The head of the State-Owned Enterprises (SOEs) Restructuring Committee Suresh Shah noted that Sri Lanka’s plans to restructure its state-owned enterprises involve a combination of divestment and reform to address long-standing challenges and improve the efficiency and professionalism of these entities.
The government’s approach includes selling the majority of stakes in commercial SOEs and retaining those that provide essential services or have national security implications. This initiative is expected to have a significant impact on the country’s economic landscape.
Shah said, “We hope to do the less complex institutions during the first quarter of next
year and the more complex institutions during the second quarter of next year.” Shah was speaking on September 7, addressing the CAL Restart Sri Lanka conference.
Approximately 130 commercial state-owned enterprises are the primary target. Cabinet approval has been granted to divest seven key enterprises, including Sri Lankan Airlines, Sri Lanka Telecom, and Lanka Hospitals.
Transaction advisors have been appointed for each of these entities. The divestment process involves extensive due diligence to address challenges and ensure clean transactions. Valuations will be conducted by both transaction advisors and the chief government valuer.
The divestment process will follow a two-pronged approach, beginning with issuing EOIs and later evaluating RFPs.
The policy emphasizes not parking subsidies within SOEs and maintaining efficient staffing levels. Investor protection measures are also being considered to prevent reversals of privatizations.
The process for restructuring has already begun the process of making the SOEs compliant with the existing regulations of the country.
Accordingly, Sri Lanka Insurance Corporation is expected to separate its General and Life Insurance businesses. SriLankan Airlines is aggressively being sold for its access into the fast-growing Indian aviation industry.
Shah said the majority of SOE management is supportive of the reform efforts. Adding that they are eager to break free from government systems and processes that have hindered their efficiency.
While some concerns exist, officials are confident that private capital and the right investors will help these companies grow and become more efficient. Public-Private Partnerships (PPPs) will play a significant role in the reform process, and a separate PPP unit and legislation are being developed.
The government believes PPPs can help bring in private sector management expertise to enhance the performance of certain state-owned entities.
Shah on mismanagement noted, “The challenge we have faced is that due to political pressures, there have been people who have been employed in these entities although there has not been the real need. Some of these entities are significantly overstaffed.”
The government is implementing a governance structure for SOEs based on nine principles. These principles include clarifying which enterprises should remain under government control, aligning with stock exchange listing rules, and publishing accounts quarterly and annually to enhance transparency.
The government aims to address past flaws in privatization efforts by publishing divestiture guidelines and maintaining transparency throughout the process. Lessons from previous privatizations, including issues with valuations, have informed the current approach.
The potential impact of political changes, particularly during upcoming presidential campaigns, was acknowledged. However, officials believe that as long as SOE reforms do not become a central campaign issue and there is no significant change in government, the risks are manageable. (TP)
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