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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2784

The Bane of Privatization

By Garvin Karunaratne

The words of the Chief Justice, Mr. Sarath Silva has rightly castigated:

“Those who profited from the corruption ridden transaction between the Government and Shell will burn in hell…. People are now suffering because the Chandrika Bandaranaike Government gave up the monopoly on Gas”. (Bottomline I get reminded of the scathing remarks and decisions reached by Justice OSM Seneviratne as the Magistrate at Matara in 1960. He was then a legend to be feared by anyone that transgressed and that included - the lawyers and the police.

Truly the price of a cylinder of Gas has gone up to Rs. 1,749.00 The price was around Rs 350.00 in 2000, when I lived there last.

Let us go back into the history of this privatization.

In 2000(The Island :14-3-2000) Tilak Siyambalapitiya wrote:
“ PERC privatized the LPG industry without establishing a regulatory mechanism. There is no mechanism for the public to question the pricing costs, heat content availability and of course the weight of a cylinder”(pg.168)

Let me add my own comment: “The Administrative Service had built up a coterie of experienced administrators who were well above board and who could be entrusted with any task. They were not stooges and could never be bought over. If one of them had been in charge of privatization when Shell was given the monopoly they would have advised the Government of the fact that the Shell Company was given too much power which would enable them to hold the Government to ransom(pg.135)

A few important questions do emerge, based on my own experience. On tricky matters, senior officers are there to guide the Government. It is their avowed duty to point out to the Government the consequences of the decisions being reached. The officials in charge of PERC and other officials associated with this decision should be held responsible for having recommended the package. In similar matters, where I have been involved I have always put in writing reasons why any proposed course of action was not in the national interest.

The Flour Fiasco

A similar instance where another company has also been given a free hand to act in fixing prices is Prima in the case of wheat flour.

Originally the Jayawardens Government entrusted Prima with the task of establishing a flour mill on the basis that the Government will assure them of providing a definite quantum of wheat for milling into flour, a condition that could not be waived.

It was a totally one sided agreement in favor of a foreign company that was paid for milling and was also entitled to sell the bran produced. The terms of privatization were made more advantageous to the Prima when that agreement came up for review, “in April 21001 Sri Lanka liberalized flour imports. The Government got Rs. 5,700 million in US $ for totally deregulating the import, price fixing and the sale of flour.(The Island: April 28, 2001) Here Prima was granted the total right to import, fix the sale price and sell. It was a total sell off. My own comment in April 2002, in respect of the Gas and Flour privatizations was: “What happens in the process of privatization is that in respect of paying concerns the Government will be selling an asset that brings in an annual income for a one off payment. It is like selling a laying hen. The Government is the net loser.

Have we forgottern what Shell Gas did a few years ago in jacking up the prices of gas. Have we not learned a bitter lesson from Prima, the Singaporean firm that controls wheat milling. Prima fixes the price of flour, is in charge of maintaining buffer stocks. Its responsibility is seen in the manner it recently supposedly sold flour to the Maldives when there was a shortage in Sri Lanka. All these were monopoly privatizations. Any country must control its essential services. Earlier the Food Controller carefully maintained the buffer stocks of flour and rice.”(pg. 262)

Prima failed to maintain buffer stocks. If as the Deputy Food Controller in Kegalla and Matara Districts, I failed to maintain buffer stocks I would have paid for it dearly by being demoted or sacked.

The Infrastructure for Ensuring Production and Fair Prices to Consumers

The evils of privatization have actually been biting us very hard. If Sri Lanka had not privatized the Marketing Department activities- the Vegetable and Fruit Purchasing Scheme, the Fair Price Sales Units at Tripoli and in many places in various cities, the cost of vegetables and other local produce could have been controlled. Many authorities are unaware of how the Marketing Department worked and its functions. It was not another Department that purchased vegetables and fruits in the producing areas, transported the produce to the cities and sold the produce in the city outlets. The task of the Department was entirely different.

The aim was twofold- to ensure that the traders who purchased goods from producers paid the producers a fair price and simultaneously ensured that the city consumers were able to get goods at a fair price. By this method the Department controlled the prices at the producer fairs as well as prices at the city markets. The Marketing Department purchased only around ten percent of the produce. It was to informally control the prices. With the Marketing Department handling both purchases and sales, if the traders were to be in business they had to purchase from producers at reasonable rates and also sell to consumers at reasonable rates.

