Austria has two major wholly state-owned enterprises (SOEs): The OeBB (Austrian Federal Railways) and Asfinag (highway financing, building, maintenance, and administration). Other government industry holding companies are bundled in the government holding company OeBAG (http://www.oebag.gv.at)
The government has direct representation in the supervisory boards of its companies (commensurate with its ownership stake), and OeBAG has the authority to buy and sell company shares, as well as purchase minority stakes in strategically relevant companies. Such purchases are subject to approval from an audit committee consisting of government-nominated independent economic experts.
OeBAG holds a 53 percent stake in the Post Office, 51 percent in energy company Verbund, 33 percent in the gambling group Casinos Austria, 31.5 percent in the energy company OMV, 28 percent in the Telekom Austria Group, and a few other minor ventures. Local governments own the majority of utilities, Vienna International Airport, and more than half of Austria’s 264 hospitals and clinics.
Private enterprises in Austria can generally compete with public enterprises under the same terms and conditions with respect to market access, credit, and other such business operations as licenses and supplies. While most SOEs must finance themselves under terms similar to private enterprises, some large SOEs (such as OeBB) benefit from state-subsidized pension systems. As a member of the EU, Austria is also a party to the Government Procurement Agreement (GPA) of the WTO, which indirectly also covers the SOEs (since they are entities monitored by the Austrian Court of Auditors).
The five major OeBAG-controlled companies (Postal Service, Verbund AG, Casinos Austria, OMV, Telekom Austria), are listed on the Vienna stock exchange. Senior managers in these companies do not directly report to a minister, but to an oversight board. That being said, the government often appoints management and board members who have strong political affiliations.
The government has not privatized any public enterprises since 2007. Austrian public opinion is skeptical regarding further privatization and there are no indications of any government privatizations on the horizon. In prior privatizations, foreign and domestic investors received equal treatment. Despite a historical government preference for maintaining blocking minority rights for domestic shareholders, foreign investors have successfully gained full control of enterprises in several strategic sectors of the Austrian economy, including in telecommunications, banking, steel, and infrastructure. In March 2020, the government chose not to intervene when the Czech Sazka group increased its stake in the partially state-owned gambling group Casinos Austria to a majority share.
7. State-Owned Enterprises
There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake. The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP). The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership. CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.
These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities. The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion. The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.
CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at https://imovina.gov.hr/ and on CERP’s website at http://www.cerp.hr/.
County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious. The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en. The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.” The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”
The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”
The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780. Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.
Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP. There are no restrictions against foreigners participating in privatization tenders. When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects. There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output. The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html).
The Ministry of Finance administers state ownership policies. State-owned enterprises (SOEs) are structured as joint-stock companies, state enterprises, national enterprises, limited liability companies, and limited partnerships. SOEs are owned by the individual ministries but are managed according to their business organizational structure as defined by law and are required to publish an annual report, disclose their accounting books, and submit to an independent audit. Potential conflicts of interest are covered by existing Act No. 159/2006 on Conflicts of Interest, and Act No. 14/2017 on Amendments to the Act on Conflict of Interest. Legislation on the civil service, which took effect January 1, 2015, established measures to prevent political influence over public administration, including operation of SOEs.
Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, government contracts and other business operations. SOEs purchase or supply goods and services from private sector and foreign firms. SOEs are subject to the same domestic accounting standards, rules, and taxation policies as their private competitors, and are not given any material advantages compared to private entities. State-owned or majority state-owned companies are present in several (strategic) sectors, including the energy, postal service, information and communication, and transport sectors.
As an OECD member, the Czech Republic promotes the OECD Principles of Corporate Governance and the affiliated Guidelines on Corporate Governance for SOEs. SOEs are subject to the same legislation as private enterprises regarding their commercial activities.
As a result of several waves of privatization, the vast majority of the Czech economy is now in private hands. Privatizations have generally been open to foreign investors. In fact, most major SOEs were privatized with foreign participation. The government evaluates all investment offers for SOEs. Many competitors have alleged non-transparent or unfair practices in connection with past privatizations.
