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Ownership and Governance of State-Owned Enterprises

Ownership and Governance of State-Owned EnterprisesA compendium of National Practices This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. OECD 2018 Please cite this publication as: OECD (2018), Ownership and Governance of State-Owned Enterprises : A compendium of National Practices 4 FOREWORD State-Owned Enterprises (SOEs) are an important element of most economies, including many more advanced economies.

The Compendium serves as a source of up-to-date information on SOEs’ institutional, legal and regulatory frameworks presented country-by-country. It is organised around key pillars of the SOE Guidelines: organising the state enterprise ownership …

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Transcription of Ownership and Governance of State-Owned Enterprises

1 Ownership and Governance of State-Owned EnterprisesA compendium of National Practices This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. OECD 2018 Please cite this publication as: OECD (2018), Ownership and Governance of State-Owned Enterprises : A compendium of National Practices 4 FOREWORD State-Owned Enterprises (SOEs) are an important element of most economies, including many more advanced economies.

2 SOEs are most prevalent in strategic sectors such as energy, minerals, infrastructure, other utilities and, in some countries, financial services. The presence of SOEs in the global economy has grown strongly in recent years. Today they account for over a fifth of the world's largest Enterprises as opposed to ten years ago where only one or two SOEs could be found at the top of the league table. This means that high standards of corporate Governance of SOEs are critical to ensure financial stability and sustain global growth. The OECD Working Party on State Ownership and Privatisation Practices is the only international forum for government officials charged with the oversight of State-Owned Enterprises . The Working Party is responsible for the implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises (the SOE Guidelines ).

3 This compendium of National Practices was developed with a view to facilitating greater awareness and more effective implementation of the SOE Guidelines. It provides a comprehensive overview of the state of SOE Ownership and corporate Governance in both OECD and partner countries. The compendium serves as a source of up-to-date information on SOEs institutional, legal and regulatory frameworks presented country-by-country. It is organised around key pillars of the SOE Guidelines: organising the state enterprise Ownership function; transparency and disclosure practices; safeguarding a level playing field between SOEs and private businesses; professionalising board of directors; and enhancing risk management. Each section draws on practices in up to 50 jurisdictions and international good practices as described in the SOE Guidelines.

4 It compiles information collected for OECD publications issued from 2013 to 2017, updated prior to publication based on inputs from the Working Party. The target audience includes national governments, state Ownership entities, SOE board management, international organisations and academia, but also the broader policy and business communities that interact with the SOE sector on a regular basis. The SOE compendium was prepared by Hans Christiansen, Mary Crane-Charef and Chung-a Park of the Corporate Affairs Division of the OECD Directorate for Financial and Enterprise Affairs, with substantive inputs from Korin Kane and Sara Sultan. The authors are grateful for valuable assistance provided by Pamela Duffin, Anne Nestour, Lynn Kirk, Edward Smiley and Arianna Ingle who assisted with editing and typesetting and prepared the manuscript for publication.

5 5 TABLE OF CONTENTS EXECUTIVE SUMMARY .. 9 INTRODUCTION .. 13 CHAPTER 1: THE STATE ENTERPRISE Ownership FUNCTION .. 15 Rationales for state enterprise Ownership .. 16 Approaches to expressing a state enterprise Ownership rationale .. 18 Objectives for state enterprise Ownership .. 18 Applying the Ownership rationale in establishing and terminating state Ownership .. 20 SOE Ownership Models .. 23 Overview: Organisation of the Ownership models for commercially operating SOEs .. 23 Centralised model .. 32 Dual model .. 32 Twin track model .. 33 Coordinating agency .. 33 Decentralised model .. 34 Models for annual aggregate SOE reporting .. 35 General approach to aggregate reporting .. 38 Reporting on the state Ownership policy .. 39 Public policy objectives .. 40 Board composition and/or remuneration .. 40 Reporting on individual SOEs.

