Jul 032013
State enterprises’ outstanding debt expands to Rs.333bn
The total outstanding debt of t he country’s non-financial state-owned business enterprises (SOBEs) has swollen by as much as Rs.12 billion during the first five months to Rs.333.3 billion by the end of May 2013, Mirror Business observes.

The corresponding figure by the end of 2012 was Rs.321.5 billion by 26 SOBEs.

Ceylon Petroleum Corporation (CPC), the Ceylon Electricity Board (CEB) and SriLankan Airlines Limited (SriLankan) topped the list. The former two institutions increased their outstanding debts during the first five months while the latter marginally reducing its outstanding balance.

The mid-year fiscal position report released by the Finance Ministry showed CPC increasing its outstanding debt by Rs.15.5 billion to Rs.226 billion, while the CEB by Rs.5.6 billion to Rs.49.4 billion.

Sri Lankan marginally reduced its debt to Rs.44 billion by end of May.

Most notable was the deteriorating debt performance of the national budget carrier, Mihin Lanka Limited. The company has borrowed to the tune of Rs.433 million during the first five months, increasing its total outstanding debt to Rs.436 million. The airline’s outstanding debt by the end of last year stood at just Rs.3 million.

During the five months to end of May 2013, a total of 10 SOBEs increased their outstanding debt while 11 SOBEs reduced or settled their level of debt. State Pharmaceutical Corporation more than halved its outstanding debt during the five months to Rs.3.2 billion from Rs.7.9 billion. Further, Colombo Commercial Fertilizer Company Limited appears to have settled its total outstanding debt of Rs.3.6 billion. According to the Finance Ministry, the SOBEs incurred a cumulative loss of Rs.250 billion in 2012 out of which, CPC (Rs.89.6 billion), the CEB (Rs.61.1 billion) , SriLankan (Rs.25.9 billion) and Mihin Air (Rs.2.8 billion), incurring a combined loss of Rs.180 billion.

Based on the recommendations by the Committee on Public Enterprises (COPE) and the stringent monitoring efforts by the General Treasury by way of price adjustments and reorganisation of the operations are being undertaken in non-financial SOBEs to direct their losses to a debt reduction path. According to state-owned enterprises and the Department of Public Enterprises, there are 44 SOBEs operating in Sri Lanka.

Apr 112013
SOE reforms vital to reap benefits of infrastructure development: CB
The progress in infrastructure development needs to be supplemented with an effective institutional reform agenda to harness maximum economic and social benefits, according to the Central Bank’s Annual Report 2012.

The annual report was referring to the substantially large losses incurred by many state-owned enterprises (SOEs) over the years.

Public investment on economic and social infrastructure development made by the government amounted to Rs.388 billion (5.1 percent of the GDP) in 2012.

However, the report noted that it is a well-known fact that the financial viability of several key SOEs, which provide essential public utility services, has weakened over the past few years.

While the Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) have been making substantially large losses, Sri Lanka Railways (SLR), the Sri Lanka Transport Board (SLTB), SriLankan Airlines (SLA) and the Department of Posts are among the other entities which have also recorded weak financial performance, the report revealed.

As per the financial statements, CPC reported an operational loss of Rs.89.7 billion in 2012, compared to Rs.94.5 billion in 2011, while the CEB recorded an operating loss of Rs.61.2 billion in 2012, compared to a loss of Rs.19.3 billion in 2011.

Further, the operational loss of the SLTB increased to Rs.3.8 billion in 2012, compared to the loss of Rs.3.3 billion recorded in 2011, while SLR witnessed a decrease in operating losses to Rs.3.8 billion in 2012, compared to the loss of Rs.4.1 billion in 2011.

Also, SLA suffered an operating loss of Rs.20.5 billion during the year under review, while Mihin Lanka recorded an operating loss of Rs.1 billion in 2012, compared to the operating loss of Rs.455.3 million incurred in 2011.

According to the annual report, the lack of strategic institutional improvements to ensure the financial viability of these institutions can pose a threat to the macroeconomic stability of the country, considering their importance in the national economy.

Hence, SOEs must be encouraged to adopt sustainable financial and corporate planning, including a rational pricing policy in line with market developments, the report said.


Feb 142013
Energy price formula in the offing
Electricity and fuel prices in Sri Lanka will soon be determined based on a fully cost-reflective pricing formula as the worrisome performance of the staterun Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC) has been a main concern at the economic health check carried out by the International Monetary Fund (IMF).

“What we suggest is an ‘Automatic Price Adjustment Formula’ to reflect the true cost of generating a unit of energy in both electricity and fuel. We are happy to see Sri Lanka committed toward bringing these reforms and the authorities are currently carrying out internal discussions towards this end. I believe a pricing formula would be in place over the course of this year,” said the IMF staff mission Chief John Nelmes.

When Mirror Business queried the practicality of adopting a ‘fully’ cost-reflective pricing mechanism in the context of a politically challenging environment, Nelmes responded positively and quipped, “If you (Sri Lanka) are benefitting as a country by engaging in the global economy, I do not see any reason why you should not anticipate shocks and equally share them as they come in.”

It was not long ago the Central Bank Governor called for energy price revisions to bring CPC & CEB to at least to breakeven level by end 2013 in order to ensure viability and eliminate the imbalances being created in the banking sector. In the immediate aftermath, the Treasury Secretary also echoed the same sentiments but ruled out a full market-reflective pricing formula as it would lead to market uncertainty and fluctuations.

Nelmes further urged the government not to delay the adjustments while cautioning of a disruptive state of economic affairs if the authorities waited for losses to build up in these State Owned Enterprises (SOEs).

“The reality, the international oil prices fluctuate and there are countries that are flexible enough to adopt these fluctuations,” he said.

In 2011, the CPC & CEB made .losses of Rs.94 billion and Rs.25.5 billion jacking up the combined loss to a staggering Rs.119.5 billion from a combined loss of Rs.22 billion the year before. The expected losses for 2012 are significantly higher as the energy sector went through major challenges last year with the most significant being the drought which led to the generation of thermal power using expensive fuel.

“We see a lot of merit in raising the energy prices on an incremental basis (equally reducing prices) based on market movements, because the public will always be foreknown of the fact and therefore any price adjustment will not come as a shock. This I believe is a more stable policy than ad hoc adjustments which comes in spades,” Nelmes remarked.

As an alternative solution, he proposed the authorities to adopt cheap sources of production as a more long-term approach in order to tackle the looming energy crisis intensified by dwindling fossil fuels.

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