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Can revival of SOEs create the opportunity to alleviate the crushing debt burden?

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Pathfinder Economic Alert: Proposal for budget speech

The Government of Sri Lanka has announced that it will implement reforms and strategies to revive state-owned enterprises (SOEs), while maintaining its policy decision to discontinue privatisation. Effective implementation of the proposed reforms would increase the value of SOEs. An important issue to be addressed is whether this creates an opportunity to raise financing for alleviating the country’s onerous debt burden. The crushing effects of this debt burden on the people of this country has been demonstrated by the constrained response of the Government in protecting people and livelihoods during the pandemic.

Sri Lanka’s fiscal stimulus as a percentage of GDP has been significantly lower than comparable countries. The Central Bank and a well-capitalized banking system have been able to step into the breach. However, the impact of the burden imposed on the capital adequacy of the banking system will only be known after the moratoriums are lifted. The Government’s success in containing the pandemic (March – September 2020) was a major positive factor in coping with its unprecedented effects, particularly through the early opening up of the economy.

This note argues that the Government’s efforts to reform SOEs creates an opportunity to address the onerous debt burden by selling public assets. Where the Government intends to retain control, it can consider selling minority stakes. However, there is a strong case for the sale of assets like the Hilton and Hyatt hotels once market conditions become more favourable. The emergence of a vaccine that is 90 percent effective is likely to accelerate the bounce back of the hotel and tourism sector

The Government is seeking to introduce a holistic programme of reform for improving the management of SOEs. In doing so, there is merit in drawing on the Statements of Intent (SOIs) drawn up by the major SOEs in recent years. The current initiative is pushing for the professionalization of the management of SOEs through rigorous recruitment schemes and capacity building in order to promote prudent decision-making and operational efficiency. The upgraded management teams will be called upon to develop medium-term strategic plans which identify growth strategies, including through business process engineering, mergers and amalgamations. These new business models are expected to respond to emerging opportunities in the post-pandemic world and meet challenges particularly in relation to logistics and supply chain resilience. Each SOE will also be expected to develop robust key performance indicators. In addition, monitoring mechanisms are to be established at the line ministries and Treasury.

An important gap in the proposed reforms relates to pricing policy. The largest proportion of the losses incurred by SOEs is attributable to pricing policy. Economic services (CPC, CEB, SLTB, SLR and NWS&DB) are provided below cost. There is a considerable body of empirical research which demonstrates that such subsidies are a very inefficient means of supporting the poor and vulnerable. In practice, they tend to benefit higher income groups disproportionately. It is more effective to provide a social safety net through a well-designed and targeted income transfer scheme. The highly inefficient (poorly designed and poorly targeted) Samurdhi Programme should be reformed to achieve this objective. This would provide greater leeway for adopting pricing policies that do not impose an unsustainable burden on the Government Budget and /or balance sheets of state banks. The current subsidy-based model of delivering economic services is no longer affordable given the highly constrained fiscal space and the debt dynamics which threaten the well being of the people.

The Pathfinder Foundation is concerned that the lack of fiscal space and the possibility of a debt crisis highlights the unsustainability of the Government being the employer of first resort. Sri Lanka’s post-colonial history involves the commitment of successive governments to creating unproductive public sector employment. However, the current highly constrained fiscal space calls for a radical re-think of the traditional approach of the Government being the employer of first resort. Historically, successive governments have been unwilling or unable to introduce economic reforms that would increase gainful employment outside the government sector. For SOE reforms to be effective, there should be complementary policies which generate productive employment opportunities thoughout the economy.

 

The Way Forward

The agenda for reforming SOEs includes the following: improved corporate governance; appointment of competent CEOs; recruitment of qualified professionals for procurement, finance, human resource development and other key management positions; adoption of realistic pricing policies and investment strategies; institutionalizing performance audit and financial management controls; and expenditure management. Success depends on taking tough decisions. It is noteworthy that governments, such as Norway and Abu Dhabi, have refused to provide additional financial support to their national airlines even though these two jurisdictions have two of the largest sovereign wealth funds in the world. Yet Sri Lanka, despite its parlous public finances, has not been able to take tough decisions in relation to its national carrier.

