In many emerging economies the electricity sector remains characterized by integrated monopolies, that are state owned. These state-owned-enterprises (SOEs) frequently own and operate all aspects of the generation, transmission, and distribution of electricity. (An SOE is a corporate entity, recognized by national law, in which the state exercises full or partial ownership.) Aside from the power sector, SOEs are often a government’s preferred structure for other utilities and infrastructure industries such as water, transport, telecommunication, and sometimes finance. Frequently, SOEs play a substantial role in the GDP and employment of national economies.
Good governance of SOEs is therefore vital to ensuring that their contributions to economic efficiency and competitiveness remain positive. In this vein, the OECD has developed their Guidelines on Corporate Governance of State-Owned Enterprises. The Guidelines represent current global best practice for the oversight and management of SOE. This two-month series is devoted to a summary of the seven guidelines and why they are so important. Three are summarized this month and the remaining four next month. Many of the practices discussed below have been foundational in reform efforts undertaken by projects on which I have recently worked, including Uzbekistan, Georgia, Palau, Eswatini and Lesotho.
Many SOEs fall into the category of natural monopolies since multiple infrastructures would be redundant. Under these conditions, maximizing value takes on an outsized importance, especially since the SOE is delivering a public good. To maximize efficiency, the government should develop a clear ownership policy that specifically outlines the rationales for state ownership, the state’s role in governance, and how the state will implement its policy. This policy should be subject to political accountability and reviewed and disclosed regularly.
Act as Professional Owner. Governance of the SOE should be carried out professionally, efficiently, and transparently. The state should act in a professional manner, as an informed and active owner. Governments should create and maintain simple and standardize the legal forms under which SOEs may operate, allowing them full autonomy to pursue their defined objectives. Rather than take a heavy-handed approach as manager, the state should position itself at arms-length, acting as a shareholder instead. This means respecting the independence of managerial boards and allowing them to exercise their responsibilities in the best interest of the enterprise. Ownership should be centralized in a single administrative unit (a ministry or agency), and ownership rights should be clearly identified. The state’s responsibilities will include attending shareholder meetings, exercising voter rights, and establishing a structured, transparent, and merit-based board nomination processes. Further, the state should monitor both board and corporate success by establishing and overseeing a reporting structure that can monitor, audit, and assess corporate performance. Public accountability should be enforced through the development of a disclosure policy for SOEs, that (i) identifies information to be publicly
To be continued next month
 OECD. 2015. Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition. Paris.
Richard Swanson, Ph.D.
Asset valuation and project finance expert, specializing in financial and economic analysis of civil infrastructure assets.