Image Courtesy – SLTMOBITEL

From the pre-qualified bidders, Jio, a division of Mukesh Ambani’s Reliance Group, emerges as a robust contender, assessed at $107 billion by BofA brokerage. Additionally, Gortune International Investment Holding, a private equity firm based in Guangdong province, China, is also in the running. The Sri Lankan Government plans to divest 50.23% stake in Sri Lanka Telecom.

SLTMobitel recorded operating profits of Rs. 4.7 billion in 2022, as per their most recent annual report.

>What is the International Finance Corporation and what’s their role in Sri Lanka’s SOE restructuring?

The International Finance Corporation (IFC) has been designated as Transaction Advisors for the divestiture process of the following entities: Lanka Hospitals Corporation PLC, Sri Lankan Air Lines Ltd.
and Sri Lanka Telecom PLC.

The International Finance Corporation (IFC) is a global financial institution providing investment, advisory, and asset-management services to promote private-sector development in underdeveloped nations. As a constituent of the World Bank Group, the IFC is based in Washington, D.C., United States.

>Why is this a bad idea?

The race to sell shares of SOE’s is not based on strategy but an observation of profit & loss statements arbitrarily. Even in that metric it doesn’t make sense to divest SLTMobitel.

Before delving into the detriments of privatization, it is imperative to acknowledge instances where state-owned enterprises have proven to be successful. Sri Lanka Telecom, a prominent example, stands as a testament to the positive impact of effective state ownership. As a government-owned entity, Sri Lanka Telecom has played a pivotal role in providing telecommunications services, contributing to the nation’s connectivity, and maintaining a balance between profitability and societal welfare.

The sale of strategic state-owned assets raises concerns about a country’s control over key sectors. Loss of control in critical industries, such as energy, telecommunications, or transportation, may pose substantial national security risks. While acknowledging the need for strategic decision-making in certain cases, the success of Sri Lanka Telecom highlights the potential benefits of maintaining state control in critical sectors.

Private entities, driven by profit motives, often prioritize short-term gains over long-term societal benefits. This myopic focus may lead to neglect of crucial long-term investments, research and development, and infrastructure improvements vital for sustainable economic growth. While the success of Sri Lanka Telecom exemplifies the potential for long-term planning within state-owned enterprises, privatization may risk compromising the overall welfare and development of the nation.

The sale of state-owned monopolies to private entities can result in the concentration of economic power. This concentration may lead to market exploitation, with private entities setting higher prices, limiting choices for consumers, and stifling healthy competition. The consequences are felt by consumers who face reduced options and potentially higher costs for essential goods and services, a scenario that contrasts with the accessible and regulated services provided by Sri Lanka Telecom.

In some instances, privatization leads to asset stripping, where private owners sell off valuable components of SOEs without considering the long-term consequences. This can result in the depletion of public assets, diminishing the overall wealth and resources available to the country. The potential irreversibility of such actions underscores the need for cautious decision-making, as demonstrated by the sustainable growth and asset management practices of Sri Lanka Telecom.

While proponents argue that selling state-owned enterprises can lead to increased efficiency and revenue, the detailed analysis above reveals that the negative consequences are substantial and multifaceted. Governments contemplating privatization must weigh short-term gains against long-term societal impacts, ensuring a balanced and sustainable approach to economic development. The success of state-owned enterprises like Sri Lanka Telecom serves as a reminder of the potential benefits of effective public ownership, urging careful consideration of these detriments to safeguard the interests of the public and the nation as a whole.

In managing a nation’s economy, it is imperative for certain strategic sectors to be owned and controlled by the state. These strategic sectors, which play a vital role in the overall development and security of the nation, may at times incur losses. However, it is essential to recognize that such losses are an inherent part of maintaining and safeguarding critical infrastructure and services. In fact, certain strategic sectors, such as defense or essential public utilities, may not always operate on a profit-driven model. The state’s ownership ensures a long-term perspective and a commitment to national interests, even if certain sectors may not yield immediate financial gains. This approach acknowledges the broader socio-economic goals and national security imperatives, with the understanding that other more commercially-oriented sectors can generate profits to offset the losses incurred by these strategic entities.

Link 01: https://www.slt.lk/sites/default/files/sustainability_reports/SLT_AR_2022_v2.pdf