Selling Loss-Making SOEs in Sri Lanka | Sri Lanka’s state-owned enterprise (SOE) problem is not abstract. In 2022, aggregate SOE losses were in the hundreds of billions of rupees, straining public finances. By 2023, a subset of key SOEs swung to an overall profit, helped by price reforms and tighter controls a sign that disciplined restructuring can move the needle. But the fiscal risk remains, and the question is no longer whether to reform, but how to sequence sales and safeguards to lock in gains without social blowback.
Why the State Is Selling
Three pressures converge:
- Fiscal risk: Persistent losses crowd out priority spending and keep borrowing costs elevated.
- IMF-anchored reforms: The programme requires credible SOE governance and restructuring to restore debt sustainability.
- Service quality and investment: Many SOEs sit in capital-hungry sectors; private owners can fund capex the Treasury cannot.
- Washington’s 2024 Investment Climate Statement is blunt: privatisation and SOE reform are ongoing priorities to improve governance and attract FDI.
What’s Actually on the Block
The State-Owned Enterprise Restructuring Unit (SOERU) has led divestiture pipelines for assets such as Hotel Developers Lanka (Hilton Colombo), Canwill Holdings (Grand Hyatt Colombo), Lanka Hospitals, Sri Lanka Insurance Corporation, Litro Gas, and Sri Lanka Telecom PLC, among others. In April 2024 the Government published shortlisted bidders for key transactions, signalling a move from talk to execution.
Progress has been uneven. For the Hilton asset, authorities clarified misinformation on land extent and transaction contours to address public concerns, and by July 2024 Melwa Hotels & Resorts emerged as the sole pre-qualified bidder, an indicator of tepid competition that underscores the need for strong valuation and process transparency.
Where Policy Pivoted: The National Airline
One high-profile change was the halted sale of SriLankan Airlines. In October 2024 the Government abandoned a full divestment in favour of restructuring, after shortlisting potential buyers earlier in the process. The move suggests political sensitivity around “strategic” assets and a preference to clean balance sheets before any future capital raise or partnership. For investors, it is a reminder that not every asset will go to market, and timing matters.
Early Signals From Reforms
Reform is not only about sales. Sectoral laws and tariff rationalisation have helped. Finance Ministry figures reported a turnaround from a Rs. 743 bn loss in 2022 to a Rs. 456 bn profit in 2023 for key SOEs, while a parliamentary briefing noted Rs. 428 bn in profits across 52 SOEs for Jan-Oct 2024, even as some entities, including the airline, remained in the red. In power, Parliament passed a law in June 2024 to restructure the CEB, unbundle functions, and open a wholesale market critical to stop structural losses and crowd in renewables investment.
Sell vs Fix: A Practical Framework
1) Competitive sectors → divest Where markets are contestable and regulation is light (hospitality, selected insurance, telecoms where a regulator exists), a transparent sale is usually superior. It removes fiscal risk and taps private capex and management.
2) Natural monopolies → ring-fence and regulate first Transmission grids, pipelines, and water networks require an independent regulator and clear tariff rules before any sale or concession. Selling without a credible regulator risks monopoly rents and backlash.
3) Legacy liabilities → clean up balance sheets Debt, guarantees, and off-balance-sheet exposures must be separated before marketing the asset. The IMF documentation anticipates balance-sheet fixes to make entities financially viable and stop future bailouts.
4) Labour transition - Voluntary retirement schemes (VRS), re-skilling, and job-matching reduce resistance and avoid abrupt shocks. Package costs should be modelled against the NPV of avoided future losses.
5) Governance lock-ins - Divestitures should be paired with a new ownership framework for residual SOEs. In 2025, Sri Lanka enacted a Public Commercial Businesses Act to modernise SOE governance. This must be used to hard-wire performance targets, independent boards, disclosures, and audit trails, so “what stays” does not relapse.
Pricing and Process: Getting Value, Not Just Speed
- Independent valuation + data rooms: Anchor price with multiple methods (DCF, comparables, precedent transactions). Maintain audited data rooms to avoid information asymmetry.
- Open shortlists: Publish criteria and bidder lists to defuse allegations of favouritism and invite more competition. The Hilton example shows why transparency on assets and terms matters.
- Staggered sales: Avoid flooding the market. Sequence assets so local capital markets and lenders can absorb issuance without suppressing prices.
- Golden rules for strategic assets: Where security or public interest is implicated, use golden shares or fit-and-proper ownership tests rather than blanket prohibitions.
Social Contract: Protecting Consumers and Workers
Tariff reforms must track a published formula, with lifeline blocks for low-income users and time-bound targeted cash transfers rather than permanent cross-subsidies. For workers, ring-fence pension entitlements, offer time-limited wage protection, and publish a transition plan per enterprise. These are costed policy choices, not slogans; but they buy legitimacy and reduce strike risk, preserving reform timelines.
International Playbook, Local Fit
Global templates like Singapore’s Temasek or Malaysia’s Khazanah show how a professional holding company can depoliticise commercial decisions while the state retains ownership in some enterprises. If Sri Lanka sets up a similar vehicle, the mandate must be commercial, boards independent, and listings used to enforce disclosure discipline.
What to Watch in 2025
- Execution against the 2023-2025 pipeline: Do Hilton/Grand Hyatt close? Do insurance, gas, and healthcare assets reach binding offers at acceptable valuations?
- Power-sector unbundling: Can wholesale market rules and grid pricing curb CEB losses while accelerating renewables?
- Governance enforcement: The new corporate-SOE framework must move from paper to practice: audited quarterly KPIs, board independence, and public reporting.
Bottom line on Selling Loss-Making SOEs in Sri Lanka
Sell where markets are competitive and regulation is credible. Fix and regulate where monopoly risk is high. Clean balance sheets, protect workers with targeted, time-bound support, and lock in governance so gains persist beyond a single fiscal year. The prize is lower fiscal risk, better services, and capital inflows that the Budget alone cannot provide.
To read “Loss-Making SOEs Bleeding the Economy: Why the Government Can No Longer Afford to Sustain These Ventures”, Click Here.
