WHITE ELEPHANTS FOR SALE?

Janaka Perera weighs the pros and cons of disposing of Sri Lanka’s SOEs

Government efforts to privatise and sell state-owned enterprises (SOEs) have led to heated debate and strong protests as the IMF’s structural adjustments require Sri Lanka to meet key debt restructuring conditions.

Among them are the privatisation of SOEs, cutbacks on social safety nets and alignment of local economic policies with those of Western nations.

According to Senior Lecturer in the Department of Political Science & Public Policy at the University of Colombo Dhamma Dissanayake, the defeat of this programme initiated by the Sri Lanka Freedom Party (SLFP) in 1956 and disruption of the United Front government’s five year plan in 1970 are significant events in our post-independence history.

It was former president J. R. Jayewardene who laid a strong foundation for dividing the state and selling land. Since then, it has become the ideological basis that’s guided every political party in power.

The rationale for privatising SOEs is to transform and make these entities market-oriented with a cost reflective policy that doesn’t burden the country, and create an environment to draw domestic and foreign investments.

However, this policy means the price of goods and services will be determined to maximise profits. It will thus impose heavier burdens on workers and the poor, who are already suffering due to the soaring cost of living and shortages of essential items.

Ports, electricity, petroleum, telecom, water supply and drainage, insurance and state banks are among the SOEs being targeted. Thousands of impoverished workers in regional plantation companies (RPCs) are also among those likely to be affected.

Since 1948, workers’ struggles have helped them gain a degree of job security and improved wages. But the extensive pro-market reforms including privatisation, which successive governments have carried out over the years, have subs­tantially eroded such gains.

The International Monetary Fund’s demand to slash education and healthcare services in the interest of promoting private investment has seriously affected both sectors.

Sri Lanka must learn lessons from privatisation programmes in other parts of the world.

According to a 2016 study titled ‘The Privatising Industry in Europe,’ by the Transnational Institute (TNI) in Amsterdam, privatisation failed to produce the expected revenue as only “profitable firms are being sold and consistently at undervalued prices.”

The study notes that privatised entities are no more efficient than SOEs; and under the rubric of privatisation, many energy businesses in Portugal, Greece and Italy have been sold to China’s state-owned corporations.

And privatisation is likely to lead to the end of many trade unions, strikes and other forms of labour resistance. The study also observes that privatisation in Europe has led to the spread of corruption with frequent cases of nepotism and conflicts of interest.

One key state-owned resource at risk is land – commoditising state-owned land is a major aspect of privatisation in Sri Lanka. Not only land but also water, which is indispensable for the survival of life on Earth, has been threatened by privatisation and commoditisation in Sri Lanka, as well as globally.

The downside of SOEs is that they have few budget constraints and lack shareholder (public) accountability; and therefore, the incentive to control costs is limited.

Unlike with private sector enterprises, which need to garner profits, many SOEs – particularly in this country – can simply borrow from other state organisations, banks or the government when they require more funds. This under­mines the threat of bankruptcy as a source of discipline.

Certain recently established SOEs have found a new way of bypassing budgets and oversight by incorporating themselves as companies rather than through an act of parliament. This way, they are exempted from parliamentary accountability, and allowed to rack up unsustainable debts and surpass budgetary targets more easily.

This has led to SOEs burning taxpayer rupees.

Unfortunately, enterprises that will essentially have to be sold due to their huge debts and poor reputations include SriLankan Airlines, which has racked up billions of rupees in losses since Emirates was relieved of its oversight in 2008.

However, Sri Lanka will not be alone in taking such a pragmatic step to improve government finances and customer experience. Air India, the Indian national carrier, is in the process of being sold to the Tata Group.

Dissanayake says: “The news that this country died in the womb without being able to pass the embryonic stage is very pathetic; but it is a serious truth. Now what happens is that the parts of the embryo are divided and sold in the open market.”

“What the country needs in the near future is a formal public force with a philanthropic programme that conceives, matures, gives birth to and fosters young people as soon as possible,” he adds.