MPs called for the restructuring of loss-making State-owned Enterprises (SOEs) which have not fulfilled their role in driving forward Myanmar's economy

3 ตุลาคม 2561

Despite being established with the objective of driving the nation’s economy, State-owned enterprises (SOEs) have not lived up to their roles. Instead, at least a third is leeching off public funds that could have been channeled elsewhere.

That needs to change, MPs said.

SOEs were established with the aim of producing goods for export and as import substitutes as well as to make goods affordable for the people. However, due to poor technology, weak competitiveness and mismanagement, many SOEs have instead become a burden to the State, the MPs pointed out.

There are 32 SOEs managed by six union ministries and among them, only 22 are profitable. According to 2018-19 budget data, estimated profits are expected to total some K2 trillion, with around one third generated by the Central Bank of Myanmar, four state banks and Myanma Insurance. 

Myanma Oil and Gas Enterprise (MOGE) is expected to contribute another third of the earnings, with the remainder generated by Myanma Gems Enterprise, Myanma Timber Enterprise, Myanma Post and Telecommunication (MPT), Myanma Port Authority and Myanma Petrochemical Enterprise. 

Profitable SOEs pay 25pc of their earnings as tax, 20pc as contributions to the government while the remaining is parked in a separate reserve fund.

Widening losses

Meanwhile, SOE losses are estimated to be a little over K833 billion, the bulk of which will come from Myanmar Electricity Generating Enterprise (MEGE). For every unit of electricity generated, the government loses K 23, said Dr. Tun Naing, deputy minister at the Ministry of Electricity and Energy (MOEE). The average production cost per unit of electricity is K 77.25 compared to the average selling price of K 54.15 per unit.

As higher volumes of electricity are being generated to meet demand, the government’s losses have also mounted. In 2017-18, losses from providing electricity totaled K508 billion, which is up by more than 20 percent compared to 2016-17. For the 2018-19 fiscal year starting October 1, losses are expected to widen by a further 24pc, to K629 billion for the period.

Since the NLD-led government took office in 2015, businesses and MPs have argued that electricity prices should be raised to cut losses. However, officials have stalled on making a decision as raising prices could hurt the poor. 

Meanwhile, losses generated by Myanma Railways are forecast at K98 billion for the period, compared to a loss of K79 billion in 2017-18 and K 60 billion in 2016-17. 

Losses generated by the MEGE and Myanma Railways are estimated to account for more than a third of total losses generated.

Other SOEs such as Inland Water Transport, Road Transport and Myanma Postal Service may face losses, while the News and Periodical Enterprise will likely lose money in the coming fiscal year due to falling advertising revenues and higher costs involved in delivering to rural areas.

Change needed

More importantly, loss-making SOEs take funds from the public to cover their losses, which is “not right,” Dr Thet Thet Khaing, Pyithu Hluttaw MP from Dagon constituency, said this month. She added that as “production and competitiveness of SOEs are falling and as operation costs are rising, profits are decreasing. Changes must be implemented for the whole sector.”

In 2017-18, SOEs contributed 44.6pc to national income but absorbed 31.8 pc of union expenditure, said U Maung Maung Win, deputy minister of planning and finance. 

Many of the loss-making SOEs are under the Ministry of Industry. Although high volumes of investments have been made with the aim of producing more goods for exports while supporting the production of import substitutes, much of the funds go to waste. This is because of outdated technology, weak management and pension obligations, which all lead to poor quality products.

“There are no developments among some of these SOEs and their losses are being covered by State funds, resulting in the country not developing as much as it should, said U Aung Hlaing Win, Pyithu Hluttaw MP from Mingaladon constituency.

As such, SOE business models need to be restructured. For example, evaluating the performance of SOEs with a similar working nature, enacting a suitable profit allocation policy instead of using state funds and appointing the Ministry of Planning and Finance to manage and supervise affairs, according to Dr Thet Thet Khaing, Pyithu Hluttaw MP from Dagon constituency.

Other MPs said SOEs should stop spending on areas well supported by the private sector, such as transport infrastructure. “There are enough private-sector funds going into building roads so we should cut spending in that area,” said U Aung Kyaw Kyaw Oo, Pyithu Hluttaw MP of Hlaing township.

U Thaung Aye, MP from Pyawbwe, said though, that “while reforms are inevitable to rescue the loss-making SOEs, if changes are wrong or inappropriate, it will lead to vicious circle of losses.”

Last October, Myanmar economist Dr Aung Htun Thet also suggested privatising some of the SOEs and turning others into public corporations. However U Aung Hlaing Win added that unqualified civil servants should be replaced by trained and experienced managers. “We should practice meritocracy like the private sector,” he said.

U Maung Maung Win said that privatisation contracts for some SOEs are now being drafted with the help of the IFC and the Japan International Cooperation Agency, but added that plans would be carried out to sustain current staff conditions and pensions.

 

(The Myanmar Times: https://www.mmtimes.com/news/mps-call-restructuring-loss-making-soes.html )