Sri Lanka’s state-run utilities to undergo peoplisation 

http://www.asiantribune.com/news/2010/10/10/sri-lanka%E2%80%99s-state-run-utilities-undergo-peoplisation

By Santhush Fernando in Colombo 

Sri Lankan government is considering Peoplisation- issuing stakes of public utilities- Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB), following the probable listing of Shell Gas Lanka on the Colombo Stock Exchange (CSE).

The government, in a bid to transform public utilities, which are a great burden to the Treasury and the public at large, into viable and productive ventures, is considering the possibilities of listing the CEB and CPC on the share market, which had been advocated for a long time. 

This week, Minister Keheliya Rambukwella said that the 51 percent stake of Shell Gas Lanka (Pvt) Ltd., the local Liquid Petroleum Gas (LPG) retail unit, and the 100 percent stake of its subsidiary -Shell Lanka Terminal Ltd., held by Royal Dutch Shell (RDS) of Netherlands, would be bought by the government at cost of US $ 63 million (nearly Rs. 6,993 million). 

Minister Rambukwella added that once government has the majority stake it will infuse private sector participation by selling a 49 percent stake to the public at an Initial Public Offering. 

Peoplisation

It is much commendable that the government had decided to broad-base the ownership of public ventures through listing a process that had been earlier referred to as ‘peoplisation’, which is of much benefit to the public, in comparison to nationalisation of the 1950s and 1960s and to privatisation of the 1980s and 1990s.

In its Annual Report for 2009, Central Bank of Sri Lanka (CBSL) advocated move of quoting minority stakes of CEB and CPC to public and pointed out many arguments for doing so. 

CEB and CPC crowding out private sector

“Continuing weak financial position of the CEB exerts pressure on macroeconomic management of the country. The persistently high outstanding liability of the CEB to the CPC has made the CPC to borrow substantially from the banking system thereby crowding out lending to the private sector while impacting on market interest rates. This situation highlights the importance of addressing financial issues of the CEB urgently,” said the Annual Report. 

“It is vital that the power sector is transformed into a sound and a financially viable sector in the economy. To improve the balance sheet, the CEB can introduce distinctive profit centers for key areas of operations such as hydropower, thermal power, transmission, distribution etc. as already have been identified. The profit centre concept will help to improve productivity and achieve maximum efficiency, cost saving and thereby improve the profitability of the CEB. With the improvement of the balance sheet of the CEB and to enhance the accountability and transparency of its operations the authorities may consider listing the CEB in the Colombo Stock Exchange to broad base its ownership and provide the general public the opportunity to hold a minority stake of its share capital,” 

“At the same time, CEB’s financial management system needs to be strengthened with an improved financial management system”

Broad-basing ownership of public enterprises

“The financial position of the CPC registered a marginal improvement in 2009. The CPC reported an operational loss of Rs. 12.3 billion in 2009 compared to that of Rs. 14.7 billion in 2008. The provision of furnace oil at a highly subsidized rate to the CEB and non-revision of retail prices to reflect the cost when prices were rising in the international market during the second half of the year were the main reasons for operational losses of the CPC in 2009. The outstanding bills receivables amounting to Rs. 64 billion by several institutions, particularly a sum of Rs. 52 billion from the CEB, placed a heavy burden on the CPC’s financial situation.”

“Several innovative strategies would need to be implemented to make the petroleum sector a dynamic and viable sector in the economy. A realistic pricing formula needs to be developed to price petroleum products in the local market and the prices should be adjusted at reasonable intervals based on movements in the international oil prices. Profit centre concept covering various key activities of the CPC, such as refinery, agro chemicals, aviation fuel supply may be implemented to improve the financial viability of the CPC. With a view to improving the accountability and transparency of operations, these business units could be diversified, through a possible offering of certain minority stakes of shares to the general public, in order to broad base the ownership through a listing in the Colombo Stock Exchange.”

Shell Gas Lanka is engaged in importing, storing, filling, marketing and selling LPG in Sri Lanka, since 1995, when the then Chandrika Bandaranaike Kumaratunga administration, sold 51 percent of the then Colombo Gas Company to Shell for US $ 37 million.

Privatisation Vs. Peoplisation

The Shell Gas Lanka privatization agreement is a clear case where privatization had not served the interests of the country and its public. It was criticized as Shell was offered exclusive rights for a limited period of five years from 1995 to 2000. However SGLL says that this monopoly enabled it "to develop the LPG market in Sri Lanka whilst requiring Shell to make further capital investments in order to build an LPG import and storage terminal".

It is speculated that minority stake listing of more loss making state entities like SriLankan Airlines and even highly profitable National Savings Bank, Peoples Bank is on the cards.

Nationalisations and acquisitions in Sri Lanka

• 1956- Trincomalee harbour, which was formally a British Naval Base, was taken over by the Sri Lanka Freedom Party Government led by Prime Minister S W R D Bandaranaike, to be developed as a Commercial Port.

• 1957, Bandaranaike removed all the British Military airfields from Ceylon (Sri Lanka), the Katunayake airfield so taken over was later re-named Bandaranaike International Airport.

• 1958 The Government nationalized bus transport (creating the Ceylon Transport Board). The Colombo Port was also nationalized the same year.

• 1961- The local subsidiaries of the foreign owned petroleum companies- Caltex, Esso and Shell had formed a cartel, and in order to break, they were nationalized. The Insurance companies and the Bank of Ceylon were also nationalized in the same year.

• 1971 Graphite mines nationalized.

• 1972 Locally owned Tea and Rubber plantations were nationalized under the Land Reform law.

• 1975 Sterling plantation companies (owned by British plantation companies) were nationalized.

• 2009 Seylan Bank taken over to prevent its collapse. Waters Edge, Sri Lanka Insurance Corporation (SLIC) and Lanka Marine Services were taken over by the government following Supreme Court judgements.

• 2010 government announced that it had finalized talks for the re-purchase of the remaining 51 percent stake of Shell Gas Lanka (Pvt) Ltd.- held by Royal Dutch Shell of Europe.

- Asian Tribune -