Recent Sri Lankan Airlines corruption scandal reveals need for deeper structural reform in State Enterprises – Advocata

First appeared in The Island, Sunday Times, Daily FT, Lanka Business Online, Ada Derana, Daily News, Newswire, Colombo Page, The Island, and Daily Mirror

Weak governance has led to large scale corruption in state enterprises. Sri Lankan airlines has made Rs. 169 billion in losses since nationalisation in 2009.

COLOMBO, Sri Lanka — It has recently been revealed that Airbus SE paid the wife of a Sri Lankan Airlines Executive US$ 2 million, out of a US$ 16 million bribe over a large Airbus deal. Following this, President Gotabhaya Rajapaksa has ordered an inquiry over these allegations. While Advocata welcomes the President’s decision to order investigations, we also urge the government to attend to the deep-rooted issue of systemic misgovernance embedded in Sri Lanka’s State Owned Enterprises (SOEs).

SOEs such as SriLankan Airlines continue to remain some of the largest burdens on Sri Lanka’s debt-ridden treasury. Sri Lankan Airlines has accumulated a net loss of Rs. 17.2 billion solely for the year 2018 (Ministry of Finance Annual Report, 2018). To date, the airline has accumulated losses of Rs. 169 billion since nationalisation in 2009.

In 2018, a special report on the airline by the Auditor General’s Department found various accounts of malpractice across the enterprise, including:

• Failure to follow procurement guidelines in the selection of consultative companies

• Failure to introduce formal control systems for the implementation of plans

• Lack of proper cost-benefit analysis in validating expansion of the fleet of aircrafts

• Failure to conduct proper analysis on the method of selection for acquiring aircrafts

• Failure to follow government procurement guidelines in the acquisition of aircraft

Advocata’s recent report on The State of State Enterprises in Sri Lanka reveals that SOEs are vulnerable to mismanagement and corruption because of potential conflicts between the ownership and policy-making functions of the government, and undue political influence on their policies, appointments, and business practices, as evidenced by the recent Sri Lankan Airlines scandal. Recommendations to address serious problems in procurement:

• Proper functioning of the National Procurement Commission. Commission should be independent and should enforce their mission of formulating “fair, equitable, transparent competitive and cost effective policies, procedures and processes for the procurement of goods and services, works, consultancy services and information systems performed by the Government Institutions in a timely manner.”

• Implementing E-Government Procurement to address prevailing constraints in Sri Lanka’s public procurement marketplace pertaining to information asymmetries, anti-competitive practices, and high transaction costs (Verite Research, 2017)

• Introducing Procurement Auditing to public procurement to prevent fraud and ensure reliable financial reporting (Sri Lanka Auditor General’s Department Procurement Audit Manual, 2016)

“There is no pride having a corrupted and a loss-making airline burdening the taxpayer. It’s a national liability rather than a national asset. A national financial crime rather than a national pride. There is institutionalised corruption, mismanagement and lack of accountability in these enterprises that demand urgent reform” – Dhananath Fernando, Chief Operating Officer, Advocata Institute.