News

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

Published

4 years ago

2020/11/15

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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Project to distribute smart boards for 1,000 schools with the goal of enhancing education has completely failed to meet its objectives and the investment of LKR 1.7 billion has been underutilized -PM

Published

2 hours ago

2025/03/17

Priyan

Prime Minister Dr. Harini Amarasuriya stated that the project to distribute smart boards for 1,000 schools with the goal of enhancing education has completely failed to meet its objectives and the investment of LKR 1.7 billion has been underutilized.

The Minister of Education, Higher Education and Vocational Education, Prime Minister Dr. Harini Amarasuriya made these remarks in the Parliament complex on Saturday [March 15, 2025] while discussing the project to establish networked classrooms by facilitating smart boards to the school system.

The Cabinet Memorandum No. AMP/24/0385/601/027 and the Cabinet decision dated March 4, 2024 has been presented for the approval of the provision of digital smart boards and other related equipment to 1,000 selected schools, with the objective of enhancing education through the establishment of a systematic network of smart classrooms within the school system funded by the Sri Lanka Telecommunications Regulatory Commission (TRCSL).

Subsequently, an additional Cabinet Memorandum, No. AMP/24/0978/630/009, dated May 14, 2024, was presented, proposing the implementation of this project in alignment with the project proposed by Chinese government for digitalizing Schools. Under this Chinese-funded project, plans were made to establish a centralized control center and a studio facility, along with the provision of an additional 500 smart boards. Accordingly, the integration of both projects was proposed to create a network of smart classrooms across 1,500 schools.

The cabinet decision has been presented requiring Sri Lankan Government to purchase smart boards with specifications identical to the smart boards which were proposed to be distributed by the Chinese Government.

In line with the Cabinet decision of May 14, 2024, the procurement for the 1,000 smart boards began in July 2024. However, at the time of purchase, the project proposed by the Chinese Government was still at the discussion stage, and no official agreement had been reached regarding the technical specifications of the smart boards.

However, the procurement was carried out through the Sri Lanka State Trading (General) Corporation without a competitive bidding process, relying on price quotations obtained from a single supplier based on unclear sources that were not officially verified by the Chinese government. The Sri Lanka Telecommunications Regulatory Commission incurred the full cost of LKR 1.7 billion, with an additional LKR 430 million allocated for services and installation.

The aforementioned procurement appears to have been conducted at an unusually accelerated pace when compared to the standard procedure typically followed for high-value procurements. Specifically, price quotations were requested on July 5, 2024, opened on July 15, 2024, and by July 16, 2024, the Technical Evaluation Committee had completed and submitted the report. Subsequently, the report was reviewed by the Standing Procurement Committee appointed by the Cabinet on July 17 and 18, 2024, with recommendations being provided on the same day. These recommendations were then submitted to the Cabinet on July 23, 2024, and approval was granted on July 30, 2024. Followed by this, the purchase requisition was issued to the supplier on August 5, 2024. Accordingly, the entire procurement process was completed within a span of one month.

As part of this procurement, a Letter of Credit was opened to facilitate the payment of USD 3,135,392.50 for 1,000 smart boards to Intelligent Express Limited Hong Kong, which has been identified as a representative of Huawei. While the relevant Cabinet paper indicated Huawei as the designated manufacturer supplying the smart boards under the Chinese funding project, the Chinese government has not yet confirmed the selection of such a supplier for this project.

According to aforementioned purchase requisition, the purchased smart boards and related equipment were delivered to the Ministry of Education in October 2024 and are currently stored at Pattala Gedara Teacher’s Training College. Although the procurement of the aforementioned Smart boards by the Sri Lankan Government has been finalized, the relevant project, which was intended to be implemented under the funding of Chinese government, has not yet commenced and a final agreement regarding its implementation has not been reached.

Prior to reaching a final agreement on the network integration facilities and centralized system proposed by the Chinese government, the procurement of these smart boards has resulted in the inability to utilize the equipment for the intended purpose. It is expected that the Chinese aid project is at the discussion stage, and the implementation may extend until the end of this year. Further, no official decision has been made regarding the selection of a supplier for the project.

