Government to Implement SOE Policy amidst Restructuring Delays

August 09, Colombo (LNW): The government has developed a comprehensive State-Owned Enterprise (SOE) policy and has begun divestiture processes for several entities, attracting significant interest from both local and international investors. However, the speed and approach of these reforms have caused concern among trade unions and employees.

Sri Lanka’s SOEs have managed to turn financial losses into profits in the first six months of this year, despite delays in restructuring certain entities. The SOE Act is designed to align with good governance principles and, if implemented properly, could improve both fiscal and governance outcomes for commercial SOEs. 

Key factors for success include the independence, competence, and diligence of the holding company’s board and management, alongside effective oversight mechanisms such as an advisory committee free from political interference.

The IMF has recommended model performance contracts and transparency measures, including quarterly accounts and annual reports, to enhance accountability. The proposed bill, which is being finalized by the Attorney General, aims to reduce financial stress on State banks from Treasury guarantees for loss-making SOEs and increase SOE transparency.

 It also addresses issues like overstaffing, with around 80 SOEs slated for restructuring, some of which will be granted a grace period for revival.The SOE Restructuring Unit (SOERU) has identified 60 key SOEs for restructuring, including high-profile entities like the Ceylon Electricity Board (CEB), Sri Lanka Insurance Corporation Ltd. (SLIC), and Sri Lankan Airlines.

 Despite the government’s previous calls for bids and shortlisting of companies, President Ranil Wickremesinghe’s administration has not restructured any SOEs in the past two years. Delays in restructuring at least seven entities over the past eight months have been attributed to the government’s emphasis on transparency, maximizing value, protecting employee rights, and improving service quality, according to State Minister of Finance Ranjith Siyambalapitiya.

In the first half of 2024, 52 key SOEs recorded a collective profit of Rs. 185.9 billion, up from Rs. 144 billion in the same period of 2023. Finance ministry data shows that key SOEs turned a total loss of Rs. 743 billion in 2022 into a profit of Rs. 456 billion in 2023.

The government has called for bids on several state-owned entities, including Hotel Developers Lanka Ltd, Canwill Holdings Pvt Ltd, Lanka Hospitals Corporation PLC, Sri Lanka Telecom PLC, Litro Gas Lanka Limited, and Sri Lanka Insurance Corporation. However, the restructuring process has slowed due to political uncertainty with the upcoming presidential election. Pre-qualified bidders for Sri Lanka Telecom (SLT) include India’s Jio Platforms Ltd. and China’s Gortune International Investment Holding Ltd., according to finance ministry sources.

Respondents to RFQs for Sri Lanka Insurance Corporation Life Ltd. include LIC (Lanka) Ltd., Union Assurance PLC, and Asiri Hospital Holdings PLC. For Sri Lanka Insurance Corporation General Ltd., respondents are Fair first Insurance Ltd. and Euro Exim Bank Ltd. The next step for these entities is the issuance of RFP documents.

Canwill Holdings, the parent company of Sino Lanka Hotels & Spa Ltd. and Helanco Hotels & Spa Ltd., received proposals from six bidders, including five Indian firms and one Sri Lankan firm.