Annual Report 2010 - Ministry of Finance and Planning

4 | State Owned Enterprises (SOE)OverviewThe SOE portfolio consists of81 state Corporations set upunder various statutes andfully government owned companiesincorporated under the Companies Actno 7 of 2007. The government is alsoa partial owner of several companiesincorporated under the Companies Act.The total turnover of SOEs at Rs. 954billion is equivalent to the recurrentexpenditure of the national budgetwhilst the total turnover of the topfive enterprises at Rs. 584.4 billionexceeds the total turnover of all the245 Companies listed in the ColomboStock Exchange at Rs. 570.3 billion 1 . Thesize of these SOEs along with the widespectrum of sectors it operates makesSOEs strategic to the development ofthe country.The government having established itsclear policy of non privatization of SOEsin 2005 in the Mahinda Chintana Visionfor the Future, encourages SOEs toadopt innovative management reformsso that they will become commerciallyefficient and reduce their reliance ongovernment assistance by orientingthem towards a dividend payingentrepreneurial culture.As such, in 2010 amongst its manyinitiatives to enhance the performanceof underperforming SOEs and stateassets, the government set up theMinistry of State Resources andEnterprise Development which isresponsible for the restructuring of23 SOEs, appointed private sectorentrepreneurs and professionals to theboards of strategic SOEs, strengthenedthe regulatory function of utilities(electricity, petroleum and water)through the establishment of agenciessuch as the Public Utilities Commissionof Sri Lanka and consolidated themonitoring and supervisory function ofthe Department of Public Enterprises ofthe Treasury.In this regard, it is encouraging to notethat despite facing challenges bothstructural and external, the performanceof SOEs in 2010 with entities such asCeylon Electricity Board (CEB) earningprofits, Sri Lanka Ports Authority(SLPA) embarking on private publicpartnerships, Peoples Bank winning thePeoples award for the fifth consecutiveyear, Bank of Ceylon (BoC) and NationalSavings Bank (NSB) maintaining AAand AAA ratings respectively, etc madea positive difference to the overallperformance of SOEs.Yet many SOEs still continue to incurlosses and remain as under performingentities. While losses of Sri LankaTransport Board (SLTB) and CPCcould be mainly attributed to non costreflective pricing policies pursued dueto the government discharging its socialresponsibilities, other loss making SOEscontinued to incur losses due to lack ofgood governance, low productive use ofemployees, weak financial management,lack of internal controls and structuraldeficiencies. It is noted that Boards ofmanagement of some key SOEs, whichhave often made decisions that wereneither socially nor economically viable,violating the government policies andregulations contributed significantly tothe losses incurred by SOEs.As such the government channelled Rs.30,661 million or 0.5 percent of the GDPin 2010 to support their operationalactivities. The government has alsosupported the SOEs to finance theiroperations through the issuance ofguarantees, which as at the end of2010 amounted to Rs. 189,412 millionaccounting for almost 90 percentof the total guarantees issued bythe government. The bulk of suchguarantees are on account of electricity,petroleum and fertilizer.Lack of good corporate practicesand management lapses have resultedin compromising the SOEs ability tomanage risks that arises from bothinternal and external factors, has in turnweakened the balance sheets of SOEs.Therefore, while the government policyis to encourage SOEs to improvecorporate management, the absence ofthe required human capital to undertakeand implement business models andboards of management that have yetnot displayed the ability to lead SOEsas dynamic enterprises remains a majorchallenge in the SOE sector.It is noted that considering themagnitude and the very nature ofoperations that SOEs are engaged in, ifaction is taken immediately to overcomethe aforementioned weaknesses theperformance of the SOEs could boost thegrowth momentum of the country.SOE Contributionto the NationalEconomyTotal turnover of the SOEs at Rs. 954billion, forms a significant part of the SriLankan economy constituting 17.2 percentof the GDP in 2010 in comparison to 16.7percent in 2009. This is in line with thegovernment’s target stipulated in the“Mahinda Chintana” of achieving a totalturnover to GDP ratio of 22 percent in2016 and further increase to 26 percentin 2020.SOEs continue to be a significantemployment generating sector with totalemployees at SOEs at almost 160,00 in2010, which constituted about 2 percentof the total labour force.In 2010 the government enunciated itspolicy on dividends and levies. As such,all SOEs are required to contribute 301Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), Sri Lanka Ports Authority (SLPA), Bank of Ceylon (BoC)and People’s Bank (PB)202