The term privatization has once again entered into the center stage of Sri Lankan social and

political discussions amidst the ongoing economic crisis of the country. The country is
experiencing the worst economic crisis since its independence from British Monarchy and the
focus is increasing on privatizing and effective restructuring of State Owned Enterprises (SOEs)
like Ceylon Petroleum Corporation, Ceylon Electricity Board, SriLankan Airlines, Sri Lanka
Railway and Sri Lanka Transport Board which are all loss making at present.
We interviewed Mrs. Averil Ludowyke who is a fellow Member of the Institute of Chartered
Accountants of Sri Lanka (FCA) and a fellow Member of Chartered Institute of Management
Accountants – United Kingdom (FCMA – UK) and was an audit & assurance partner and head
of Forensics and Integrity Services Division of Ernst & Young Sri Lanka about her thoughts
about the privatization and its consequences to the country.
In her view, the private entities are governed with the basic premise of earning profits. Therefore,
whatever the resources that are used in these companies should generate a profit. In the
meantime, SOEs are there to provide services to the country and are not governed by the profit
principles and their financial statements are mainly prepared on a “cash basis”. Therefore, they
are not driven to generate profits. But resources are pumped by the government into these SOEs.
As well, most of the governments used these SOEs to decrease unemployment by recruiting
people to these SOEs and since the SOEs are not generating profits, the government expenditure
increased meaninglessly. In her view, that is the main reason why the SOEs should be privatized.
But she was adamant that certain entities have to be kept as a part of the state, such that basic
resources of the country are distributed among the public properly.
If and when the privatization of SOEs takes place, the advantage of it would mostly be enjoyed
by the government and the public might wonder what are the advantages that they would get
from privatization. In Mrs. Ludowyke’s view, when SOEs are privatized, they become far more
efficient. And even if they do not become efficient, then their private owners would need to turn
it around at their own cost, not at the cost of the government. They might even seek loans from
government banks. Whereas, if these SOEs are fully operated by the government, then the
burden of these losses should be financed by the treasury. If one of the SOEs, after privatization,
is making profits, then the government can earn income through taxation. In her opinion, all the
measures taken by the government to fund these loss-making SOEs are increasing the inflation of
the country. The government funds which could have been used for development of
infrastructure of the country and increase the standard of living of the people are being channeled
to fund this loss making SOEs at present. If the SOEs are privatized, then the government has no
obligation to finance them, thus it can use the available funds to increase the standard of living of
the people. That is the main advantage that the public would get from privatization.

When the SOEs are privatized, then their services would be offered at a fee. Sometimes, this fee
would not be bearable to the underprivileged people in the country and this will create a problem
in the society. In Mrs. Ludowyke’s view, that problem is there to some extent. When the SOEs
are privatized, then their pricing would be driven by market forces, that is; demand and supply.
Therefore, it may not be affordable for the underprivileged people in the country. But, once the
government funds can be utilized, as mentioned earlier, to increase the standard of living of
people, then the government can help these underprivileged people to earn more income and
with time, this gap will be reduced. In her view, the government must first provide a safety net,
not subsidies, and then develop the means through which these underprivileged people can start
earning money. Mrs. Ludowyke explains, “take Sri Lanka Telecom for an example, it was a fully
government operated entity which later privatized and now they are expanding to each area of
the country while making profits. They also have flexible packages to take care of all the
demographic segments in the socio-economic environment. In that sense, privatizing SLT was a
success story both to the government and the public. Therefore, the government should keep
some control over these SOEs but the rationale of generating profits and becoming efficient
should be established.”