State-owned enterprises (SOEs) play a significant role in Sri Lanka’s economy. They provide essential services, support national development, generate employment, and manage important public assets. However, the performance of many SOEs has raised serious concerns about financial sustainability, operational efficiency, accountability, and the effective use of public resources. The International Monetary Fund (IMF), in its Country Report No. 23/116, issued in March 2023, identified substantial scope for improving the operational efficiency of Sri Lanka’s State-Owned Enterprises (SOEs).
The fundamental question is not whether the State should own businesses rather than whether the State has the right institutional structure to manage its commercial investments effectively. Sri Lanka needs to move beyond treating SOEs as extensions of Government ministries and begin managing them as professionally governed business enterprises. One possible approach is to establish a Sri Lankan State-owned holding company inspired by Singapore’s Temasek Holdings.
The objective should not be to copy Singapore blindly but it should be to adapt the principles that make the Temasek model valuable pillars of professional ownership, independent boards, commercial discipline, transparent reporting, and long-term value creation. Sri Lanka needs a Government that acts as a responsible owner of businesses, rather than a Government that attempts to run every business through the machinery of administration.
1. Understanding Singapore Temasek model
Temasek Holdings was established in 1974 to own and commercially manage investments and assets previously held by the Singapore Government. Its creation helped separate the Government’s role as a policymaker from its role as a shareholder in commercial enterprises. Today, Temasek is wholly owned by the Singapore Ministry of Finance but operates through its own board and professional management structure. Under the Temasek model, the Government establishes the overall ownership objectives and appoints a competent board. The board, in turn, oversees the company’s strategy, risk management, investments, and senior management. Individual businesses are responsible for their own operational and commercial decisions. The Government does not ordinarily direct individual investment decisions. In simple terms, the model creates a clear separation between three functions:
Government: Develops national policy, establishes the legal framework, and defines the State’s ownership objectives.
Holding company: Manages the State’s commercial investment portfolio, appoints and evaluates subsidiary boards, and monitors performance.
Individual Enterprise Units: Manage daily operations, employees, customers, costs, investments, and business performance.
This arrangement allows commercial enterprises units to operate with greater professional independence while remaining accountable for their results. Temasek is not simply a fund into which the Government deposits money. It owns investments and manages a portfolio of companies with a long-term commercial orientation. It also distributes dividends to its shareholder and publishes information about its performance. The central lesson for Sri Lanka is that public ownership and professional business management do not have to be competing objectives.
2. Why Sri Lanka needs a different approach
Sri Lanka has established numerous public enterprises to support economic development, provide essential services, and protect national interests. Some perform important commercial functions, while others deliver services that the private sector may not provide adequately or affordably. Nevertheless, the performance of SOEs cannot be judged solely by their size, number of employees, or importance to the economy. They must also be evaluated according to their financial results, service quality, productivity, governance, and contribution to national development. Several structural challenges make reform necessary.
2.1 Political interference in commercial decisions
One of the major challenges faced by SOEs was the potential influence of short-term political priorities on long-term business decisions. Frequent changes in leadership, politically influenced appointments, and decisions that do not adequately consider commercial consequences can weaken institutional stability. When business decisions depend on political relationships rather than professional judgement, accountability becomes difficult to establish. A Temasek-style holding company could reduce this risk by introducing transparent board selection criteria, competency-based appointments, fixed performance expectations, and clearly defined responsibilities. Political leaders would retain responsibility for national policy and public ownership objectives, but ordinary commercial decisions would be delegated to professionally appointed boards and management teams.
2.2 Financial losses and the burden on taxpayers
When an SOE repeatedly incurs losses, the consequences extend beyond the enterprise itself. The Government may need to provide additional capital, settle outstanding obligations, restructure debt, or finance essential operations. These resources have an opportunity cost. Money used to support inefficient operations cannot be used for other priorities such as education, healthcare, infrastructure, and social protection. However, not every loss indicates poor management. An enterprise may be required to provide services below commercial cost for legitimate social or economic reasons. The real problem arises when the Government does not clearly distinguish between commercial losses and the cost of fulfilling public-service obligations. Under a reformed model, every enterprise should have an agreed financial and operational mandate. If the Government requires an enterprise to provide a socially necessary service at a loss, the obligation and its cost should be explicitly identified, budgeted, and transparently financed. This would allow management to be held accountable for controllable business performance without unfairly penalising enterprises for Government-imposed obligations.
