POE

POE Reform Initiative

1. Improvement of Corporate Governance of POEs in line with OECD practices Ministry of Economic Development Alban Kaçiu POE Advisor 3 May 2016

2. Aim of the Initiative The aim of this initiative is to establish: Solid grounds for improved corporate governance; Performance Based Framework; Proper financial and operational reporting of POEs in line with EU Practices and OECD principles.

3. Background Treatment of Publicly Owned Enterprises initiative National Development Strategy Economic Reform Program POE 2014 Reports

4. Current Situation – General MED during the previous years has worked on improvement of POE Corporate Governance. OECD Guidelines for Corporate Governance of State-Owned Enterprises, updated in 2015: To reflect global economic situation where many countries are faced with low economic growth and lack of fiscal space. In such, situations countries face challenges, and strengthening oversight has become a necessity to ensure that the shareholder is informed about the financial state of POEs

5. Changes of key elements of OECD Principles 2005 2015 I. Ensuring and effective and legal and regulatory framework for State – Owned Enterprises I. Rationale for state ownership II. The state acting as an owner II. The state’s role as an owner III. Equitable treatment of shareholders III. State-owned enterprises in the market place IV. Relations with Stakeholders IV. Equitable treatment of shareholders and other investors V. Transparency and disclosure V. Stakeholder relations and responsible business IV. The responsibilities of the boards of state-owned enterprises IV. Disclosure and transparency VII. The responsibilities of the boards of state-owned enterprises

6. Current Situation of POEs in Kosovo There is a lack of systems, processes and procedures for fiscal oversight of publicly owned enterprises (PEFA 2009, 2013, 2015); Similar or worst situation at local POEs; Improper oversight does not allow proper exercise of shareholders rights; Expenditure allocation by the government without any prior assessment of medium-term and long-term impact.

7. Current situation Assets: 2.82% growth 2013/2014 1.05% decline 2014/2015 Equity: 2.82% growth 2013/2014 2.80% decline 2014/2015 Liabilities: 4.34% increase 2013/2014 Sales: 24.35% decline 2013/2014 2.93% increase 2014/2015 Staff Expenses: 3.78% increase 2013/2014 0.18% increase 2014/2015

8. Preliminary conslidated financial report (2015) Based on Preliminary (unaudited) Financial Data

9. Current Ownership Architecture

10. Shareholders Contribution Channels However these are not the only budget lines used for allocation of resources to POEs

11. Specific Issues with current legislation Undefined terminology such as: macro vs micro management; Board of Directors without any reason can terminate the contract of the senior management Does not specify what after the mandate of senior management expires; There are cases where some POEs and related policy decisions are not in line with OECD principles, especially in relation to competitive neutrality

12. Specific Issues with Reporting Period reports do not contain targets to be used for performance measurement; Where targets exist, there is a lack of their relevance; Non-timely reporting by POEs; Annual Performance Report irrelevant for the needs of shareholder, as well as other stakeholders (Parliament, Development Partners, etc ).

13. Goal and Objectives Improvement of Central and Local POE management in line with OECD standards. Objectives Improvement of corporate governance of central and local POEs; Central and Local POE reporting in line with OECD practices, and in line with EU corporate reporting practices; Review of possibilities for sector approach.

14. Desired Ownership Architecture

15. Classification of POE

16. Classification of POEs Shareholder makes sure that its contributions are used only for companies that provide public services, Elimination of bureaucratic practices that may derive from that fact of being under state/public ownership; Example: POEs Pursuing Public Objective may be preferred to have low equity/assets ratios, which indicates that increasing their assets means better services for the public (water supply); On the other side this may not be the case with POEs operating in competitive markets.

17. Priorities Raising capacities of POEPMU for Oversight and Monitoring Development of Corporate Planning and Reporting Templates (MBO) Development of a POE Oversight and Monitoring Management Information System