Successful implementation of SOE reforms will reduce the burden on the budget and strengthen state bank balance sheets. In addition, the valuation of these enterprises will be enhanced and the opportunity will be created to consider very seriously how a programme of asset disposal can contribute to alleviating the unsustainable debt burden. This course of action would be a less painful option for the general public than raising taxes or cutting priority expenditure.

Consideration should be given to categorizing state-owned assets into those which can be sold outright, such as the Hilton and Hyatt hotels. A second category could be assets which can generate considerable financing for the Government through the sale of minority stakes. For instance, the sale of 10-15 percent of the Bank of Ceylon and People’s Bank would generate a considerable amount of money. Part of this can be allocated to the employees of the institutions. Furthermore, if these stakes are sold through the stock market, the listing regulations would result in disclosure requirements which would improve corporate governance. There could be a third category of public assets for which the Government can decide there should be no change in ownership structure.

A separate vehicle can be created (similar to a sinking fund) into which the sale proceeds can be credited. These funds can be earmarked solely for the purpose of debt-management. The timing of such transactions should be determined by the improvement in market conditions. It would be timely to commence thinking about such an initiative at a time when sentiment and confidence, at home and abroad, is being boosted by the emergence of a vaccine which is over 90 percent effective.

The Pathfinder Foundation believes that the Budget Speech (Nov 17, 2020) provides an opportunity for the Government to elaborate on such a programme which offers the prospect of reducing the debt burden in a manner that contains the pain inflicted on the people of Sri Lanka. Such a programme will also transmit a positive signal to investors and creditors, both at home and abroad, as well as to rating agencies thereby increasing the credit worthiness of the country.

This is a PATHFINDER ALERT of the Pathfinder Foundation. Readers’ comments are welcome at www.pathfinderfoundation.org



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Diesel replacement costs up to Rs. 4.5 bn in April

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Norochcholai Power Plant

Coal power generation falls by 27 GWh

A sharp decline in coal-fired electricity generation in April 2026, compared to the corresponding month last year, may have cost Sri Lanka more than Rs. 4.5 billion, as the country was compelled to rely on significantly more expensive diesel-powered generation to make up the shortfall, according to power sector data.

The coal-based electricity generation, in April 2026, was 27 GWh lower than in April 2025, a development that has sparked concern among energy experts and economists over the mounting financial burden on the country’s already strained power sector.

Industry calculations reveal that generating the lost 27 GWh through diesel-fired power plants would require approximately 8.1 million litres of fuel, based on a standard consumption rate of 0.3 litres per kilowatt-hour.

With fuel costs estimated at around USD 286 per barrel, or roughly USD 1.80 per litre, the replacement power would have cost approximately USD 14.57 million. At the prevailing exchange rate of about Rs. 315 to the US dollar, the bill exceeds Rs. 4.5 billion for April alone.

Energy sector analysts say the figure highlights the enormous economic value of maintaining high availability at coal-fired power plants, particularly at a time when Sri Lanka is seeking to reduce electricity costs and strengthen energy security.

“The financial impact of losing low-cost coal generation is substantial. Every unit not generated by coal has to be replaced by a much more expensive source, usually diesel or fuel oil, which ultimately affects the finances of the power sector and the wider economy,” a senior energy analyst said.

Even under a more conservative calculation, based on the average electricity generation cost of around Rs. 72 per unit recorded in 2025, the loss remains significant. The 27 million units not generated from coal would translate into an additional cost burden of nearly Rs. 2 billion.

The decline in coal generation comes at a critical juncture for Sri Lanka’s energy sector.

 The government has repeatedly emphasised the need to maintain affordable electricity tariffs, while reducing dependence on imported fossil fuels and expanding renewable energy capacity.

Experts warn that any sustained reduction in low-cost baseload generation could undermine these objectives, increasing the need for costly thermal power and placing additional pressure on foreign exchange reserves.

The latest figures are expected to intensify scrutiny of generation planning, fuel procurement strategies and the operational performance of major power plants. They also underscore the importance of ensuring uninterrupted operation of coal-fired facilities until sufficient renewable and storage capacity is available to replace them reliably.

With the country striving to maintain economic stability and energy affordability, analysts argue that avoiding such generation shortfalls must remain a top priority for policymakers and power sector planners.

