Sunday, November 16, 2014

More expropriation of assets: estate companies now in the gunsights of the Government

The Government has issued a menacing statement on the status of the privatised estate companies warning that "underpeforming" companies would be taken over by the Government.

Taken at face value the statement seems innocuous - what is wrong with cancelling the lease and taking over something that is underperforming?

The question is, what is defined as "underperforming" ? Returns below par?  Losses? For a start, lets assume that the definition means a company that is making losses.

The next question is: who bears the losses of a private company ? The answer is the financiers of the company - the shareholders and the banks. What happens when the State takes over the company?

The state becomes the financier-and naturally assumes responsibility for the losses. This means taxpayers and citizens. Why are we in an unseemly hurry to impose additional burdens on the public?

Any losses are a burden on the public, unless, by some magic, performance improves under Government control.  We have plenty of evidence to the contrary

For example Srilankan Airlines was consistently profitable under the management of Emirates. The Government, in a fit of pique, took over the airline, paying Emirates US$53m for its stake. Last year Srilankan lost some Rs.30.1bn (around US$231m). In just one year, the State managed to lose almost 5 times its original investment, a truly mind boggling feat.

The Committee on Public Enterprises (COPE) in its review for 2012 reported that only 11 of  235 state enterprises reported a profit. This should be sufficient evidence to stay the case against any state interference to "improve" management in any so called "underperforming" business. Things will be infinitely worse in the hands of the State.

This also raises an interesting question on the remaining estates owned and managed by the JEDB and the SLSPC. Not all the estates were privatised, there were some that were unsaleable at the time and these remained in State hands.

An excellent test of the Government's fitness to manage estates would be to publish a summary of the performance for the Government estates for each year between 1992 and 2014. We need the basic crop/yield figures, selling price per kilogramme, the turnover and the net profits or losses.

This can then be compared with a similar summary of the performance of the privatised estates. To be fair, what we need to compare is the relative change in finances (in percentages) from the starting position of 1992.  It does not matter if the State companies are still making losses, what we need to know if the position is better of worse against the starting point, with similar information on the private sector.

We can then draw an informed conclusion on the wisdom of this latest proposal en route to our Nationalist, Socialist Utopia,  

Related post: Felling Timber on estates to pay EPF/ETF dues.



shammi said...

Happy Blog Birthday Jack Point!

Thank you for keeping us informed and entertained.

Jack Point said...

Thank you, is it really my blog's birthday? I must check. I do remember that yesterday was Freddy Mercury's death annivcersary and that I started with a post on you may be right!

shammi said...

You didn't see this, then?

Jack Point said...

Shammi, I had not seen Cerno's piece at the time I wrote the comment, I did see it a bit later.