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Reforming SOEs- 1. Is it time for the Majlis to have a greater say?

By: Ibrahim Athif Shakoor

A few preliminaries at the outset. Whole-sale reform of the SOEs require comprehensive effort by state actors and the myriad of issues that cannot be fully be addressed by a single commentator. This commentary piece, is specific to whether it is time for the Majlis, the Maldivian Parliament, to have a say in mandate, structure, formation and dissolution of SOEs and is hoped will be the first of many that will address the broader objective of reforming SOEs.

Let us outline the broader areas of focus of this piece to clarify why the question of the involvement of the Majlis is relevant and timely.

Creation and Dissolution of SOEs

All successive governments have created brand new SOEs to serve a felt vacuum in the SOE structure. The Works Cooperation and the Road Cooperation of the not too distant past are such entities, created, made dormant, re-energized and then officially disbanded.

A quick scan of table 7.5 (SOEs and their structure) of the papers released by Finance Ministry as part of the 2019 budget, shows 28 companies including Khazaanaa Maldives, Maldives Sports Corporation, Business Centre Cooperation Ltd and National Investment Company Ltd., alive on paper but without any outward manifestation of their existence. There are 39 joint venture companies with minimum state share and another 9 companies called ‘Paper Companies’.

At registration each company is a separate legal entity and like all living creatures they struggle to survive. In addition to the equity participation provided through the balance sheet, the companies start seeking finance, announce for tenders and sign contracts, including with foreign companies, on the strength of their state mandate.

There are 29 companies under ‘Companies in the process of being Dissolved’ including relics like Air Maldives and Maldives Shipping Ltd. The 8 separate Utility Companies formed to manage Utility Services in the Regions before Fenaka was formed, and the Health Corporations of yesteryear too, still remain.

All of which goes to underlie the hurdles and the myriad of entanglements that need to be resolved before any operational company, be it private or state owned, can be fully dissolved. Air Maldives declared bankruptcy and ceased operations in 2000 and Maldives Shipping Ltd closed its doors in 2011 but the companies still remain on the books of the state, it is assumed because the legal and financial obligations pertaining to the entities still remain unsolved.

STO has recently announced that it will close-down Maldives National Oil Company Limited, STO Hotels and Resorts Private Limited and that it will suspend the activities of, STO Maldives (Singapore) PTA. History tells us that this will not be either a quick or a pain-free exercise, especially as the legal systems of countries like Singapore will have a role to play in the process.

Quantum Fluctuations allow for the creation of energetic virtual particles to exist briefly, very briefly. However, in order to abide with the First Law of Thermodynamics, such particles have to extinguish themselves such that the total energy of the universe is maintained, and no vestige of the particles remain. Companies who become legal entities, borrow on the strength of their shareholders and enter into contracts local and foreign, cannot achieve dissolution so easily. Once an SOE is created, it becomes very difficult to achieve full dissolution.

Splitting and Merging SOEs

Meanwhile, the road that Mifco has travelled through restructuring, splitting and re-merging, may perhaps be viewed as a text book case of what a state company with a relevant mandate, should not be made to go through. Mifco was divided into three companies in 2010, with the creation of two brand new companies; Kooddoo Fisheries Maldives Limited and Felivaru Fisheries Maldives. Meanwhile the original Mifco itself was retained apparently only to manage the smallest of its operations; the Kan’duOiyGiri Fresh Fish Plant.

Fresh Balance Sheets were created for the 2 new SOEs however, without the accompanying liability. An ‘asset grab’ - for want of better word, took place, with each company holding onto whatever assets they had operational control over. Meanwhile the loans taken to procure the assets of the 2 new companies remained on Mifco’s Balance Sheet with no control over the corresponding Assets. The 2 new state companies competed, often in the same geographic region, for raw material and all three companies used and abused what-ever assets they had operational control of, resulting in severe Asset impairment.

In late 2014 the new government merged the 3 companies, without offering remedy to the injury of the past. Subsequently, in 2016 Mifco was merged under STO under an officially announced rationale that failed to bring about much required reform. While it was assumed that the decision to merge under STO was to offer liquidity shelter for Mifco under STO’s larger umbrella, subsequent reports have shown that the state continued to pump liquidity to MIFCO even while Mifco was a subsidiary of STO.

