PRIVATISATION is a new phenomenon in Sri Lanka which has gathered momentum since its introduction, specially with the development of the Open Economy Policy of the Government.

This growing global concept of privatisation has had its impact in Sri Lanka since 1987 with the enactment of two Statutes, namely “The Conversion of Government Owned Business Undertakings into Public Corporations Act No.22 of 1987” and “The Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act No.23 of 1987”.

In the first instance it would be relevant to consider the position in Sri Lanka prior to the introduction of this concept of privatisation. From the latter half of the 1950’s a”Nationalisation Policy” was adopted by the then Government and most of the Public Utility Systems and Essential Industries were nationalised and were sought to be monopolised by the Government. In carrying out this policy, The State Industrial Corporation Act No.49 of 1957 was enacted, under which several Public Corporations were established, such as The Ceylon Leather Products Corporation, The Ceylon Oils and Fats Corporation, National Textile Corporation, Paranthan Chemicals Corporation, Ceylon Ceramics Corporation, National Salt Corporation, Ceylon Cement Corporation, Ceylon Mineral Sands Corporation, Ceylon Tyre Corporation, Ceylon Steel Corporation, Eastern Paper Mills Corporation, Ceylon Plywoods Corporation, The State Engineering Corporation, Ceylon State Hardware Corporation, State Timber Corporation, Sri Lanka Sugar Corporation, Ceylon Fisheries Corporation.

The Sri Lanka Trading Corporation Act No.33 of 1970 was enacted which contained provisions similar to the State Industrial Corporation Act for the establishment of Corporations. The Sri Lanka State Trading (General) Corporation, The Sri Lanka State Trading (Textile) Corporation and the Sri Lanka State Trading (Tractor) Corporation were some of the Corporations established under the provisions of this Act.

Corporations were also established by Special Statutes from time to time such as The Ceylon Broadcasting Corporation, The Ceylon Electricity Board, The Ceylon State Plantations Corporation, The Ceylon Transport Board, The State Printing Corporation, The People’s Bank, The Ceylon Savings Bank, The Petroleum Corporation, The State Mortgage Bank, The Water Resources Board, The Co-operative Wholesale Establishment, The Mahaweli Development Board, the Development Finance Credit Corporation, etc.

In addition to these Statutes, the Business Undertakings (Acquisition) Act No.35 of 1971 enabled the Minister of Finance to acquire and vest in the Government any business undertaking which was of commercial, industrial, agricultural or professional nature. Under this Act the business carried on by Colombo Commercial Company Ltd., United Motors Lanka Ltd., Ceylon Oxygen Ltd., British Ceylon Corporation Ltd., Buhari Hotels Ltd., etc. were acquired.

Prior to 1977, the private entrepreneur, due to scarcity of capital and larger taxation of profits, was said to be reluctant or unable to venture into certain types of undertakings. It was also felt that the private sector would not undertake heavy and large industries because of the element of risk involved. The operation of public utilities, such as the supply of electricity, water and gas was to be the responsibility of the State, and therefore the State should run such business through the establishment of Public Corporations. The establishment of Public Corporations was also stated to be an acceptable compromise between State Ownership of the means of production and new ideas of socialism.

After 1977, the Government adopted an open economy policy which encouraged foreign investment in export oriented activities by establishing Export Processing Zones under the Greater Colombo Economic Commission as well as by the privatisation of public enterprises.

In the wake of the enactment of the two Statutes in 1987 (referred to above) which dealt with privatisation, the Business Undertakings (Acquisition) Act No.35 of 1971 was repealed in 1988 by Act No.58 of 1988. A Presidential Commission was appointed to advise the Government on strategies and options available for divestitute, to identify a priority list of public enterprises for privatisation and to prepare a preliminary programme of implementation.

* LL.B, LL.M, Attorney-at-Law; Visiting Lecturer in Labour Law, University of Colombo and The Open University of Sri Lanka.
S 17. P6.34

As a result of this change in Government policy the Government Owned Business Undertaking of establishments like the United Motors Lanka Limited, Buhari Hotels Limited, Ceylon Cold Stores Limited were divested. More than sixty enterprises were identified by the Government to be privatised and of them more than twenty five have already been privatised. These include The National Milk Board, Dankotuwa Porcelain, Pugoda Textile Mills, Thulhiriya Textile Mills, Distilleries Corporation of Sri Lanka, Oils and Fats Corporation, Tyre Corporation, Veyangoda Textile Mills, Leather products Corporation, State Hardware Corporation.

Another significant area of change has been in the Estate Sector, where the Government rather than privatising the establishments which managed the Estates like the Janatha Estates Development Board and the Sri Lanka State Plantations Corporation have handed over the management of several Estates to private Companies with a view to managing the estates more efficiently. This move has been made as it was felt that the Estates were not been run profitably in most instances and that there were heavy losses due to unnecessary expenditure under the management of the State machinery.

It was generally accepted that in the earlier era, where emphasis was on the State undertaking the running of various enterprises, that there was security of employment under the various State and State sponsored establishments. Questions have been raised in this sphere as to the security of employment in this process of privatisation.

The Two Statutes (referred to above) relating to privatisation do not expressly provide for security of employment. However, when a Public or State Enterprise is being sold to a Private Enterprise, in the Agreement which the Investor is required to sign with the Government, he has to provide for the continuation of employment of all permanent employees on terms not fess favourable than at present for a minimum period of two years and not to take steps to retrench any permanent employees of the Company during that period of two years. On the other hand, there is no provision in the two statutes which state that all employees of the State enterprise would automatically become employees of the new Company and also for the payment of compensation to employees who, on their own, do not wish to accept employment under the new Company. Further, these new Companies become subject to the ordinary Labour Laws relating to Provident Fund, Trust Fund, welfare matters and other statutory requirements’ and super-annuation benefits.