7. State-Owned Enterprises
State-owned enterprises (SOEs) exist mainly in the defense, energy, transport, banking and insurance sectors. The main Warsaw stock index (WIG) is dominated by state-controlled companies. The government intends to keep majority share ownership and/or state-control of economically and strategically important firms and is expanding the role of the state in the economy, particularly in the banking and energy sectors. Some U.S. investors have expressed concern that the government favors SOEs by offering loans from the national budget as a capital injection and unfairly favoring SOEs in investment disputes. Since Poland’s EU accession, government activity favoring state-owned firms has received careful scrutiny from Brussels. Since the Law and Justice government came to power in 2015, there has been a considerable increase in turnover in managerial positions of state-owned companies (although this has also occurred in previous changes of government, but to a lesser degree) and increased focus on building national champions in strategic industries to be able to compete internationally. There have also been cases of takeovers of foreign private companies by state-controlled companies the viability of which has raised doubts. SOEs are governed by a board of directors and most pay an annual dividend to the government, as well as prepare and disclose annual reports.
Among them are companies of “strategic importance” whose shares cannot be sold, including: Grupa Azoty S.A., Grupa LOTOS S.A., KGHM Polska Miedz S.A., Energa S.A, and the Central Communication Port.
The government sees SOEs as drivers and leaders of its innovation policy agenda. For example, several energy SOEs established a company to develop electro mobility. The performance of SOEs has remained strong overall and broadly similar to that of private companies. International evidence suggests, however, that a dominant role of SOEs can pose fiscal, financial, and macro-stability risks.
As of June 2020, there were over 349 companies in partnership with state authorities. Among them there are companies under bankruptcy proceedings and in liquidation and in which the State Treasury held residual shares. Here is a link to the list of companies, including under the control of which ministry they fall: http://nadzor.kprm.gov.pl/spolki-z-udzialem-skarbu-panstwa.
The Ministry of State Assets, established after the October 2019 post-election cabinet reshuffle, has control over almost 180 enterprises. Their aggregate value reaches several dozens of billions of Polish zlotys. Among these companies are the largest chemical, energy, and mining groups; firms in the banking and insurance sectors; and transport companies. This list does not include state-controlled public media, which are under the supervision of the Ministry of Culture or the State Securities Printing Company (PWPW) supervised by the Interior Ministry. Supervision over defense industry companies has been shifted from the Ministry of Defense to the Ministry of State Assets.
According to the latest data from the National Bank of Poland, at the end of September 2019. stocks and shares held by state (and local government) institutions amounted to just over PLN 261 billion ($66 billion).
The same standards are generally applied to private and public companies with respect to access to markets, credit, and other business operations such as licenses and supplies. Government officials occasionally exercise discretionary authority to assist SOEs. In general, SOEs are expected to pay their own way, finance their operations, and fund further expansion through profits generated from their own operations.
On February 21, 2019, an amendment to the Act on the principles of management of state-owned property was adopted, which provides for the establishment of a new public special-purpose fund – the Capital Investment Fund. The Fund is a source of financing for the purchase and subscription of shares in companies. The Fund is managed by the Prime Minister’s office and financed by dividends from state-controlled companies.
A commission for the reform of corporate governance was established on February 10, 2020, by the Minister of State Assets. The commission developed recommendations regarding the introduction of a law on consortia/holdings; changes in the powers of supervisory boards and their members, with particular emphasis on the rights and obligations of parent companies’ supervisory boards; changes in the scope of information obligations of companies towards partners or shareholders; and other changes, including in the Commercial Companies Code. The Ministry of State Assets plans to introduce the regulations of the holding law into the Polish legal system in 2021, which is a part of a draft reform of commercial law prepared by the commission. Some law offices expressed concerns that the solutions provided for in the amendment may impose new obligations on entrepreneurs conducting business activity in this form. Since coming to power in 2015, the governing Law and Justice party (PiS) has increased control over Poland’s banking and energy sectors
Proposed legislation to “deconcentrate” and “repolonize” Poland’s media landscape, including through the possible forced sale of existing investments, has met with domestic and international protest. Critical observers allege that PiS and its allies are running a pressure campaign against foreign and independent media outlets aimed at destabilizing and undermining their businesses. These efforts include blocking mergers through antimonopoly decisions, changes to licensing requirements, and the proposed new advertising tax. Increasing government control over state regulatory bodies, advertising agencies and infrastructure such as printing presses and newsstands, are other possible avenues. Since 2015, state institutions and state-owned and controlled companies have ceased to subscribe to or place advertising in independent media, cutting off an important source of funding for those media companies. At the same time, public media has received generous support from the state budget.
