Ownership, competition and regulation under privatization policy: the Sri Lankan experience

Abstract

In response to the global shift from command-based economies to market economies, Sri Lanka liberalized its economy in 1977. Liberalization includes three main components, i.e. institutional reforms, removal of barriers to market entry, and creation of proper regulatory regimes. Privatization as one of the strategies under liberalization, however, became the prominent policy adopted in the second wave of liberalization that took place in Sri Lanka in the mid-1980s. This was aimed at not only reducing the fiscal and administrative burdens of a large public enterprise sector, but also to stimulate private sector development and to inspire greater government accountability. The fundamentals for successful implementation were, however, the change in ownership, the designing of policies to stimulate competition and changes in the regulatory regime with capable institutions. This article explores and analyses the extent to which the prevailing socio-political culture of the country has influenced these three dimensions of the reforms that have taken place in the public utility sectors in Sri Lanka. It argues that if any of the three dimensions of privatization — that is, ownership, competition and regulation — are not taken into serious consideration, the expected outcomes would not be met. The arguments are built up under the same three pillars of privatization using primary and secondary data. It also highlights the importance of putting equal emphasis on all three dimensions of liberalization instead of pure organizational reforms. However, successful implementation is also subject to the availability of domestic conditions that are supportive of reforms. Points for practitioners • Reforms in the public utility sectors in Sri Lanka since the early 1980s with special reference to privatization policy have been dealt with. • The importance of paying equal attention to all three dimensions, i.e. ownership, competition and regulation, is highlighted. • The consequences of privatization of two industries, i.e. gas industry and telecommunications, are discussed in detail. • Sri Lanka has responded to the demands for reforms without creating a legal and institutional framework and ignoring domestic conditions.