Latvi j as Republ i k as

Ek on om i k as m i n i str i j a Mi n i str y of Econ om i cs

Republ i c of Latvi a

Better Governance of State and Municipal-Owned Enterprises

Key Aspects of Reforms and Further Steps
Mr. Daniels Pavuts, Minister of Economics 14.02.2013.

Significant Impact on the Economy

State-Owned Enterprises (SOE)

170+
SOEs (LV as shareholder directly and indirectly)

4,26+
Total assets (billion, LVL)

1,90+
Combined turnover (billion, LVL)

41 000+
People employed

376,43+ 711,72+
Combined turnover (million, LV)
Municipalities-Owned Enterprises (MOE)

Profit (LVL, million)

600+

1,97+

Total assets MOEs (municipalities as (billion, LVL) shareholder directly and indirectly)

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

37 000+
People employed
Source: Ministry of Economics, Lursoft

-2-

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

46%

36%

Greater control and clear responsibility among involved Clear aims, assessment of results, change of SOE management in case of long-term failure
Open selection procedure for officials without political influence Need to improve quality of SOE workforce Hard to say..

32%

32%

18%

17%

What SOEs to own, what to dispose Improved management system, reviewed Supervisory Boards
Finances from state stop at all or reduce subsidies Other No changes needed
-3-

17%

13%

2%

2%

Source: DNB Latvian barometer Nr.55, 2013

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)

-4-

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
-5-

Flexible Dividend Policy

Differentiated for each SOE in long term Centralised assessed SOE objectives and implementation thereof, the medium-term strategy, optimal capital structure
Income of Dividends (million LVL) in State Budget
160 140 120 100 80 60 40 20 0 2004 2005 2006 Fact 2007 2008 2009 2010 2011 2012 2013
59.46 59.5 43.72 43.72 48.36 47.79 46.52 46.43 98.1 89.28 79.94 138.3 129.19 117.2 108.11 99.84 115.51 128.34125.98

Planned dividends (state budget)

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

-6-

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

-7-

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

-8-

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
-9-

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

-10-

Thank you!

Latvi j as Republ i k as

Ek on om i k as m i n i str i j a Mi n i str y of Econ om i cs -11Republ i c of Latvi a