This study critically explores the prospects for adopting performance contracting as an alternative public enterprise reform strategy. The underlying assumption of the study is that privatization, which has hitherto dominated the reform process in Sri Lanka, may be less feasible in the current phase of public enterprise reform for both technical and political reasons. The focus of the study is particularly on those enterprises requiring sophisticated legal and regulatory structures, enterprises that cannot be easily privatized for political reasons, and those enterprises taken back by the State due to various omissions on the part of the private owners.