since they are SOEs. Consumers don’t buy fuel for free or get electricity for free or fly overseas for free. All these services provided by these enterprises are paid for by the public and obtained. So how are they incurring losses? The easy solution would be to sell these enterprises while the harder solution would be to bring in reforms and rebuild these enterprises.” He asserted that the Minister of Finance should not decide on solutions to the crises faced by these institutions. “We believe that SriLankan Airlines, CEB and the CPC must be under the purview of the Government but not interfered with by the Government. But how much of a purview the Government has cannot be decided on the whims and fancies of the Minister of Finance.” Energy mafia and political patronage Handunnetti said that an energy mafia had been growing within the CEB and that political patronage was one of its causes. “With regard to the issues within the CEB such as its reluctance to shift to renewable energy despite the rest of the world having already done so, it is clearly because of a mafia among the CEB employees. Those in this mafia have been appointed by the Government and some in the Government are a part of this mafia. There is so much corruption because politicians and their friends as well as senior officials have their own mini hydro power plants or private diesel power plants that provide electricity to the CEB for a profit. These are the ones who have sponsored this mafia within the CEB by bribing everyone from the Minister downwards. That is why the problem persists,” Handunnetti alleged, adding that the Minister must take the decision to break this mafia. Debt mitigation Commenting on the CPC, Handunnetti said that debt mitigation was the need of the hour and that this could be done by the State simply by writing off the debt, noting that it may have not been done so far because corrupt politicians were hoping to sell to a private company while profiting through commissions. “When it comes to the CPC, what is really needed is to resolve the issue of massive debt it holds. That can easily be done by the State by writing off the debt. The Ministers of Power and Energy should come to a consensus and write off the debt, because all their profits or losses fall in the same account – the Treasury. If both these Ministers can agree on selling the Kerawalapitiya Power Plant or giving the Trinco Oil Tank Farms to India, why can’t they agree on writing off the debt? All their money falls into the Consolidated Fund of the Treasury. I even proposed this to the COPE. It is a simple matter of adjusting the account. Both are State-owned.” Feasibility study and financial audits Handunnetti opined that a feasibility study and financial audits of SriLankan Airlines were needed to ascertain what changes were required. “For SriLankan Airlines, first a proper feasibility study and audit must be done. They brought down various international advisors paying thousands of dollars to bring in reforms so that it becomes profitable but it never worked. How can a minister decide what to do to fix the problems at SriLankan Airlines without knowing what the problems are in the first place? A proper feasibility study, a performance audit, and a finance audit must be done. Decisions can only be taken after that. Ministers should not be allowed to make decisions because they gain profit through commissions by selling these.” Strengthening COPE He also called for COPE to have officials from the Attorney General’s Department so that legal action could be directly instituted from COPE investigations instead of wasting time with additional investigations of other investigative authorities. “COPE needs to have more teeth. It needs to have its own officials from the Attorney General’s Department and judicial officers. This way when an investigation is done by COPE and fraud and corruption comes to light then those responsible can be arrested and charged then and there. There would be no need to conduct another preliminary investigation by another arm of the law such as the Police or the Bribery Commission and do another whole round and waste time. By then the five-year term of Parliament and the COPE would be over.” Restructuring CPC and SriLankan CPC Chairman Sumith Wijesinghe commended the decision of the Government to restructure and said that discussions would soon be held to come up with the necessary proposals in this regard. “It is a welcome move. We haven’t started discussions. Once we have started discussions, we will come up with proposals on how we can turn things around. It may not necessarily restructure but we will bring in some significant changes.” Meanwhile SriLankan Airlines Chairman Ashok Pathirage pointed out that restructuring had been ongoing within the enterprise. “Restructuring is what we have been doing from day one. It is continuing.”