In December 2020, state-controlled energy firm PKN Orlen, headed by PiS appointees, acquired control of Polska Press in a deal that gives the governing party indirect control over 20 of Poland’s 24 regional newspapers. Because this acquisition was achieved without legislative changes, it has not provoked diplomatic repercussions with other EU member states or a head-on collision with Brussels over the rule of law. Having successfully taken over a foreign-owned media company with this model, there are concerns PKN Orlen will continue to be used for capturing independent media not supportive of the government.
OECD Guidelines on Corporate Governance of SOEs
In Poland, the same rules apply to SOEs and publicly-listed companies unless statutes provide otherwise. The state exercises its influence through its rights as a shareholder in proportion to the number of voting shares it holds (or through shareholder proxies). In some cases, an SOE is afforded special rights as specified in the company’s articles, and in compliance with Polish and EU laws. In some non-strategic companies, the state exercises special rights as a result of its majority ownership but not as a result of any specific strategic interest. Despite some of these specific rights, the state’s aim is to create long-term value for shareholders of its listed companies by adhering to the OECD’s SOE Guidelines. State representatives who sit on supervisory boards must comply with the Commercial Companies Code and are expected to act in the best interests of the company and its shareholders. The European Commission noted that “Polska Fundacja Narodowa” (an organization established to promote Polish culture worldwide and funded by Polish SOEs) was involved in the organization and financing of a campaign supporting the controversial judiciary changes by the government. The commission stated this was broadly against OECD recommendations on SOE involvement in financing political activities.
SOE employees can designate two fifths of the SOE’s Supervisory Board’s members. In addition, according to Poland’s privatization law, in wholly state-owned enterprises with more than 500 employees, the employees are allowed to elect one member of the Management Board. SOEs are subject to a series of additional disclosure requirements above those set forth in the Company Law. The supervising ministry prepares specific guidelines on annual financial reporting to explain and clarify these requirements. SOEs must prepare detailed reports on management board activity, plus a report on the previous financial year’s activity, and a report on the result of the examination of financial reports. In practice, detailed reporting data for non-listed SOEs is not easily accessible. State representatives to supervisory boards must go through examinations to be able to apply for a board position. Many major state-controlled companies are listed on the Warsaw Stock Exchange and are subject to the “Code of Best Practice for WSE Listed Companies.”
On September 30, 2015, the Act on Control of Certain Investments entered into force. The law creates mechanisms to protect against hostile takeovers of companies operating in strategic sectors (gas, power generation, chemical, copper mining, petrochemical and telecoms) of the Polish economy (see Section 2 on Investment Screening), most of which are SOEs or state-controlled. In 2020, the government amended the legislation preventing hostile take overs. The amendments will be in force for 24 months. They are a part of the pandemic-related measures introduced by the Polish government. The SOE governance law of 2017 (with subsequent amendments) is being implemented gradually. The framework formally keeps the oversight of SOEs centralized. The Ministry of State Assets exercises ownership functions for the majority of SOEs. A few sector-specific ministries (e.g., Culture and Infrastructure) also exercise ownership for SOEs with public policy objectives. The Prime Minister’s Office oversees development agencies such as the Polish Development Fund and the Industry Development Agency.
