Sri Lanka’s SOE Privatization: Vision for Citizen Ownership

Since the late 1970s, with constitutional change Sri Lanka embarked on an ambitious journey to open its economy & reform through privatization of State-Owned Enterprises (SOEs). Over 500 SOEs existed at independence and afterward, and successive governments claimed privatization would attract capital & improve efficiency.

However, decades of privatization efforts have left mixed, often disappointing results — characterized by loss of national wealth, rise in inequality, job losses, and public distrust. Let us look at the privatization history, unpack the challenges, and come up with a forward-looking solution: citizen-shareholding that returns ownership to the people rather than private cronies or foreign investors.

The Scale of Divestment: Major SOEs Privatized by Government

SOE Name	Sector	Year(s) Divested	Government	Buyer (Foreign/ Local)	% OwnershipSold	Notes / Impact
State Textile Corporation	Textiles	Late 1980s-1990s	UNP (Jayewardene)	Local private firms	100%	Closed, massive layoffs, factory shut down
Pelwatte Sugar Industries	Sugar Production	1980s-1990s	UNP	Local private investors	100%	Decline in production, shortages
Ceylon Tobacco Company (CTC)	Tobacco Manufacturing	1980s-1990s	UNP	British American Tobacco (foreign)	Partial (~40%)	Still foreign-owned, profitable
State Insurance Corporation (SLIC)	Insurance	2003	UNP (Wickremesinghe)	Foreign investor consortium	100%	Sold undervalue, re-nationalized after court ruling (2009)
Sri Lanka Telecom (SLT)	Telecommunications	1990s-2000s	Multiple	Foreign strategic partners + govt	Partial (~45%)	Govt holds controlling stake
Colombo Dockyard PLC	Shipbuilding	1990s	PA (Kumaratunga)	Local/foreign joint venture	Partial (~30%)	Strategic asset retained with partial private participation
Lanka Synthetic Textile Ltd	Textiles	Late 1990s	PA	Local private firm	100%	Factory shut down after privatization
State Printing Corporation	Printing Services	1990s	UNP	Local investors	Partial (~40%)	Partial divestment; state still controls core operations
Lanka Hospitals Corporation PLC	Healthcare	2008	UNP	Local private investors	100%	Privatized successfully
State Plantations (various estates)	Tea, Rubber, Coconut	Ongoing partial	Various	Mixed (local + foreign)	Partial	Mostly state owned; some estates sold
National Development Bank (NDB)	Banking	Partial sales	Various	Local and foreign institutional investors	Partial (~30%)	Govt retains majority stake
People’s Leasing & Finance PLC	Finance	Partial sales	Various	Local and foreign investors	Partial	Mixed ownership; no broad citizen ownership
Ceylon Petroleum Corporation	Petroleum & Energy	No full sale	N/A	N/A	0%	Strategic asset remains state-owned
Sri Lanka Ports Authority (SLPA)	Ports & Shipping	No full sale	N/A	N/A	0%	Some PPP terminal operations, no ownership transfer
Lanka Electricity Company Ltd (LECO)	Power Distribution	No sale	N/A	N/A	0%	Attempts at privatization failed, state retained control

SOE Privatization by Sri Lankan Presidents (1977 – Present)

President	Term	Major Privatization Activity	Approx. Number of SOEs Privatized	Notes
J.R. Jayewardene (UNP)	1977 – 1989	Initiated large-scale privatization	150+	Pioneered open economy reforms & mass divestment, especially late 1980s.
Ranasinghe Premadasa (UNP)	1989 – 1993	Continued privatizations	50+	Focused on infrastructure and financial sector privatizations.
Dingiri Banda Wijetunga (UNP)	1993 – 1994	Limited activity	Minimal	Short term, mainly caretaker, little privatization.
Chandrika Kumaratunga (PA)	1994 – 2005	Reduced pace, some privatizations	30-40	Some SOEs sold, but more cautious approach than predecessors.
Mahinda Rajapaksa (SLFP)	2005 – 2015	only small leases or PPP	NO	Focused on state-led development – only small leases or PPP
Maithripala Sirisena (SLFP/UNP coalition)	2015 – 2019	Renewed privatization push	40-50	Under UNP PM Wickremesinghe’s economic policies, privatization revived.
Gotabaya Rajapaksa (SLPP)	2019 – 2022	only small leases or PPP	NO	Focused on state control amid economic crisis.
Ranil Wickremesinghe (UNP/SLPP)	2022 – Present	Push for privatization & reforms	Ongoing	Under IMF conditions, privatization is part of reform agenda.

