Latvijas Republikas

Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia

Better Governance of State and Municipal-Owned Enterprises

Key Aspects of Reforms and Further Steps

Mr. Daniels Pavļuts, Minister of Economics14.02.2013.

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Significant Impact on the Economy170+ SOEs (LV as shareholder directly and indirectly)

41 000+ People employed

4,26+ Total assets (billion, LVL)

1,90+ Combined turnover (billion, LVL)

376,43+ Profit (LVL, million)

600+ MOEs (municipalities as shareholder directly and indirectly)

1,97+ Total assets (billion, LVL)

711,72+ Combined turnover (million, LV)

(7,27)+ Losses (LVL, million)

37 000+ People employed

Stat

e-O

wne

d En

terp

rises

(SO

E)

Mun

icip

aliti

es-O

wne

d En

terp

rises

(MO

E)

Source: Ministry of Economics, Lursoft

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What Should Be Done To Improve Efficiency of SOEs (keywords)

2%

2%

13%

17%

17%

18%

32%

32%

36%

46% Greater control and clear responsibility among involved

Source: «DNB Latvian barometer» Nr.55, 2013

Clear aims, assessment of results, change of SOE management in case of long-term failureOpen selection procedure for officials without political influence

Need to improve quality of SOE workforce

What SOEs to own, what to dispose

Improved management system, reviewed Supervisory Boards

Finances from state – stop at all or reduce subsidies

Hard to say..

Other

No changes needed

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Clear Aims, Assessment of Results

• Defined general strategic objectives and tasks; medium-term strategy for every SOE

• Clear social and financial objectives• Regular and comprehensive evaluation based

on new reporting system (including the achievement

of social and financial objectives) and effectiveness (including members of management board and supervisory council)

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What SOEs to Own?

• New principles for engagement of public person in commercial activities: Market failure Management of strategically important assets

• Obligation to re-assess the need for maintaining ownership on a regular basis (1 x 3 years)

• Currently assessed by special working group with up-coming government decision for each SOE in 2013

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Flexible Dividend Policy • Differentiated for each SOE in long term• Centralised assessed SOE objectives and

implementation thereof, the medium-term strategy, optimal capital structure

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

20

40

60

80

100

120

140

160

43.7248.36 46.52

59.46

89.28

138.3

108.11115.51

128.34

43.72 47.79 46.43

59.5

98.1

117.2

79.94

129.19 125.98

99.84

Income of Dividends (million LVL) in State Budget

Fact Planned dividends (state budget)

Total income - 777,47 million LVL for years 2004-2012

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Open Selection Procedure for Senior Management

• Centralized appointment procedure for SOE supervisory council (to be re-established in largest fully

owned companies) members using data base of the candidates and nomination committees

• Experience and competence as criteria, political party membership not a factor

• Good practise 2012/2013

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Disclosure

• Reforms foresees common standards to ensure disclosure, transparency and access to the information

• Requirements as for listed companies • Information to be disclosed

Objectives and results of performance

Financial information, quarterly, interim and yearly reports

Consolidated report on annual basis

Interactive website on corporate governance practises and key indicators about SOEs

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New Governance Model• Implementation of partly centralized model is

agreed concept • Supervision functions are divided between

respective line ministries and Centralised governance institution (to be established) to: Improve corporate governance practice Supervise SOEs; dispose of shares Ensure disclosure and transparency Define specific, measurable business objectives Recommend individual dividend payment Provide regular assessment whether to maintain shares as

state-owned

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Next steps• Necessary legislation to implement agreed reform is

under reconciliation process. Laws should be adopted in 2013

• Work to establish strong Centralised governance institution with clear and transparent operational objectives

• Deepen cooperation with OECD bodies including corporate governance issues

• Further promotion and implementation of best corporate governance practise

Latvijas Republikas

Ekonomikas ministrijaMinistry of EconomicsRepublic of Latvia

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Thank you!