Given this situation, if the 1,000 smart boards and other equipment currently stored in warehouses are to be distributed to schools, school principals must be provided with clear instructions on their proper use. However, due to the delay in implementing the project under the funding of the Chinese government, specific guidelines on the installation and utilization of the equipment cannot yet be issued.

Since network integration cannot be carried out at this stage, these smart boards can only be used as standalone classroom units. As a result, the objectives of the project will not be met, and the investment of LKR 1.7 billion made might be considered to be underutilized.

A formal investigation has been initiated to determine whether financial and procedural irregularities have occurred in this procurement. Additionally, discussions are currently continued with the Chinese government, and efforts are being made to secure the proposed facilities from China at the earliest convenience.

[Prime Minister’s Media Division]

News

LG polls: Sajith spurns UNP’s March 20 deadline

Published

6 hours ago

2025/03/17

Thilina Walpola

SLPP rebel group distances itself from RW

By Shamindra Ferdinando

Samagi Jana Balawegaya (SJB) leader Sajith Premadasa yesterday (16) said that his party wouldn’t allow its agenda and timetable to be decided by political parties that weren’t even represented in Parliament.

Lawmaker Premadasa, who is also the Opposition Leader, said so when The Island sought his response to the UNP setting March 20 deadline for the SJB to declare its intention to join forces to contest the upcoming Colombo Municipal Council election. The main Opposition SJB parliamentary group consists of 40, whereas the UNP doesn’t have a single seat in the current Parliament. In the previous Parliament, the UNP was limited to just one national List MP.

The UNP also declared its readiness to expand the alliance to contest the local elections in other parts of the country. Nominations are scheduled to close at 12 noon on March 20th.

Colombo District parliamentarian Premadasa emphasized that they had decided to contest under the SJB’s telephone symbol. Members of the SJB-led coalition were also contesting under the telephone symbol, the SJB Leader said. The SJBer indicated that there was neither space no time for negotiations with the UNP.

Elections are to be held to 336 local bodies. The 336 LG bodies consist of 28 Municipal Councils, 36 Urban Councils and 272 Pradeshiya Sabhas. However, the Kalmunai Municipal Council, Dehiattakandiya Pradeshiya Sabha (Ampara District), Mannar Pradeshiya Sabha (Mannar District), Punakari Pradeshiya Sabha (Kilinochchi District), and Elpitiya Pradeshiya Sabha (Galle District) are excluded from the forthcoming election.

The last LG polls were held on Feb. 10, 2018. Former SLPP Minister Dr. Ramesh Pathirana told The Island that their efforts to somehow unite various warring factions, ahead of the LG polls, weren’t successful. Dr. Pathirana had been among the group of dissident SLPP MPs who contested/backed the New Democratic Front (NDF) led by Ranil Wickremesinghe at the last general election.

Dr. Pathirana said that they would be fielding independent groups for selected LG bodies, while some returned to the SLPP, and the rest got back to the SLFP. At the time of last general election, the group, represented by Dr. Pathirana, consisted of about 60 SLPP MPs.

Dr. Pathirana indicated that their group had completely distanced themselves from Wickremesinghe-led political grouping that backed the UNP leader’s candidature at the presidential election and contested the general election under the NDF’s Swan symbol.

Dr. Pathirana stressed that they couldn’t pose a proper challenge to the National People’s Power (NPP) at the LG polls unless various SLPP factions rejoined. The SLPP secured 145 seats at the 2020 general election and at the next it was reduced to just three.

Opposition sources said that due to the much deteriorated status of the UNP it would find it extremely difficult to field fully fledged teams at LG polls. Sources confirmed that no political party represented in Parliament had shown any interest in joining forces, let alone the main Opposition party.

The UNP didn’t even contest the Elpitiya LG polls held soon after the last parliamentary polls in late Nov. last year.