While the government received one-time capital from sales of fully privatized SOEs, long-term dividend income was generally limited to those companies where the state retained partial ownership, such as Sri Lanka Telecom. However, many privatizations resulted in the loss of future revenue streams, with profits flowing primarily to private and foreign shareholders rather than to the national treasury.

Government Financial Gains and Dividend Income from Privatizations

While the government received one-time capital proceeds from the sale of fully privatized state-owned enterprises (SOEs), such upfront payments were often significantly below the true value of these assets. More importantly, in many cases, the long-term financial benefits to the country and its people were minimal or even negative. This is because fully privatized SOEs no longer contribute to the national treasury through dividends, taxes, or reinvestment in local development.

Examples of SOEs Sold Below True Value

 

1. Sri Lanka Insurance Corporation (SLIC)

• Sold in 2003to the Distilleries Company of Sri Lanka (DCSL) for  6 billion.
• Controversy: Supreme Court later ruled the privatization was illegal and re-nationalized it in 2009, citing undervaluation and procedural flaws.
• Finding: Assets were undervalued, and proper due diligence was not followed.

 

2. Lanka Marine Services (LMS)

• Privatized in 2002to John Keells Holdings.
• Sale Price: Approximately  1.08 billion.
• Supreme Court Verdict (2008): Sale was flawed and involved conflict of interest; state lost a strategic revenue-generating asset.
• Impact: The LMS property alone was worth far more than the transaction value, excluding operational income streams.

 

3. Shell Gas Lanka

• Government sold majority stake (51%) to Shell in 1995 for $37 million.
• Controversy: Shell was given monopoly rights to the domestic LPG market for 10 years.
• Impact: Consumers faced price hikes, and the state lost both profits and pricing control in a key consumer sector.

 

4. Sri Lanka Telecom (SLT)

• Partial privatizationin 1997: 35% sold to Nippon Telegraph and Telephone (NTT) of Japan for $225 million.
• Later, 35.2% transferred to Global Telecommunications Holdings N.V.(Malaysia).
• Criticism: SLT was a high-performing entity with strategic communication infrastructure. Critics argue the price did not reflect its future earnings potential or national importance.

 

5. Ceylon Oxygen Ltd.

• Sold to a foreign company, later resold at a significantly higher price, exposing how undervalued the original transaction had been.

For SOEs where the government retained partial ownership—such as Sri Lanka Telecom—the state did receive dividend income. However, these dividends have often been modest, irregular, and insufficient to compensate for the loss of full control and future earnings potential. Moreover, with a significant portion of ownership transferred to private or foreign investors, a large share of profits and dividends flows out of Sri Lanka, benefiting investors rather than the public.

Had the privatized SOEs remained under efficient and accountable state control, Sri Lanka would today be benefiting from consistent revenue flows, economic self-reliance, and stronger control over strategic sectors. These enterprises would have served not just as commercial assets but as pillars of national development, funding social services, creating jobs, and stabilizing the economy. Instead, the country lost both future dividends and capital value, while bearing the cost of unemployment, inequality, and foreign profit outflows.

Additionally, privatization can lead to cost-cutting measures, layoffs, and reduced service quality, which undermine social welfare and economic stability.

In many cases, privatization has effectively transferred wealth from the public to private hands, often exacerbating inequality and eroding the country’s economic sovereignty. This raises serious questions about whether privatization has served the long-term interests of Sri Lanka and its people or primarily the short-term gains of political and business elites.

Foreign Ownership: Profits Leaving Sri Lanka and the Economic Drain

While foreign investment is often promoted as a path to economic development, the reality of SOE privatization in Sri Lanka shows significant profit outflows. Large portions of earnings from foreign-owned enterprises are repatriated as dividends,management fees, and royalties, draining vital foreign exchange reserves. Additionally, practices such as transfer pricing reduce taxable profits within the country, depriving the government of revenues needed for social and economic development. This capital flight hampers sustainable growth and exacerbates economic vulnerabilities, underlining the need for stricter regulatory frameworks and more inclusive ownership models that keep wealth within the national economy.

According to the Central Bank of Sri Lanka, annual outflows under “primary income” — which includes repatriated dividends, royalties, and management fees — range from $1.5 to $2.5 billion per year. Much of this stems from formerly state-owned assets now under foreign control. These recurring outflows drain Sri Lanka’s foreign exchange reserves, undermining economic stability and sovereignty, especially during balance of payment crises. Had these assets remained in national hands, a significant portion of these funds could have been retained and reinvested within the country.

The Economic and Social Consequences

Loss of National Wealth: Several SOEs were sold at undervalued prices, leading to massive wealth transfer from the public to private hands, often to politically connected elites.

– Job Losses and Social Dislocation: Privatization often led to layoffs and deterioration of worker rights, with minimal social safety nets.

