State Enterprises Making Losses; Public to bear the burden

Bookmark State Enterprises Making Losses; Public to bear the burden

The five big loss makers which were once categorised as the ‘biggest monsters’ by the Minister of Finance, plus the Sri Lankan Airlines, have made operating losses amounting to whopping Rs. 48.6 billion in 2009.

The detailed distribution is alarming: Postal Rs 2.4 billion, CEB Rs 7.4 billion, CPC Rs 12.3 billion, SLTB including the government subsidy, Rs 9.3 billion, Railways Rs 4.8 billion and Sri Lankan Airline Rs 12.2 billion.

In addition, Mihin Air, government’s pet budget airline, has made an operating loss of Rs 930 million on top of its previous losses amounting to Rs 3 billion absorbed by the government earlier. These numbers just present the difference between the current revenue and current expenditure of these enterprises before charging depreciation and writing off the unrecoverable debts.

Hence, the net losses made by them must be much more than the amounts reported in the Central Bank Annual Report, but it will take some time for those numbers to surface because of the delay in publishing the audited final accounts

There is nothing new about public enterprises making losses and getting away with such losses with total impunity.

In fact, they have been continuously in losses and those losses have been funded by the public through subsidies: for instance, according to the data provided by the Central Bank Annual Report, the two transport enterprises, Railways and SLTB, have made operating losses year after year since 2000 amassing cumulative losses of Rs 31.3 billion and Rs 30.3 billion, respectively, by end – 2009. If they were two private sector firms, they would have by now been bankrupt and forced to close their business.

However, all these enterprises have been able to continue their business with subsidies given by the government and loans raised from banks, especially from the two state banks, on the strength of government guarantees. Either way, it is the public who have to bear the burden of such losses eventually. Subsidies are directly funded out of the current tax revenue; defaulted loans are settled by the Treasury, again by issuing Treasury bonds making it a liability of future tax payers. Hence, the public enterprises making losses is undoubtedly ‘bad news’. lbo

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