News

Ranil rejects Batalanda report wholesale

Published

6 hours ago

2025/03/17

Thilina Walpola

Ranil Wickremesinghe

Former President Ranil Wickremesinghe yesterday rejected the Batalanda Commission report in its entirety.

“I wholly reject the report. No one can say the report was kept hidden. It was published as a sessional paper in 2000, but no one, including the JVP, asked for a debate,” Wickremeisnmghe said in a special statement.

He also said that there was no precedent in this country, or anywhere else in the world, of debating a sessional paper 25 years after it was published.

Making a special statement Wickremeisnghe said: “The Commission has only questioned my action to heed the request by then State Minister of Defence Ranjan Wijeratne to provide accommodation to the security forces which provided security to important state owned institutions in Biyagama during the height of the JVP insurrection of 1987/89.”

He pointed out that the Commission report mentions the heinous terrorist acts committed by the JVP during the 1988-90 period.

“I was only summoned as a witness. According to the Commission’s findings, I was implicated only in the matter of providing housing for police officers, which, as per regulations, should have been done through the Inspector General of Police. The report indicates that both Nalin Delgoda and I were indirectly responsibile for this process.

Apart from this, I was not implicated in any other allegations in the Commission’s report,” Wickremesinghe said.

The former President pointed out that the report was made available to Parliament in 2000, yet no party, including the JVP, requested a debate on it.

The full statement by former President Ranil Wickremesinghe:

In 1987, following the signing of the Indo-Lanka Accord, the JVP launched a wave of terror across the country.

During this period, President J.R. Jayewardene assigned the responsibility of securing key locations in the country to Cabinet Ministers. Several economically significant sites were located in the Biyagama area, including the oil refinery, diesel power plant, the substation supplying electricity from Mahaweli to Colombo, and the free trade zone. The military was deployed to safeguard these locations.

To accommodate security personnel, it was decided to provide them with abandoned buildings and houses owned by the Lanka Fertiliser Manufacturing Corporation. At the time, several employees of the Ceylon Electricity Board were residing in some of these houses.

During this period of terror, the Sapugaskanda Police Station was attacked, and its Officer-in-Charge was killed. In response, Deputy Minister of Defence Ranjan Wijeratne contacted me, requesting that the vacant houses in the complex be allocated to military and police personnel for their security. Consequently, the administrator at the time took steps to hand over the houses to Kelani Police Chief Nalin Delgoda.

Several individuals, including a Provincial Councillor, a cooperative society chairman, and a police sergeant, were assassinated during this period. Additionally, an attack was carried out on the residence of another Provincial Council member.

The government in power took steps to restore the country’s stability, rebuilding the economy and ensuring national security.

After 1994, President Chandrika Bandaranaike Kumaratunga appointed a Commission to investigate allegations of a torture centre in the Batalanda area. Several individuals were summoned before the Commission, and I was called as a witness. At that time, I was serving as the Leader of the Opposition. The establishment of the Batalanda Commission was politically motivated, but the attempt to use it for political gain was unsuccessful.

According to the Commission’s findings, I was implicated only in the matter of providing housing for police officers, which, as per regulations, should have been done through the Inspector General of Police. The report indicates that both Nalin Delgoda and I were indirectly responsibile for this process.

Apart from this, I was not implicated in any other allegations in the Commission’s report. The report also extensively documented the JVP’s terrorist activities between 1988 and 1990, detailing the background and listing numerous violent acts committed by the JVP in Chapter Three. The entire history of those events is included in the report.

Beyond these findings, no other accusations in the report are relevant to me, and I completely reject the report.

No one can claim that the Batalanda Commission report was hidden. It was made available as a parliamentary session record in 2000, yet no one, including the JVP, requested a debate on it. Many did not accept the report, which may explain why no steps were taken to debate it in Parliament.

It is also noteworthy that no political party that came to power has attempted to use the report for political advantage. Furthermore, there is no precedent in Sri Lanka or other parliaments for debating a session record 25 years after its publication.