Sudden Revision of Mandate

State companies, also have been frequently at times, asked to pick up assignments simply because they had the financial capacity to do so. We are, even today, witness to the Ports Authority running a bus service, not only between Male’ and Hulhumale’ but in some of the outer islands as well. Even while the state has announced that the Male’ region transport services will be handed over to MTCC, public reports reveal that the 2 SOEs have been unable to come to terms under which the assets and the accompanying liability could be transferred.

There are other instances of the fisheries company running a transport network, the water company setting up brand new infrastructure to lease for restaurants and STO investing to set-up a food court.

Changes to the Organization Structure

Confirming earlier reports, newly appointed management of SOEs have been reporting that extra staff, beyond requirement, have suddenly been appointed close to the Presidential Election. On the reverse side there are published reports that some employees are being let go after new management took over.

Responding to the relevant Majlis Committee on 19th March, MD of Fenaka stated that 14 regional offices had been removed from the organizational structure and that 53 staff have been dismissed after the change in management. He also revealed that 170 new staff were appointed close to the Presidential Election. Similar reports of creating new posts and appointing staff has been broadly reported and later confirmed by the new management at Ports Authority and HDC.

When new appendages are suddenly grafted to the existing organizational structure and when new positions are created within the organization structure, all without change of its mandate or an identified vacuum in the existing structure, the result is uncertainty, confusion and mistrust, all broadly detrimental to the smooth running of any entity, corporate or social, private or state owned.

Is it time for a the Majlis to have a greater say?

Staff, suppliers, customers and broadly all stakeholders face uncertainly when management shifts and a new perspective is brought to bear on the operations of any company. In times of greater turbulence, when drastic shifts in mandate are suddenly announced, or in instances or splitting and merging back, a very acute degree of anxiety and stress is faced by all stakeholders. When new appendages are suddenly grafted to the existing organizational tree and new positions suddenly created, again the result is greater turmoil and loss of faith and trust with the management. Such flux, leads inevitably to loss of morale and motivation at all staff level, resulting in a certain ‘let’s-get-away-with-whatever-we-can’ attitude. The result is of course, abuse of assets and corruption at every level.

The one constant factor is Change. There are, of course changes of governments. Ministers change even during the tenure of the same governments. Different ministers have different opinions of what the SOE structure should look like. Even while Ministers do not change, a shift of tide in the Parliament brings new realities into existence and new thinking into the same government.

As today’s reality is bound to change tomorrow, and tomorrow’s reality will inevitably change day after, it is suggested here, that larger issues like creating, dividing, merging, dissolving and change of the mandate of SOEs be undertaken with greater care and thought. It is suggested that perhaps such actions need to be elevated to another level, perhaps for a vetting at the Parliament, as well.

This is of course not to claim that the Majlis is the measure for all that is sane and rational. But asking the government to stand up to a separate level of scrutiny and explaining the whys and the wherefores to an additional group of people. That additional level of scrutiny will, it is hoped, bring fresh thinking and therefore make it a tad more rational. It would definitely make the process more legitimate.

Law No. 3/2013 Law of Privatization, Corporatization, Monitoring and Evaluation of Government Businesses’ was legislated in in January 2013, mostly as a response to the sudden and quite abrupt sale of majority shares of Dhiraagu. This Law prescribes the route that has to be travelled when the shares of an SOE is sold to the private sector. Somehow, during the last reading of the Bill, an additional clause (17) was appended, almost as an after-thought, to the functions of the Privatization Board. This Clause mandates that the state appoint a Privatization Board to appoint, dismiss, monitor, and otherwise scrutinize the workings of all SOEs. To be appointed by President, the Privatization Board is supposed to be ratified by the Parliament under Clause 4 of the Act and are supposed to submit an annual report to the Majlis, the President and the Auditor General. However, none of the appointments made to the Board had been referred to the Parliament for ratification and there’s been no reports of submission of Annual Reports. The General Public and the media are only aware of the Board as the avenue through which State determined appointments and dismissals to senior posts of SOEs are announced.

The right of the Government in power to appoint, promote and dismiss officers to the existing structure is not questioned here. This piece is about sudden changes to the existing organizational structure. It’s about splitting and merging of SOEs. Sudden changes in mandate and about instances when the newly established company of the recent past is suddenly declared to be unviable, leading to a lengthy, tedious process of dissolution.

There exists, even if not by deliberate design, a Parliamentary Act that determines a role for the Parliament in the functioning of the SOEs. Maybe it is time to broaden the mandate such that broader issues like formation of new SOEs, mergers, divisions, acquisitions, dissolution and change of mandate of SOEs occur only with a pre-determined role of the Parliament.

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