6 41 CHAPTER 2: SOES IN THE MARKETPLACE .. 42 Competitive neutrality An overview of national practices .. 43 Competitive neutrality commitments .. 44 Regulatory and tax exemptions .. 45 Transparency and disclosure around cost allocation .. 48 Compensation of public policy objectives .. 49 Public procurement practices .. 51 Measures to ensure market consistency of debt and equity financing .. 53 General approach to capital structure efficiency .. 54 Debt financing .. 55 Equity financing from the state budget .. 56 Direct state support .. 56 Rate-of-return requirements .. 57 Dividend pay-out expectations .. 57 CHAPTER 3: SOE BOARDS OF DIRECTORS .. 59 Boards of directors of State-Owned Enterprises : an overview of national practices .. 60 Board nominations .. 60 Board composition and size .. 64 Board training and remuneration.

7 70 Board evaluations .. 71 6 Risk management by SOEs and their Ownership .. 74 Legal and regulatory framework applicable to SOE risk Governance .. 77 Risk Governance at the level of the SOE .. 77 Risk Governance at the level of the state .. 80 BIBLIOGRAPHY OF PUBLICLY AVAILABLE REFERENCES .. 84 Tables Table 1. Outline for the compendium and main sources of information .. 14 Table 2. State enterprise Ownership rationales in 30 jurisdictions .. 17 Table 3. Procedures and practice for creating and terminating SOEs in 30 jurisdictions . 21 Table 4. Types of Ownership model structures .. 24 Table 5. National approaches to exercising the Ownership function in 32 countries .. 26 Table 6. Examples of coordinating agencies in Israel, India, Latvia and Lithuania .. 34 Table 7. Decentralized Ownership : Agencies executing the Ownership function in Argentina, Colombia and Mexico.

8 34 Table 8. Aggregate reporting on State-Owned Enterprises by country .. 36 Table 9. Competitive Neutrality Commitments .. 45 Table 10. Regulatory treatment of SOEs .. 46 Table 11. Tax treatment of SOEs .. 47 Table 12. Procurement practices related to SOEs .. 52 Table 13. National practices towards SOE financing: An overview .. 53 Table 14. Board nomination: Formal responsibility .. 63 Table 15. Practices on board size .. 66 Table 16. Board composition and efficiency .. 67 Table 17. Board evaluations .. 72 Table 18. Overview: Risk management practices by SOEs and their owners .. 75 Table 19. Practices for identifying and reporting risk to the board .. 79 Table 20. Highlights of national practices for state audits of SOEs and their risk management systems .. 82 Figures Figure 1. Sources of Ownership rationales where the rationale is explicit.

9 18 Figure 2. Sources of Ownership rationales where the rationale is implicit .. 18 Figure 3. Objectives cited in state enterprise Ownership rationales .. 19 Figure 4. Procedures and practices for SOE-creation .. 22 Figure 5. Procedures and practices for SOE termination .. 22 Figure 6. Breakdown of the application of Ownership models in 23 countries .. 24 Figure 7. Spectrum of state Ownership models in 31 countries .. 26 Figure 8. Centralised model: Institutions exercising the Ownership function .. 32 Figure 9. Dual model: Institutions executing the Ownership function .. 32 Figure 10. How many countries produce aggregate reports on SOEs? .. 38 Figure 11. What is included in aggregate reports? .. 39 Figure 12. Do aggregate reports include company-specific information? .. 41 Figure 13. Separation of accounts.

10 49 Figure 14. Compensation of public service obligations .. 50 Figure 15. Cross-subsidation practices in public service delivery .. 517 Figure 16. General basis for financing decisions .. 54 Figure 17. Is capital structure benchmarked against private sector? .. 54 Figure 18. Sources and conditions of SOE debt financing .. 55 Figure 19. What are the conditions for state equity injections? .. 56 Figure 20. Are SOEs subject to rate-of-return targets? .. 57 Figure 21. How are dividend distributions determined? .. 58 Figure 22. Who is responsible for nominating members to the board? .. 61 Figure 23. Are minimum board member qualification criteria established? .. 62 Figure composition: Mostly public sector, mostly private 65 Figure 25 Remuneration levels and their impact on candidate quality.


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