This article was originally published in March of 2019 in the Maldives Economic Review blog. The article can be viewed at mer.mv
A few preliminaries at the outset. This piece is not about all what’s wrong with our SOE’s. That is a broader, loftier theme which I hope to write about, be it in bits and pieces like this. Also, let me state unequivocally that this piece is not about limiting the authority and the right of the Government in Power, to appoint the Board and Senior Management of SOE’s. They should, I only hope that that each government, would only appoint appropriately experienced personnel for such posts. This piece, however, is about the consequences that seems to follow when successive Governments, quite abruptly change the form and format of existing SOE’s including creating brand new ones.
Governments have shown a tendency to create brand new SOE’s out of thin air, much like a Quantum Fluctuation creating energetic particles out of empty vacuum. For my fellow nerds that is of course, allowed, but only briefly by Heisenberg’s Uncertainty Principle. The Works Cooperation and its sister particle the infamous Road Cooperation of the not distant past are such entities created out of nothing to cater for, what was then thought, to be an essential need. However, as also required by the First Law of Thermodynamics, such entities also need take themselves out existence and the same have happened, not just once, for the Road Cooperation and the Works Cooperation.
Meanwhile, the indignities that Mifco has ‘suffered’ in the past decade is perhaps, is perhaps the best example of what this piece is about. MIFCO that unhappy much maligned creature, 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 conjured up for the Brand New Companies, however, without the accompanying liability, ignoring an essential component of reality. Matter has equal and opposite anti matter and a Balance Sheet requires a liability to explain what created the Asset. An ‘asset grab’ – for want of better word, took place, with each company holding onto whatever assets they could get hold of. Meanwhile the loans taken to procure the assets remained on Mifco’s Balance Sheet with no power over the corresponding Assets. The 2 new state companies competed, often in the same geographic region, for raw material and used and abused what-ever assets they had control of, resulting in severe Asset impairment.
After the change in government, in late 2014 the new government merged the 3 companies, without offering remedy to the injury of the past, which it has to be admitted, would not have been an easy task. Subsequently in 2016 Mifco was merged under STO under an officially rationale that still make no corporate sense. 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. The day-to-day management of Mifco was largely under the old guard of Mifco who had political cover to resist the larger parent body and ‘because those boys don’t know the fishery business.’
Leaving aside the uncertainly and turbulence that companies face, each time the management shifts, such wholesale and drastic shifts in mandate, especially when it becomes a matter of survival, brings a very different degree of anxiety and stress into any entity. Such flux, leads inevitably to loss of morale and motivation 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 lelvel.
On another dimension each company is a legal entity. At existence, they immediately struggle for survival and seek financing facilities and loans from banks and other financial institutions. They sign contracts with companies including with foreign entities and start projects on the strength of their state mandate, which suddenly evaporates at will. The decision to dissolve some of these companies, are again taken spontaneously and staff reassigned without resolving the legal and financial issues which such companies has entered into.
A quick scan of table 7.5 (SOE’s and their structure) of the papers released by Finance Ministry, as part of the 2019 budget, shows 28 companies including such eminent performers like Khazaanaa Maldives, Maldives Sports Corporation, Business Centre Cooperation Ltd and National Investment Company Litd. in existence
There are 39 joint venture companies with minimum state share and another 9 companies called ‘Paper Companies’. 29 companies under the heading ‘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, also still remain, and they all had financial and contractual obligations. Which only underscores how difficult it is to fully dissolve a state company once they start to function.
Therefore, perhaps, it is suggested here, that creating, dividing, merging, dissolving and change of mandate need to be elevated at another level and not implemented when the existing government and the relevant Ministers desire to. The One thing that is consistent is Change. we know for sure is change. There’s changes of governments and even Ministers change within the same governments. Different ministers have different opinions of what 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. The only sure thing is Change.
Am I suggesting that our Legislative Body the Majlis, is the measure for all that is sane and rational. Surely not. We are all witness to how the incumbent Majlis have got things so badly wrong in so many ways. But forcing the government to stand up to outside scrutiny and being asked to explain themselves why they think another company need to be created or why two should be merged or others dissolved, will, it is hoped bring additional scrutiny and fresh thinking and therefore make it 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. The 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 Privatization Board to appoint, dismiss, monitor, and otherwise scrutinize the workings of all SOE’s. This Board to be appointed by President is supposed to be ratified by the Parliament under Clauses 4 of the Act and 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 pre-determined appointments and dismissals to SOE’s are announced.
So let me re-iterate again. It is my belief that Government in power, should have the power and the unquestioned authority to appoint, promote and dismiss officers of the SOE’s. However, even if by accident, there exists a Parliamentary Act that determines a role of the Parliament in the functioning of the SOE’s. Maybe it is time to broaden the mandate of the Act such that the formation of New SOE’s, mergers and division of existing SOE’s, acquisitions, dissolution and change of mandate of SOE’s occur only with a pre-determined role of the Parliament in a format they determine. As I said before, not because the Majlis has shown themselves to be the epitome of all that is honest, decent and the role model for selfless public service. But to require an additional, more scrutiny before SOE structure is changed or modified. With the lessons of the past, the government itself would, it is hoped agree that a further level of scrutiny is not a bad thing.