2.3 Weak accountability and fragmented ownership
SOEs are often subject to multiple layers of oversight involving boards, ministries, departments, Treasury officials, and other public institutions. Although oversight is necessary, fragmented responsibilities can make it difficult to determine who is ultimately accountable for poor performance. A holding company could create a clearer ownership structure. It would establish measurable performance targets, appoint competent boards, monitor results, and take corrective action when enterprises fail to meet agreed objectives. The objective would not be to eliminate public accountability. Instead, it would be to make accountability more meaningful by linking authority, responsibility, and measurable results.
2.4 Limited transparency and inconsistent performance information
Effective reform requires reliable information. The Government, Parliament, investors, employees, and citizens should be able to understand the financial position of major SOEs, their liabilities, government support, operational performance, and contributions to the economy. Sri Lanka has previously pursued performance-management initiatives, including Statements of Corporate Intent for selected SOEs. However, a stronger and more consistent ownership framework is needed to make performance monitoring a regular institutional practice rather than an isolated reform exercise. A holding company should therefore publish audited consolidated financial statements, enterprise-level results, board information, key performance indicators, and details of material Government support. Transparency should be a foundational requirement from the first day of operation.
3. The Proposed solution: Establish ‘Lanka Holdings’
Sri Lanka could establish a State-owned holding company under a new State Business Enterprises Management Act. For the purposes of this proposal, the institution may be called Lanka Holdings. It would be a public limited company wholly owned by the State, with the Treasury acting as its shareholder. Its principal responsibility would be to manage designated Government-owned commercial investments professionally and maximise their sustainable long-term value. The proposed company should not become another ministry, a regulatory authority, or a central body that micromanages every subsidiary. Instead, it should operate as a professional shareholder with a clear mandate. Its principal functions would include:
1. Holding the State’s shares in designated commercial enterprises.
2. Appointing qualified and independent boards through a transparent selection process.
3. Providing authority to take operational and administrative decisions.
4. Establishing measurable financial, operational, and governance targets.
5. Monitoring the performance and financial risks of subsidiaries.
6. Allocating capital according to commercial viability and national priorities.
7. Publishing audited consolidated accounts and regular performance reports.
8. Receiving dividends and distributing an agreed portion to the treasury.
9. Recommending restructuring, mergers, partnerships, listings, or divestments where appropriate.
The holding company should be subject to parliamentary oversight, independent audit, applicable public disclosure requirements, and clearly defined statutory responsibilities. Its independence must not become an excuse for secrecy or the avoidance of public accountability.
4. Three-tier structure for Sri Lankan SOEs
Sri Lanka should not place every State-owned institution under the same commercial model. Enterprises have different purposes, risks, and obligations. A more practical approach would classify them into three broad categories.
Tier 1: Commercial enterprises
This category would include commercially oriented businesses such as telecommunications, airlines, hotels, plantations, and selected financial or other business enterprises, subject to legal, regulatory, and strategic considerations. Their principal objective should be to generate sustainable financial returns, improve productivity, serve customers, and protect the value of public assets. Each enterprise should operate under a professionally approved business plan with measurable targets for profitability, cash flow, productivity, customer satisfaction, and investment. Where an enterprise is commercially viable, the holding company should support expansion, innovation, partnerships, and access to capital. Where an enterprise remains unviable despite reasonable restructuring, options such as mergers, strategic partnerships, minority listings, or divestment should be evaluated transparently and on their merits. The objective is not to sell public assets indiscriminately. It is to ensure that the State retains ownership where justified and uses its capital efficiently.
Tier 2: Strategic utilities and essential services
Some enterprises provide services that are essential to national security, economic stability, or public welfare. Examples may include Electricity, Petroleum, Railway, and port-related enterprises. These businesses should not be evaluated exclusively on short-term profitability. Their performance should be assessed against a dual mandate of financial sustainability and the delivery of clearly defined public-service obligations. For example, if the Government requires an enterprise to maintain an uneconomic service for social reasons, the cost should be separately calculated and financed through an approved mechanism. This would prevent hidden subsidies from distorting financial results and would help the public understand the true cost of Government policy. Commercial discipline and social responsibility can coexist, provided that both are clearly defined.