The Polish government has completed the privatization of most of the SOEs it deems not to be of national strategic importance. With few exceptions, the Polish government has invited foreign investors to participate in major privatization projects. In general, privatization bidding criteria have been clear and the process transparent.
The majority of SOEs classified as “economically important” or “strategically important” is in the energy, mining, media, telecommunications, and financial sectors. The government intends to keep majority share ownership of these firms, or to sell tranches of shares in a manner that maintains state control. The government is currently focused on consolidating and improving the efficiency of the remaining SOEs.
7. State-Owned Enterprises
Russia does not have a unified definition of a state-owned enterprise (SOE). However, analysts define SOEs as enterprises where the state has significant control, through full, majority, or at least significant minority ownership. The OECD defines material minority ownership as 10 percent of voting shares, while under Russian legislation, a minority shareholder would need 25 percent plus one share to exercise significant control, such as block shareholder resolutions to the charter, make decisions on reorganization or liquidation, increase in the number of authorized shares, or approve certain major transactions. SOEs are subdivided into four main categories: 1) unitary enterprises (federal or municipal, fully owned by the government), of which there are 692 unitary enterprises owned by the federal government as of January 1, 2020; 2) other state-owned enterprises where government holds a stake of which there are 1,079 joint-stock companies owned by the federal government, as of January 1, 2019 – such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government); 3) natural monopolies, such as Russian Railways; and 4) state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB). There are six functioning state corporations directly chartered by the federal government, as of March 2021. By 2020, the number of federal government-owned “unitary enterprises” declined by 44 percent from 1,247 in 2017; according to the Federal Agency for State Property Management, the number of joint-stock companies with state participation declined only by 33.6 percent in the same period.
SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services. Sole-source procurement by Russia’s SOEs increased to 45.5 percent in 2018, or to 37.7 percent in value terms, according to a study by the non-state “National Procurement Transparency Rating” analytical center. The current Russian government policy of import substitution mandates numerous requirements for localization of production of certain types of machinery, equipment, and goods.
The Russian government and its SOEs dominate the economy. The government approved in January 2020 a new 2020-22 plan identifying 86 “federal state unitary enterprises” (100 percent state-owned “FGUPs”) (12.3 percent of all FGUPs), sell its stakes in 186 joint stock companies (“JSCs”) (16.5 percent of all JSCs with state participation) and in 13 limited liability companies (“LLCs”) for privatization. The plan would also reduce the state’s share in VTB, one of Russia’s largest banks, from over 60 percent to 50 percent plus one share and in Sovkomflot to 75 percent plus one share within three years. On October 7, 2020, Sovcomflot sold the government’s 17.2 percent stake through an IPO at the Moscow Exchange. The government’s stake in Sovcomflot will remain at 82.8 percent. The government raised about $550 million through the sale. Other large SOEs might be privatized on an ad hoc basis, depending on market conditions. The Russian government still maintains a list of 136 SOEs with “national significance” that are either wholly or partially owned by the Russian state and whose privatization is permitted only with a special governmental decree, including Aeroflot, Rosneftegaz, Transneft, Russian Railways, and VTB. While the total number of SOEs has declined significantly in recent years, mostly large SOEs remain in state hands and “large scale” privatization, intended to help shore up the federal budget and spur economic recovery, is not keeping up with implementation plans. The government expects that “small-scale privatization” (excluding privatization of large SOEs) will bring up to RUB 3.6 billion ($58 million) to the federal budget annually in 2020-2022.
The government’s previous 2017-2019 privatization program has substantially underperformed its benchmarks. Only 24.8 percent of the 581 state-owned enterprises (SOEs) slated to be privatized were actually privatized in 2017-2019, according to a May 27, 2021 report by the Russian Accounts Chamber (RAC). As a result, total privatization revenues received in 2018 reached only RUB 2.44 billion ($39 million), down 58 percent compared to 2017. In 2019, privatization revenues (excluding large SOEs) reached RUB 2.2 billion ($35 million), down 40.5 percent compared to the official target of RUB 5.6 billion ($86.5 million).