Restructured SOEs to be converted into limited liability companies – Suresh Shah

By Hiran H.Senewiratne

A new legislature would be in place by the middle of this year to restructure 130 State Owned Enterprises (SOE), which would not accommodate any political appointments to their Boards because they will be converted into limited liability companies, Head, State-Owned Enterprises Restructuring Unit (SOERU), Suresh Shah said.

‘At present, out of 130 SOEs in the country, 17 are non- operational but the Boards of directors are still functioning in them. In respect of 85 entities, state intervention is not necessary. These would need to be sold but with regard to the balance; government intervention is needed, Shah said.

Shah made these observations at a recent seminar titled, “Enhancing Efficiency of State Owned Enterprises”, organized by the Organization of Professional Associations of Sri Lanka (OPA). It was attended by a large number of professionals.

Shah said that enhancing efficiency of state owned enterprises is immensely important considering the country’s current economic situation and added that Sri Lanka Telecom, CPC and CEB should be definitely privatized for the betterment of the people of the country.

Shah added: ‘CPC, Sri Lanka Telecom and CEB get guarantees from the Treasury and raise loans from state banks. When those loans cannot be settled, the state banks’ balance sheets are at stake.

‘Therefore, Sri Lanka Telecom and some major parts of the CEB should be privatized to enhance the services being provided to the people of the country. Even CPC should be privatized for the sake of the people who need a better service.

‘SOE entities will be restructured based on nine principles. All appointments to Boards must be done through the Constitutional Council. Politicians should not get involved in appointments.

‘Approximately 85 institutions were identified as being suitable for divestment. Among the challenges that had been identified by the SOE Restructuring Unit were; subsidies, the appointment of unsuitable directors, overstaffing, and circular debt.

‘Consequently, the Unit had come up with a number of recommendations that included, divestment of loss-making or non-strategic SOEs, bringing all such enterprises under the Finance Ministry, while making them limited liability companies.

‘The importance of not “parking” subsidies with state banks should be emphasized. The government should create a better environment to attract investors to the country. Singapore is a fine example of this.

‘Divestiture guidelines would be crafted by the Unit with experts’ ideas and once divested, these entities would be holding companies and profits would be divided as dividends among the owners of the entity, as in listed companies.’

Secretary to the Treasury and the Ministry of Finance Mahinda Siriwardena highlighted that state owned enterprises have both positive and negative impacts on the economy. ‘The government was also implementing institutional reforms to improve the balance sheets of these enterprises. Another key reform was bringing all SOEs under the control of a holding company, he said.

Siriwardana also noted that strict regulations would be brought regarding the appointment of directors. He said reducing the losses in some SOEs is the priority of the government and strict regulations will be brought in future when appointing directors, chairmen etc.