Tier 3: Non-core and persistently unviable entities
Sri Lanka should undertake a comprehensive review of smaller, overlapping, inactive, and persistently unviable State-owned entities. Depending on their functions and legal obligations, these enterprises could be merged, consolidated, restructured, transferred, or wound up. A dedicated restructuring unit could coordinate this process using transparent criteria, independent financial assessments, and clearly defined timelines. Before making any decision, the Government must assess employment consequences, contractual commitments, public-service requirements, and the interests of affected stakeholders. Restructuring should be evidence-based, not an automatic exercise in closure or privatisation.
5. Independent Boards and professional leadership
The success of Lanka Holdings would depend less on its name or legal structure than on the quality of its governance. An institution that is formally independent but remains vulnerable to political appointments and informal interference would reproduce the same weaknesses it was designed to address. The holding company should therefore have a predominantly independent board with expertise in finance, corporate governance, strategy, law, risk management, technology, and relevant industry expertise. Board members should be selected through a transparent, competency-based process, with published eligibility criteria, declarations of interests, and safeguards against conflicts of interest. Ministers should not sit on the holding company’s board or the boards of its commercial subsidiaries. Their role should be exercised through the Government’s ownership policy and lawful shareholder mechanisms. The CEO should be appointed through a professional process, with clearly defined responsibilities, an appropriate term of office, and performance-linked remuneration. Appointments and removals should follow established legal procedures, with protection against arbitrary political interference. Each subsidiary board should have genuine authority to supervise its management and make business decisions. The holding company should set strategic expectations and assess results, rather than interfere in routine operational matters. This is the essential difference between a professional holding company and a centralised administrative department.
6. Financial discipline, dividends, and reinvestment
A well-designed holding company should improve the way the State manages the financial resources invested in its enterprises. First, all participating companies should prepare reliable financial statements and disclose material liabilities, guarantees, subsidies, and related-party transactions. Second, the holding company should establish a transparent dividend policy. Profitable enterprises would contribute dividends according to their financial capacity, capital requirements, investment plans, and long-term sustainability. These dividends could provide a more predictable return to the treasury and, ultimately, the public. However, the Government should not extract excessive dividends from enterprises that need capital to maintain infrastructure, modernise operations, or remain competitive. Dividend decisions should balance current public revenue with future enterprise value. Third, capital should be allocated according to transparent investment criteria. Enterprises with credible business plans and strong prospects should be able to compete for investment on merit. Fourth, public enterprises should not be encouraged to accumulate hidden liabilities under the assumption that the treasury will always rescue them.
Government guarantees, where justified, should be explicitly authorised, disclosed, and assessed for fiscal risk. The long-term objective should be to create a cycle in which commercially sound enterprises generate returns, retain sufficient funds for sustainable growth, and contribute appropriately to public finances.
7. Listing on CSE: Option, not objective in itself
A Temasek-style holding structure could create opportunities for carefully selected SOEs to access the capital market. A minority listing could introduce additional disclosure requirements, independent scrutiny, market-based valuation, and broader investor participation. It could also help enterprises raise capital for expansion without relying entirely on Government funding. Nevertheless, listing should not be treated as a substitute for governance reform. An enterprise should not be listed merely to raise immediate revenue or transfer financial risks to private investors. It should first demonstrate credible accounts, appropriate governance, a viable business strategy, and a clear ownership and regulatory framework. Where national interests require the State to retain control, a minority listing could be considered. Where listing is unsuitable, the enterprise could remain wholly State-owned while operating under professional commercial governance. The principle should be simple ‘Reform governance first, establish credibility next, and consider market participation when the conditions are right.’
8. Lessons from SEMA and previous reform attempts
Sri Lanka’s previous institutional reform experiences offer an important warning. The establishment of another authority or restructuring institution does not, by itself, guarantee sustainable reform. An institution may lose effectiveness if it lacks a clear mandate, consistent political support, operational independence, or the authority needed to implement its responsibilities. The proposed Lanka Holdings must therefore be designed to avoid becoming another institution that exists on paper but has limited influence over actual SOE performance. Its mandate should be established by legislation, with clear limits on political intervention and transparent rules governing board appointments, reporting, capital allocation, and restructuring decisions. The law should also define the circumstances in which the Government can issue lawful directions and require such directions to be documented and disclosed, subject to legitimate confidentiality and national-security requirements. At the same time, no statutory arrangement can eliminate political interference entirely. Strong institutions require enforcement, a professional public service, independent oversight, and sustained public commitment. Sri Lanka should learn from earlier reform attempts by building safeguards into the institutional design rather than relying on assurances of good intentions.
