The principal goal of the reform is to provide operational and reporting transparency at state-owned enterprises, improve operational and financial results by organizing corporate governance at SOEs, reduce the government in economy, and liquidate inactive enterprises. The Government should retain the ownership of a small number of strategically critical enterprises that perform their functions transparently and effectively and ensure that they are effectively managed for the benefit of their ultimate owner, the people of Ukraine.
Why change anything?
The state is the largest asset holder in Ukraine. Almost 3,500 state-owned entities of different forms of business organization and ownership have been registered. 40% of these enterprises are inactive and operate only on paper. Every third enterprise makes a loss and is a potential source of fiscal risks. SOE operations are a source of corruption risks and losses for the state because of a lacking quality of control mechanisms and inadequate transparency.
The reform is long overdue because the public sector of economy has undergone next to no changes since 1991. The Government's current main objective is to make SOE management transparent and professional based on best international standards by introducing profound change.
What does the reform involve?
- Transparency and accountability — the Government, business, and the public have access to accurate and up-to-date information about each SOE.
SOEs should submit financial statements electronically within one electronic system, must be subject to an independent external audit, publish full and accurate information about their operations on a publicly available portal, including IFRS financial statements and auditor's reports. Directors should have liability for failure to disclose information or for disclosure of inaccurate information.
- Corporate governance — SOEs effectively operate based on clear strategic goals and have a modern governance system.
A modern SOE governance model involves introducing corporate governance instruments such as strategic planning, having the Government as a shareholder form and approve custom ownership policies for each enterprise, appointing independent supervisory boards, and designing an incentive system for supervisory boards and management. This is a key factor in ensuring good performance of an enterprise as suggested by the experience of many state-owned enterprises in other countries. This approach will not only create a financial benefit for the national budget but also improve the quality of public services, have a positive effect on national economy and the business environment, make Ukraine more appealing for investors, and minimize corruption risks.
- Privatization — the number of SOEs has been reduced through transparent privatization.
The Government should follow its strategic vision in categorizing SOEs into those that the state will retain ownership of and those to be privatized, liquidated, or transferred under concession terms. Conditions should be created for fair and transparent privatization of enterprises that should be privatized, where large SOEs should be privatized with the help of an investment advisor and small entities sold through ProZorro.Sale transparent e-auctions, and the list of SOEs not to be privatized should be curtailed.
- Liquidation — the portfolio of state-owned assets has been optimized by simplifying restructuring and liquidation procedures.
Half of SOEs do not operate or have been under liquidation for years. Even an inactive enterprise requires labor and financial costs to maintain it. In addition to fiscal risks, the bulk of such enterprises carries a number of corruption risks due to lacking information about their actual operations and an ineffective use (disuse) by the Government of its own property. Completing liquidation of such SOEs will put the Government's portfolio in order and have a positive effect on the overall state property management system.
- Lease — state- and community-owned property is transparently leased out according to new rules through ProZorro.Sale.
Leasing out state property is one way of improving the effectiveness of its use. State property lease income can produce regular revenue collections. However, the lease area has been unregulated for many years and left numerous opportunities for abuse.
Strategic targets for 2019–2020
TRANSPARENCY AND REPORTING
- Creating a risk management system (that introduces red flags when some figures suddenly go out of range at enterprises)
- Launching a public portal with aggregated figures of SOE operations
- Designing and launching a public module of business analytics on the portal
- Forming and approving ownership policies for SOEs critical for economy
- Separating functions of the Government as an owner and the Government as an enterprise's regulator
- Introducing modern corporate governance instruments
- Transparently electing qualified managers and members of SOE supervisory boards
- Continuing SOE corporatization
- Categorizing SOEs based on their function and status as those to remain in state ownership, transferred under concession, privatized, or liquidated
- Curtailing the list of SOEs whose privatization is prohibited
- Introducing an effective restructuring and liquidation procedure for loss-making, unpromising, and inactive enterprises
- Selling state-owned assets through minor and major privatization mechanisms
- Creating conditions for transparently leasing out state property
- Starting active liquidation of nonfunctional SOEs by legislatively simplifying their liquidation and engaging professional independent liquidators
- Drafting and adopting a new law on the lease of state- and community-owned property, drafting regulations towards the implementation of its provisions
- Holding the first transparent auctions of lease of state property
- Drafting and adopting a law on concessions and starting pilot concession projects
The reform is implemented by
the the Reform Delivery Office, the Strategic Advisory Group for Supporting Ukrainian Reform (SAGSUR), the Secretariat of the Cabinet of Ministers of Ukraine, the Ministry of Economic Development and Trade of Ukraine, the Reform Support Team of the Ministry of Economic Development and Trade of Ukraine, the State Property Fund of Ukraine, the National Securities and Stock Market Commission, SOE ProZorro.Sale, Ukrainian Corporate Governance Academy
Documents and useful links
- Law of Ukraine On the Management of State-Owned Property
- Law of Ukraine On the List of State-Owned Entities not to Be Privatized
- Law of Ukraine On the Lease of State- and Community-Owned Property
- Draft law on amending certain legislative acts of Ukraine to improve corporate governance of juridical persons where the state is a shareholder (founder, member), 6428-д dated 5/30/2018
- Minor privatization dynamics on ProZorro.Sale
- TOP-100. Overview of Largest State-Owned Enterprises–2017
- The Appointments Committee's page on the Government Portal