Editorial

Editorial

Family silver must get the right price

We don’t hear too much nowadays about "selling the family silver." It was not that long ago that politicians from both the PA and the UNP waxed eloquent on the subject. But today, given the reality that Sri Lanka’s national debt is running higher than the GDP and that government revenue is barely sufficient to meet the country’s debt service obligations, privatization must be very much a part of the strategy of extricating ourselves from the debt trap in which both blue and green politicians have ensnared the nation.

While selling state-owned assets is one thing, giving them away is something entirely different. We cannot approach privatization from a distress sale situation. There are enough vultures around to seize themselves an opportunity from the nation’s difficulty and buy state property at a fraction of their true worth. Take last week’s sale of the Ceylon Petroleum Corporation’s long-held bunkering monopoly, Lanka Marine Services Ltd. (LMS) which John Keells Holdings (JKH) wrapped-up in an off the trading floor deal for Rs. 1.2 billion.

Some of the country’s biggest conglomerates in partnership with well heeled foreign interests were short listed as qualified bidders. In the weeks preceding the sale, there was considerable moaning and groaning by the prospective buyers who complained that the asking price was too high. The Public Enterprise Reform Commission (PERC), the state agency responsible for privatization, said that an independent entity, namely the DFCC Bank, was responsible for setting the price. The response to that was that this bank knew nothing about the business that was on offer for sale and set too high a price. Be that as it may, events have proved that at least one of the prospective buyers was willing to pay that asking price.

Published reports that have not been denied up to now imply that a second party, Master Divers together with a Saudi Arabian partner, had been pipped by a delayed bid bond. A sizable Rs. 120 million had to be paid within a stipulated deadline to qualify to bid and only JKH had met this requirement. The result was that there was no competitive bidding for the 90% stake of LMS that was on offer with JKH getting the prize in what became a one horse race. While it must be freely conceded that considerations including propriety and transparency required PERC to play the game according to the rules it made, and that it can in no way be faulted for disqualifying those who did not post the bid bond, we cannot escape the fact that competitive bidding would have probably meant a better price.

The fact that the country must get the best possible price for any state-owned assets that are being sold is self-evident and does not need to be laboured in any way. That is why it is important that those who are charged with the responsibility of selling such assets must be doubly and triply certain that the conditions of sale are well known to all interested parties. It is very much the business of agencies like PERC to make very sure that a serious bidder, even due to his own fault, does not drop any catches in the run-up to a sale. While PERC cannot be expected to play nursemaid to businessmen interested in deals costing hundreds of millions of rupees, taking such a position in a situation where the national exchequer stands to lose does not make sense.

The LMS deal is now over and matters concerning it is water under the bridge. It may well be said that if anybody fell flat on his face for want of posting a bid bond within the stipulated deadline, that will not happen again because our little business world will now be well clued on the risk of that particular mishap. While we must all learn from experience, the best teacher, let us hope that PERC too will draw the necessary lessons and sock their preconditions in with such force that even the dumbest possible bidder will not fail to know what he must do and when if he wishes to be in the running for any forthcoming deal.

The Insurance Corporation of Sri Lanka (ICSL) is slated for privatization by the end of this year. Former Minister Mangala Samaraweera had something to say about the subject at a PA press conference where he said that it had made a profit of Rs. 1.2 billion last year. As far as we know, he seems to have got the figure right, but what he did not say was that the insurance business of ICSL had actually lost a few million rupees while the big bucks had come from interest on fund placement in last year’s very high interest scenario. That is by the way. The fact is that ICSL is a cash cow and has been that for a long time and the price it must fetch must reflect its true value and potential. There must be no giveaways on account of the country’s present acute economic distress and the need for cash.

The PA is now trying to say that the economic crisis is not of the proportions presented by the government. The people are very well aware of the true situation and are not likely to believe such self-serving statements from mealy mouthed politicians who during the run-up to the last election recklessly distributed handouts in a desperate attempt to buy votes and stay in power. Unfortunately the economic distress is all too real. But that does not mean that privatization proceeds can be used for current consumption. It must be applied towards retiring at least a part of the public debt. Since Finance Minister K. N. Choksy presented the last budget in March, the government has been compelled to acknowledge the cost of living burdens of the people and abandon such measures as recovering the losses of the Ceylon Petroleum Corporation from the consumer. Perhaps the proceeds of the LMS sale can reduce some of CPC’s debts to the commercial banks. But that, unfortunately, will not make any dent on the horrendous national debt.

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