9. Protecting public assets and workers’ interests
SOE reform must be approached as a national economic and governance reform, not simply as a cost-cutting programme. Employees have legitimate concerns about job security, working conditions, statutory payments, career development, and fair treatment. These concerns should be addressed through consultation, transparent restructuring plans, skills development, redeployment where feasible, and legally compliant employment arrangements. Workers’ retirement savings, including the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF), should not be treated as a convenient source of capital for the holding company. Any involvement of these funds in investment activities must remain subject to their own legal mandates, fiduciary duties, and independent governance. Similarly, public assets should not be transferred or sold without proper valuation, due diligence, disclosure, and safeguards against conflicts of interest. A successful reform programme must demonstrate that better governance benefits the country as a whole, not only investors or the treasury.
10. Practical five-year implementation roadmap
Sri Lanka should introduce the proposed model gradually, with measurable milestones and independent evaluation.
Years 1-2: Establish the foundations
Enact the necessary legislation and establish Lanka Holdings.
Complete an inventory and financial assessment of State-owned enterprises.
Select an initial group of approximately 10-15 commercially oriented enterprises, subject to due diligence and legal requirements.
Appoint professional boards and establish performance agreements.
Publish audited financial statements and baseline performance indicators.
Establish clear rules on appointments, disclosure, dividends, and conflicts of interest.
Years 3-4: Expand and strengthen
Evaluate the performance of the first group and correct weaknesses.
Consider transferring additional commercial enterprises into the holding structure.
Introduce a transparent framework for the public-service obligations of strategic utilities.
Evaluate suitable minority listings and strategic partnerships.
Publish consolidated reports on financial performance, public support, liabilities, and governance.
Year 5 onwards: Consolidate and create long-term value
Expand the portfolio only when governance and reporting standards are demonstrably effective.
Restructure or consolidate persistently unviable enterprises where justified.
Reinvest capital in commercially sound opportunities and national development priorities.
Assess whether a separate savings or investment is appropriate, but only if fiscal conditions and genuine sustainable surpluses support it.
Progress should be measured through improvements in financial sustainability, productivity, service quality, transparency, capital efficiency, and the reduction of unjustified fiscal risks not simply by the number of enterprises transferred or privatised.
11. Can Sri Lanka replicate Singapore’s success?
Sri Lanka should recognise that Temasek operates within a different institutional and economic environment. Singapore’s experience cannot be separated from its governance arrangements, professional capabilities, regulatory framework, and long-term policy consistency. Consequently, establishing a holding company will not automatically make Sri Lankan SOEs profitable. If the same political appointment practices, weak reporting systems, and informal interventions continue under a new institutional name, the reform will achieve little. Sri Lanka must first establish credible ownership rules, independent boards, transparent accounts, enforceable performance targets, and effective oversight. It must also accept that some enterprises may require fundamental restructuring, while others may be commercially viable if their governance and operating arrangements improve. The objective should not be to promise that every SOE will generate profits. It should be to ensure that every SOE has a clearly justified purpose, an accountable management structure, a transparent financial position, and a measurable contribution to the country.
Conclusion: From political ownership to professional stewardship
Sri Lanka’s SOE challenge is fundamentally a governance challenge. The country needs to move from fragmented administrative control towards professional, transparent, and accountable ownership of its commercial public assets. A Singapore Temasek-style holding company could provide an institutional framework for this transformation. By separating policymaking from commercial ownership, strengthening independent boards, introducing financial discipline, and making performance visible to the public, Sri Lanka could improve the management of its State-owned businesses and reduce unnecessary fiscal pressures.
However, the proposed model should not be regarded as a shortcut to economic recovery. It must be supported by sound legislation, credible institutions, professional leadership, transparent financial reporting, and consistent implementation. The ultimate purpose is not merely to increase profits or collect dividends. It is to protect the value of public assets, improve the quality of essential services, encourage productive investment, and ensure that the State’s commercial resources contribute more effectively to national development.