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Ten additional SOEs to undergo reforms

Ten additional SOEs to undergo reforms

Ten additional State-Owned Enterprises (SOEs) are expected to sign Statements of Corporate Intent (SCI) in 2018 with the intention of adopting better financial discipline, transparency, accountability and performance.
Finance Minister, Mangala Samaraweera’s proposal advocating reforms to SOEs has been approved by the Cabinet, with the Ceylon Transport Board, Urban Development Authority, Lanka Sathosa, Milco, National Livestock Development Board, State Pharmaceutical Corporation, State Timber Corporation, Lankaputhra Bank, Central Engineering Consultancy Bureau and the State Plantation Corporation expected to sign SCIs in 2018.
At the beginning of 2017 the Ceylon Petroleum Corporation, Ceylon Electricity Board, National Water Supply and Drainage Board, Airport and Aviation Services Ltd. and Sri Lanka Ports Authority were the first SOEs to SCIs earlier this year in keeping with the IMF’s Sri Lanka support programmetargeting the enhancement of oversight and financial discipline.
The objectives of SCI are to establish a transparent framework for strategic performance oversight on SOEs; define the working relationship between the Government and SOEs and allow adequate managerial and operational autonomy of SOEs; hold SOEs’ boards and management accountable for performance based on Key Performance Indicators; and identify and cost SOEs’ non-commercial obligations, for which the Government is ultimately responsible.The SCIs encompass the SOE’s mission, high-level objectives, and multiyear corporate plan; capital expenditure and financing plans; and explicit financial and non-financial targets. They also include the description and cost of non-commercial obligations (NCOs) such as utility subsidies to strengthen transparency and fiscal accountability.¹
What will hopefully ultimately be delivered through the SCIs would be that the SOEs become entities that will operate with budgetary independence in a commercially feasible way, adopting strong precepts of corporate governance, implement sound financial management practices, consolidate proper human resource practices, altering existing operational practices and restructuring business processes in order to turn around efficiency and so that proper return on investment may be generated.
Sri Lanka currently has about 200 public enterprises representing a substantial share of the nation’s economic activity. With technical assistance from the IMF, the Government last year identified outstanding obligations of the central government and SOEs totalling LKR 1.36 trillion in end-2015. These included (i) outstanding obligations of the central government totalling LKR 58 billion, which were settled during 2016 and (ii) those of four SOEs (CPC, CEB, SriLankan Airlines and the Sri Lanka Port Authority) totalling LKR 1.2 trillion. Although some SOEs are profitable and performing well, collectively they represent a risk to public finances (either directly or through the state banks which fund the largest SOEs). A comprehensive strategy for SOE reform and a more rules-based approach to financial management is being developed.²
It was revealed that in 2016 collective earnings from fifty-five SOEs contributed to 13.3% of Sri Lanka’s GDP which was a 1% increase from 2015’s calculated 12.3% contribution.
The GoSL intends to announce non-commercial obligations in the 2018 and 2019 Budgets with a view to enhancing and consolidating the legal bedrock ofgovernance and oversight for SOEs, by also setting up clear financial regulations for SOEs on governance, accountability and funds management.


The GoSL’s intention to turn around SOEs so that they operate like private sector corporations mean that investors who may wish to form Joint Ventures or other form of partnership with these entities may do so without a fear of taking on poorly regulated and run organisations.


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Article Code : VBS/AT/10102017/Z_1

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