It would seem that employees who are in the private sector as a result of privatisation enjoy certain benefits which are not enjoyed by those in the public sector. They are not tied down unlike in the public sector in seeking better prospects by minimum requirements regarding qualification, experience or training. They can claim better salaries, terms and conditions within reasonable limits. There is greater mobility for them in the private sector as they are free to resign and seek better prospects whereas pensionable public sector employees will forfeit their pension rights on resignation, if they have not put in a minimum period of service or reached the age of retirement, or satised any other acceptable requirement laid down by the State. The private sector employee has the right to own shares in the privatised Company as the issue of shares in the privatised Company is encouraged. The right to be entitled to a percentage of shares is an added benefit not available to public sector employees. However, management styles may differ and the employees’ work attitudes and aptitudes may be different in the two sectors, specially where it is generally felt that a more relaxed aptitude for work is experienced in the public sector, which results in the private sector being more efficient than the public sector.

In order to compare the position of employees in these new privatised ventures with the public sector employee6sit would be necessary to consider the nature of the previous enterprise. This is because certain Government Department as opposed to State sponsored Public Corporation have been privatised and are being lined up for privatisation.

In the first situation, where Government Departments are being privatised, it would appear that the Government Sector employees if they opt to join the private company, they would lose their Pension rights and other benefits enjoyed by Government Servants. But where this appears to cause hardships to the employees special packages have been offered and sometimes even special Cabinet approvals have been obtained to grant pension rights which they would not have received under normal circumstances. On the other hand, if such employees join the privatised establishment they would be entitled to enjoy all the rights, privileges and benefits enjoyed by private sector employees. One of the most significant features would be the invoking of the provisions of the Industrial Disputes Act No.43 of 1950 to such private employees specially in relation to the right to make applications to Labour Tribunals in the event of dismissal from service whereas the State Sector employees have no access to Labour Tribunals. In this sense, private employees have more security regarding their employment against unwarranted dismissals as opposed to State employees who hold their posts at the pleasure of the State and would not be in a position to challenge their dismissals except where there have been infringements of fundamental rights.

In the case of State Employees even if they were to lose their pension rights as a result of privatisation they would be entitled to the benefits under the Employees Provident Fund Act, Employes Trust Fund Act and The Payment of Gratuities Act which benefits would to some extent compensate for the loss of pension rights. S17. P6. 35

In the case of Public Corporations, since they are treated as independent entities though sponsored by the State their employees have the right to go before a Labour Tribunal under the Industrial Disputes Act to challenge wrongful dismissals. On such enterprises being privatised, there would be no change regarding such rights and also regarding benefits under the Provident Fund Act, Trust Fund Act and the Gratuity Act. However, employees in Government Owned Business Undertakings have been considered as not being entitled to go before Labour Tribunals in the event of wrongful dismissals as such establishments are deemed to be in the same position as Government Departments even though their employees do not enjoy the benefits enjoyed by Government employees.

But there are two significant areas where it would appear that employees of the privatised entities would enjoy wider rights and privileges than they would have enjoyed in the Corporation Sector. Firstly, in reference to their terms and conditions which would give rise to an ‘Industrial Dispute’ as defined in the Industrial Disputes Act, the employee concerned or a Trade Union on his behalf could take up the matter with the Commissioner of Labour which would result in the Dispute being referred for Arbitration, Voluntarily of Compulsory in terms of the provisions of the Industrial Disputes Act (Sections 3 and 4). On the other hand in the Corporation Section there is no such possibility except where the Ministry under which the particular Corporation would be consents to the Dispute being referred for arbitration. However, these provisions do not apply to State employees at all.

Secondly, the application of the provisions of The Termination of Employment (Special Provisions) Act No. 45 of 1971. This Act deals with situation of Non-Disciplinary Terminations. Where an employer wishes to terminate the services of an employees on grounds which are not considered as disciplinary, he has to get the consent of the employee to do so, or make an application to the Commissioner of Labour and obtain his permission. In the event of non-compliance of this requirement an employee whose services have been terminated can invoke the powers of the Commissioner of Labour under this Act and obtain relief, which has penal consequences too. However the provisions of this Act do not apply to the State Sector nor the Public Corporation Sector. It applies to the Private Sector. Thus the employees of the privatised entities would attain more security regarding their employment in the sphere of non-disciplinary termination of services.

A further aspect that would appear to apply favourably to the private sector would be the quantum of wages or salaries paid to such employees, In the State Sector and the Public Corporation Sector, such entities are tied down by many Government regulations regarding the limits of the salaries than can be paid to their employees. However, in the private sector there is no such restriction, even though in some instances specially where in terms of the Wages Board Ordinance, Wages Boards have been established and a minimum wage has been stipulated, the Employees are entitled to receive such stipulated wage. But as to the upper limit of the salaries or wages or other emoluments and benefits the Employer has the discretion to fix such limits or grant benefits, thus providing incentives to the employees.

Thus it would be seen that with the development of the concept of privatisation, the employee would get a wider protection under the wide range of Labour Laws prevalent in Sri Lanka than in the State Sector or the Corporation Sector. However, as observed earlier, such employees would be made to strive harder and work more efficiently in the private sector than in the public sector where there has been a tendency on the part of the employees to be more relaxed in the exercise of their duties and functions.