By Ifham Nizam

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Sallay on hunger strike: Counsel warns CID

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Sallay

Asith Siriwardena Counsel for former Director of State Intelligence Service, Major General (Retd.) Suresh Sallay, detained under the Prevention of Terrorism Act (PTA) over the 2019 Easter Sunday attacks, has called upion the Director of the CID, SSP G. S. Abeysekara, to transfer his client either to a private or government hospital to receive urgently needed teatment.

Sallay was on a hunger strike, claiming mistreatment by the CID, his wife said, after visting him, yesterday.

Siriwardena wrote to the CID Director yesterday (07) after Sallay was visited by his wife, son and brother.

The text of the letter: “The family observed that Mr. Sallay’s physical condition has deteriorated to an alarming and critical level.

“He is reportedly unable to attend the visitation without the physical assistance of two officers. During the visit, he informed his family that he had refused medication, saline, food, and water. He further expressed a belief that his death is imminent and requested that arrangements be made for the donation of his eyes. He also requested an immediate visit from his Attorney for the purpose of executing his last will and other related legal documentation.

“These statements, and circumstances, demonstrate a grave deterioration in his physical and psychological condition. It is apparent that he is no longer capable of making rational decisions concerning his own welfare, health, and survival.

The prolonged conditions, under which he is presently being held have, at the very least, created a serious and immediate risk to his life.

“The State assumes a non-delegable duty of care toward every person held in its custody. Once an individual is deprived of liberty, the responsibility for safeguarding that person’s life, health, and wellbeing rests squarely upon the authorities exercising control over that individual. Any failure to discharge that duty in the face of a known and imminent medical emergency is a matter of the utmost legal seriousness.

“You are hereby formally notified that Mr. Sallay requires immediate medical intervention by qualified independent medical professionals and urgent transfer to an appropriate hospital facility capable of providing comprehensive assessment and treatment. Any delay, refusal, or failure to act despite clear knowledge of his precarious condition may give rise to personal and institutional liability under the criminal and civil law of Sri Lanka

“Should General Sallay suffer irreversible injury or death while remaining in the present conditions despite this explicit warning, it will be open to the relevant authorities, courts, and investigative bodies to examine whether such conduct amounts to a deliberate disregard of a known and foreseeable risk to life. Those responsible for decisions concerning his continued detention and medical care may be required to account personally for their actions and omissions.

“Accordingly, I demand that:

1. Mr. Sallay be transferred forthwith to a government or private hospital equipped to provide urgent medical treatment;

2. He be examined immediately by independent medical specialists, including psychiatric professionals if necessary; His legal representatives and family be granted reasonable access to him;

3. A written update on his medical status and the measures taken for his protection be provided without delay. This letter constitutes formal notice. Any further failure to act despite knowledge of the circumstances set out herein will be relied upon in any future judicial, criminal, constitutional, or international proceedings arising from harm suffered by my client.”

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Opp. questions why Rs 10 bn meant for Ditwah victims held in Treasury account

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Sanjeewa

The Opposition says the NPP government should explain why the funds received by Rebuilding Sri Lanka haven’t been utilised to provide relief to those affected by Ditwah cyclone in late November last year.

The failure on the part of the government to utilise as much as Rs 10 bn, received from local and foreign donors, came to light when the National Audit Office (NAO) appeared before the Public Finance Commission recently.

The NAO told the House Committee that no statutory fund currently existed under the name “Rebuilding Sri Lanka” and the programme operated through an account maintained under the Deputy Secretary to the Treasury.

The NAO declared that no payments had been made through this account to date.

Former SLPP MP Sanjeewa Edirimanne said that until the disclosure made by the NAO the country had been led to believe the Rebuilding Sri Lanka fund provided post-Ditwah relief. Pointing out that JVP General Secretary Tilvin Silva’s declaration in Jaffna that funds allocated to hold Provincial Council polls

had been utilised to assist Ditwah victims, Edirimanne said such blatant lies were propagated while the government held on to Rs 10 bn meant for the disaster victims.SJB MP Mujibur Rahman questioned the rationale behind keeping funds received specifically for Ditwah victims still living under extremely difficult conditions. (SF)

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