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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Mergers and acquisitions amongst Govt enterprises

Mergers and acquisitions amongst Govt enterprises

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

By Bandula Sirimanna

Several loss-making state enterprises are to be merged with profit-making ones while others would be handed over to the private sector under management contracts, Finance Ministry officials said. Under this scheme, the Agriculture and Agrarian Insurance Board has already been merged with the National Insurance Trust Fund. Salu Sala is to be merged with the State Trading Corporation while a similar merger will happen to the CWE with the Building Materials Corporation.

It applies to 74 State Owned Business Enterprises (SOBE’s) aimed at improving performance and cutting losses. SOBE’s come under joint ventures, mergers or Private Public Partnerships (PPP), a senior official of the Finance Ministry said. Some of these institutions will be given to private investors under management agreements after valuation by the government valuers, he said. The aim is to ensure financial viability by better management and market pricing to reduce reliance on the budget and borrowings that cause macro-economic problems, he added.

The Treasury finds it extremely difficult in funding these enterprises not only to meet their operational expenditure but also for investments as their business operations failed to gain profits, he said. According to government policy, all SOBE’s are required to contribute at least 30 per cent of their profit or 15 per cent of their equity to the Treasury annually.

Therefore the SOBE’s should have at least contributed Rs.100 billion to the government annually. But the Treasury received only Rs.34 billion in 2011 as dividends and levies an increase of 10 percent over 2010, he revealed. Several loss making state entities would be merged with profit making state enterprises, he said. The government is seeking investors to hand over these institutions to them under management agreements, he disclosed.

“Measures have been taken to resolve major issues with regard to the workers attached to Salusala and Laksala by paying compensation for those who volunteer to retire and to obtain the service of the workers who are not willing to retire under voluntary retirement schemes”, he said. The share of state ownership in the economy expanded steadily and gathered momentum in the 1970s when government policy, in the name of socialist or progressive reforms, sought to gain control of the “commanding heights of the economy”.
State involvement in production and distribution was rolled back to a certain extent, during the period 1977 – 2005, as successive governments privatized a number of state enterprises. The privatization process has been halted since 2005.
http://www.sundaytimes.lk/120826/business-times/mergers-and-acquisitions-amongst-govt-enterprises-9571.html

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