– Fiscal Impact: Rather than reducing government debt, the loss of revenue-generating SOEs increased fiscal pressures.

– Erosion of Public Trust: Repeated allegations of corruption and opaque deal-making fueled resentment and political instability.

– Limited Foreign Direct Investment (FDI) Benefits: Despite promises, foreign investments largely benefited owners, with minimal technology transfer or broad economic development.

Many privatized enterprises were strategic national assets, vital for infrastructure, employment, and public service—once sold, the country lost not only revenue but also the ability to direct these assets towards national priorities.

How were SOEs privatized should be our next question & why?

 

The Hidden Agenda: Manufactured SOE Failures

Evidence suggests a systematic pattern of:

– Deliberate underinvestment
– Poor management and orchestrated strikes
– Financial manipulation to manufacture losses

These conditions created “justifications” for privatization, enabling politicians and intermediaries to profit from sales under the guise of reform.

 

Call for Investigation and Accountability

These conditions created “justifications” for privatization, enabling politicians, bureaucrats, and intermediaries to profit from public asset sales under the guise of reform and economic necessity. In many cases, SOEs were deliberately run into the ground through political interference, corruption, mismanagement, or engineered strikes, only to be declared nonviable and sold off cheaply. This systemic sabotage amounts to economic betrayal of the public interest.

Given the scale of national loss, there is a compelling case for the establishment of a Presidential Commission of Inquiry or Independent Inquiry to:

• Investigate theentire privatization process from 1978 to present,
• Reviewvaluation procedures, conflicts of interest, and recipient entities,
• Examine links betweenpolicy makers, intermediaries, and beneficiaries,
• Uncoverundue influence by foreign institutions / their local lackeys (NGOs)
• Assessnational losses in revenue, employment, and strategic control, and
• Recommendcriminal prosecution, asset recovery, and institutional reform.

Accountability must extend to past and present officials, consultants, and political figures who facilitated the transfer of public wealth into private hands through corrupt or opaque deals. If Sri Lanka is to rebuild economic sovereignty, it must confront and correct this chapter of systemic plunder. The foreign culprits should also be named.

 

The Way Forward: Citizen-Shareholding Model for SOEs

Instead of outright sales, Sri Lanka should adopt a people-centered ownership model:

– Issue shares of SOEs to employees, pension funds, and the general public.
– Retain government golden shares to protect strategic interests.
– Implement safeguards against elite capture and foreign dominance.
– Use share dividends to create sustainable citizen income.
– Offer limited, controlled cash investment windows to absorb informal cash and black money legally.

This approach can turn SOEs into engines of inclusive economic growth, promote transparency, and rebuild trust.

International Examples

– Singapore: SOEs are managed through Temasek Holdings with broad citizen benefits.
– Bolivia: Energy sector shares distributed to pensioners and poor households.
– Kenya: Safaricom IPO allowed massive public participation.

Sri Lanka’s privatization experience shows the dangers of uncontrolled sales that sacrifice public wealth and social equity. The citizen-shareholding alternative offers a path to reclaim national wealth, create prosperity for ordinary people, and secure strategic assets for future generations.

Non-Transferable Citizen-Shareholding: Safeguarding Public Ownership

The Citizen-Shareholding Model must not become another gateway for asset capture by the elite or foreign proxies. Shares should be non-tradable and non-transferable, issued only to vetted Sri Lankan citizens or dual-citizens, and must explicitly exclude individuals affiliated with LTTE-linked groups, Jihadi groups, separatist agendas, or anti-state lobbies.

These shares should not be sold, traded, gifted, or inherited, and must revert to the state or a national trust upon death, emigration, or disqualification. This ensures:

• No speculative buying or market manipulation,
• No backdoor entry by shell companies or foreign agents,
• Long-term public benefit from dividends without risking national control,
• Prevention of wealth concentration in the hands of a few.

The goal is to empower ordinary citizens to share in national wealth, not to enable the stealth re-entry of dangerous or divisive interests under the guise of investment. National security, economic sovereignty, and public accountability must remain central to this reform model. Economists & other experts can kindly work on actioning such a model.

No external investor or institution can match the understanding, or long-term interest that Sri Lanka’s own citizens have for their country’s future.

No outsider understands the lived realities, the injustices, the needs, and the potential of this nation better than the Sri Lankan people themselves. It is not only the right, but the responsibility of the State to ensure that public wealth is preserved for public benefit — not auctioned off under pressure or pretense.

Sri Lanka must rise by empowering its own people, not by surrendering to external profit agendas. Privatization without accountability is plunder. True reform must come from within — rooted in national interest, protected by national laws, and driven by the will of the people.

 

 

Shenali Waduge