The bottom line of Sri Lanka’s two key state-owned institutions, the Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB) have weakened in 2017, latest data released by the Central Bank of Sri Lanka has showed. According to the provisional unaudited financial statements, while CPC has reported a profit of Rs. 5.1 billion before taxes in 2017, in comparison to Rs.69.6 billion in 2016, the financial performance of the CEB had further worsened with losses before tax increasing from Rs. 13.2 billion in 2016 to Rs. 45.7 billion in 2017.
“Rising global oil prices have eroded the profitability of the Ceylon Petroleum Corporation (CPC), while financial losses of the Ceylon Electricity Board (CEB) widened due to increased reliance on thermal power generation owing to drought conditions,” the Central Bank said in its Annual Report 2017.
According to the report, the combined short-term liabilities of the CEB to the banking sector, CPC and Independent Power Producers increased from Rs. 91.5 billion at end 2016 to Rs. 138 billion by end 2017. On the other hand, outstanding long-term liabilities of the CEB, primarily to the banking sector and the government, also increased to Rs. 319.6 billion by end 2017, recording an increase of Rs. 19.9 billion in comparison to the end of the preceding year.
“These State-owned business enterprises (SOBEs) have periodically faced similar adverse situations in the past, seriously challenging the financial viability of these entities. The weak financial performance of the SOBEs in the energy sector highlights the importance of adopting cost-reflective pricing strategies, particularly for petroleum and electricity,” the Central Bank highlighted.
The report noted that while in 2017 the government strengthened the drive towards sustainable energy projects, it is however crucial to expedite the expansion and diversification of energy generation to ensure energy security while minimising energy generation costs.
Meanwhile, the World Bank in Sri Lanka says the division of SOBEs among several institutions such as Ministry of Finance, the Ministry of Public Enterprise and Kandy Development and portfolio ministries, has weakened the guidance and supervision of SOBEs resulting in a lack of a common strategy.
In an emailed response to the Sunday Observer on how Sri Lanka’s ailing SOBEs could be resuscitated, the World Bank pointed out that a clearly defined performance monitoring and evaluation regime with clear goals, objectives and targets can provide clarity to SOBE boards and management on the expectations of the government. The authorities should also furnish the SOBEs with an appropriate degree of autonomy, while providing the State with sufficient assurance that SOEs will be held accountable for their performance.
“SOBEs are subject to many different and sometimes contradictory policies and rules, therefore creating confusion for both the SOBE management as well as for supervisors; There is a lack of SOBE accountability and responsibility to proactively resolve performance issues and risks, such as waste or risky borrowings, in the absence of an effective performance monitoring and review mechanisms by the State,” the World Bank, a vital source of financial and technical assistance to developing countries around the world, noted.
According to the World Bank, while political interference and appointments in SOBE Boards and management affect their independence and performance, there are also significant delays in submitting accurate and appropriately audited financial statements. The financial statements and related reports have often been filed way too late, sometimes years behind schedule undermining transparency and accountability for poor performance, the World Bank added.
The Ministry of Finance has sought World Bank support to strengthen the oversight, performance management and corporate governance of SOBEs. This effort which is co-financed by DFAT complements analytical work on state owned banks as well as other World Bank projects such as the Financial Sector Modernization Project.
The Development Policy Lending supported reforms such as Right to Information law, the Audit Bill which would improve the operating environment for SOBEs.
“Improving SOBE performance does not necessarily involve privatization, although Public Private Partnership might be an option for the provision of some of these services or infrastructure. The World Bank is therefore also supporting the new National Agency for Public Private Partnership (NAPPP) to establish an enabling framework for PPPs and an initial pipeline of potential transactions,” the World Bank added.