Generally it would be found that traders make around 50 to 70% of the sale price of vegetables and fruits. This is divided among the transport provider, the retailer and the wholesaler. The Marketing Department handled all three functions. Its motto was not to make a profit and generally the Marketing Department managed to handle all its produce with a margin of around 25% or less. At the monthly meeting of Assistant Commissioners the Profit and Loss of each Unit was carefully looked into by the Commissioner B.L.W.Fernando, when we came into for severe censure if any unit created a profit of over 10% or incurred a loss of over 10%. We were trained to price the buying prices from producers as high as possible and at the same time fix the sale prices at our sales depots as low as possible. The Department had a number of Assistant Commissioners who had finalized the art of price fixing to almost perfection.

The Marketing Department also had a Canning Factory where items like Red Pumpkin, Ash Pumpkin and Pineapples were canned into Jam, Fruit Juice and sold to local consumers and the export market. Without Cold rooms and a Canning Factory any Marketing activities will have little effect and will incur a loss.

The Government is trying to establish the Marketing Department and the CWE. We have to act fast. The first Commissioner of the Marketing Department was a legend when I joined the Department. He had set up the Marketing Department with its Purchasing Units all over the island and Sales Units in urban areas overnight. In 1955 if I had no room in our Stores for purchasing paddy, I looked around for private storage, assessed the rent, took over the premises, deployed staff from other Stores and purchased paddy within a day or two- something that I was not authorized to do and dare not do 18 years later as the G.A. of a District. Surely there is someone somewhere in the ranks of the Government who can act fast and sort out this mess. The activities of the Gas and Flour monopolists have to be controlled in the national interest.

The CWE imported and retailed essential consumer supplies. For decades the CWE fairly controlled the prices of consumer goods by offering supplies to consumers well below the rates at which the traders and Supermarkets sold.

Let us not forget that the Paddy Marketing Board and the Marketing Department were disbanded during the UNP regime of Jayawardena and the CWE was dismantled by the UNP’s Ranil Wickremasinghe. Is it right for anyone in the UNP who dismantled this infrastructure specially designed over decades to control the cost of living, to now criticize the present Government which is now trying to put things right- to put to right what was messed up by the Ranil-Jayawardena governance!

Increases in the prices of oil

It is true that increases in the world prices of oil have a bearing on the transport of produce, but traders keep high margins of profit. Government commercial institutions like the Marketing Department, the CWE have an essential role to play in reducing the cost of living. Their activities effectively reduced the profit margins of traders. While we cannot control the price of oil, we can ensure that the consumer is not fleeced by traders, and in the process the prices of goods can be reduced.

Sri Lankan Airlines

The Ugly side of Privatization is also evident in the recent role that the Government has had to play in the case of Sri Lankan Airlines. The Government has rightly decided to take over the Airline and run it as a State concern. The prtivatization of Sri Lankan Airlines to Emirates was a total disaster. When we privatized Air Lanka we handed over a fleet of 12 airplanes. Emirates ran down the assets nearer to the date of handover.

I quote Minister Jeyaraj Fernandopulle:

“Commenting on the dividends the Sri Lankan Airlines gained from the transaction, the Emirates recorded profits by selling aircraft in the fleet of Sri Lankan Airlines. They listed the income generated by selling aircraft as net profits. They obtained a lease of the same aircraft for Sri Lankan Airlines from the Company that bought the aircraft”(SAsia MediaNetwork 12/2/08)

If the aircraft had not been sold Emirates would have had to hand over them as running assets at the end of their period. By selling the planes Emirates gained profits and it was a total shell that was ultimately being handed over. This illustrates the ugly side of privatization.

President Rajapaksa’s Government has rightly decided not to privatize essential services. The earlier Governments have sold out essential utilities under privatization and the ill effects of such ill-advised action stare at us in the face.

To voice that the perpetrators who sold Government assets like Shell at terms that enable the Companies to hold consumers and the Government to ransom should be punished is the right approach. There is more work for COPE!.

(All quotes where page numbers are indicated are from my book: How the IMF Ruined Sri Lanka… (Godages) )

Garvin Karunaratne, Ph.D., former SLAS, G.A. Matara,

- Asian Tribune -

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