No Slide TitleState-owned Enterprises in Latvia
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Euro adoption goal - 2014
Territory: 64,559 sq km
Population: 2.24 million (2010)
Inflation - 2.5% (December 2010)
By law state may engage in business only in case:
the market is unable to ensure collective interests of society
of industries with natural monopoly
of strategically important industries
of capital intensive industries
of industries with the need of ensuring the highest quality standard
Issues regarding state ownership function and SOE is competence of Cabinet of Ministers. Tasks are defined in policy documents and strategies (Strategic Development Plan 2010.-2013, Declaration of the Intended Activities of the Cabinet of Ministers e.t.c.)
Main sectors where SOE operates: energy, telecommunications, forestry, transportation, real estate, health and other
State of play
State of play (continued)
Latvia is a shareholder directly and indirectly in more than 140 enterprises, including 74 fully owned (from Latvenergo with turnover ~ EUR 712 million till National Symphony Orchestra)
More than 52 thousand people were employed in SOE (that is ~ 5 % of total employed)
At the end of 2009 total assets of SOEs amounted to EUR 10.17 billion, combined turnover of EUR 3.2 billion (17.2% of GDP)
The average net profit margin was 5.9% in 2009
Resilient EBITDA in crisis, low but steady dividend flow
Chart10
2007
2008
2009
2940
3367
3210
Sheet1
0
0
0
Sheet2
Sheet3
Government is extensively involved in SOE governing including significant political influence over operational decisions
Lack of business oriented approach - unbalanced sector policy implementation and commercial perspective
Low return on invested capital - total return on equity of SOEs, excluding financial sector, was 7% in 2009
No goals are set to measure SOEs performance
Non-transparent and not very professional supervision
SOEs which act as public state agencies
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Reassess principles for engagement of public person in business activities:
Reorganize SOEs that are performing only public administrative functions into public state agencies
Decrease public sector engagement in business
Implementation of OECD corporate governance principles including:
setting up Centralized SOE manager (status, functions)
measuring SOEs performance (presently decentralized managed by line ministries; common reporting system as pilot project is ongoing)
ensuring transparency on state capital
revising dividend policy
reconsidering remuneration policy
MacCarthaigh, M. The corporate governance of commercial state-owned enterprises in Ireland. Institute of Public Administration, 2009. P61 http://tiny.cc/b09rm
LATVIA
There is clear tendency in Europe to go step by step towards centralized model - is the trend right?
Transition period is needed to accomplish this aim - implementation of dual model of SOE governance is under political discussion in Latvia
It can be done by dividing supervision functions between Centralised SOE Manager (to be established) and respective line ministries
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Advise government, line ministries, SOE on corporate governance
Definition of specific, measurable business objectives (economic and social); an annual evaluation of the results achieved
Provide regular assessment whether to maintain shares as state-owned of a particular SOE
General supervision of SOEs and disposal
implementation
Centralised SOE Manager
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(1) Company vs public state agency?
Decentralized governance
4 decisions to take
Who is in the
(A) Centralised SOE Manager with significant influence of line ministry
(B) Line ministry with significant influence of Centralised SOE Manager
(3) What is most adequate governance type for each SOE?
Sell:
- all shares or partly
NO
- Reorganise
- Liquidate
NO
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Phone: 67013101
Fax: 67280882
E-mail: pasts@em.gov.lv
Turnover od SOE, billion EUR
2940
3210
3367
200720082009