Reforms: A silver lining in dark clouds of politics

 

By Gamini Abeywardane

Despite bad news from pandemic, politics and ship wrecks, a horizon of good news is visible in the area of long-delayed economic reforms. Amidst many issues, the government seems to be determined to go ahead with reforms in several sectors --- petroleum, electricity and gas, for the start which can be expanded.

The burden added to the economy by state owned enterprises (SOEs) has been a major obstacle for the economic progress of the country for a long time. Many efforts to reform them, with the exception of telecom and insurance sectors, have failed in the past amidst stiff resistance from the trade unions and short sighted politicians who backed them for petty electoral gains.

Fiscal Management Report 2020–21 of the Ministry of Finance reveals that 31 out of 52 state owned enterprises have incurred an overall loss of Rs 10.4 billion during the first 8 months of 2020. It is just a tip of the iceberg and it is more than obvious that its necessary to reform the state owned enterprises and even the entire public sector itself, if we are to economically progress.

Ceylon Electricity Board, Ceylon Petroleum Corporation, Sri Lankan Airlines, SLTB, Lanka Sathosa, State Engineering Corporation, HDFC Bank and the state owned TV channels Rupavahini and ITN were among the institutions which incurred heavy losses, according to the Finance Ministry.

It is common knowledge that many of these SOEs have no commercial purpose, are riddled with corruption and mismanagement, political interference and consequent lack of professionalism. So much so several years ago an incumbent finance minister referred to the worst of them as a set of monsters swallowing the country’s economy.

But none of them had the political courage to take on the mighty task of reforming them. They instead looked at the immediate political expediency of keeping them as they are, though they very well knew the long term economic disasters such mismanaged entities could bring about.

Despite many pressures from the interested parties to keep these entities under state control, a change of heart by the incumbent Gotabaya Rajapaksa administration is a welcome signal for all those who wish to see some economic progress in our country.

The government last year formed Selendiva Investments, a company fully owned by the Treasury. Selendiva Investments has already created a subsidiary which will be a Special Purpose Vehicle (SPV) to raise capital for the development of three hotel properties: Grand Hyatt Colombo, Colombo Hilton and the Grand Oriental Hotel (GOH). Two more SPVs are to be formed later, one for a real estate cluster and another for the creation of a ‘heritage square’.

The new SPV will infuse funds into a subsidiary created last year under Waters Edge called Waters Edge Recreation Ltd which will build and operate mixed development projects on identified Urban Development Authority-owned or acquired lands around Colombo and also the Jaffna International Coordinating Centre.

Once the first cluster raises capital for Selendiva, it will proceed to the next clusters which will include the historic General Post Office, the Ministry of Foreign Affairs, Cey-Nor land at D R Wijewardene Mawatha and the Gaffoor building in the Fort.

This is supposed to be a part of a grand scheme led by the Urban Development and Housing Ministry to follow Singapore’s famous Temasek Holdings model to get the best returns from the state owned assets.

In 1974, the Singapore government established Temasek Holdings to own and manage state-owned enterprises and initially 36 companies directly managed by the government were placed under its control. Today, Temasek is one of the largest government owned entities which has transformed state owned enterprises into financially strong and viable institutions.

Then there is the proposal to amalgamate Litro Gas and LAUGFS Gas supposedly to resolve the debt issues of both companies while transferring the management of the LPG sector to the private sector. Currently both companies are having high debts to the banks as a result of operating with prices controls by the government which is not a sustainable situation any more.

The government has also decided to amend the Ceylon Petroleum Corporation Act ending the state monopoly of import, refining and   marketing, supplying, producing, mixing and distributing of petroleum products. This is another important development as it is high time the government gradually moves out of the petroleum business which has become a highly political issue.  

A proposal by the United States-based energy company M/s New Fortress Energy (NFE) to acquire 27% of the shares in West Coast Power (Pvt) Ltd (WCPL), owner of the Kerawalapitiya Yugadhanavi power station is another noteworthy development as such investments are much needed in the power sector.

The matter is currently on hold due to objections from the CEB Engineers’ Union, but these are important developments that have to take place sooner or later because a complete restructuring of the power sector is necessary to resolve the country’s future power issues while it will rid the treasury of the burden of financing CEB’s losses.

The developments of this nature are naturally opposed by the trade unionists, workers and politicians with populist tendencies who hardly care about the economics involved in these developments. For many decades we have been perpetuating inefficiencies, corruption and cronyism in the name of popular votes and survival of politicians and now it’s time some hard decisions are taken for the future well-being of the economy however unpopular they may be.