Most of Armenia’s state-owned enterprises (SOEs) were privatized in the 1990s and early 2000s, yet SOEs are still active in a number of sectors.  SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property and state non-commercial organizations.  There are no laws or rules that ensure a primary or leading role for SOEs in any specific industry. Armenia is a party to the WTO’s Government Procurement Agreement and SOEs are covered under that agreement.  SOEs in Armenia are subject to the same tax regime as their private competitors, and private enterprises in Armenia can compete with SOEs under the same terms and conditions. A public list of state-owned closed joint stock companies can be found on the website of the Department of State Property (http://spm.am/am/projects/  ).

Privatization Program

Most of Armenia’s state owned enterprises were privatized in the 1990s and early 2000s.  Many of the privatization processes for Armenia’s large assets were reported to be neither competitive nor transparent, and political considerations in some instances prevailed over fair tender processes.  The current law on privatization, the fifth, is the Law on the 2017–2020 Program for State Property Privatization, which lists 47 entities for privatization, of which 24 are new additions and 23 were noted in earlier laws but not privatized.  The Department of State Property Management is responsible for managing the state’s share of the entities in the privatization program.

After the fall of the Soviet Union, the new Georgian government privatized most state-owned enterprises (SOEs).  At the end of 2013, the major remaining SOEs were Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant.  Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.

During 2012, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem, and Electricity System Commercial Operator LLC assets were placed under the Partnership Fund, a state-run fund to facilitate foreign investment into new projects.  In addition, the fund controls 25 percent of shares in TELASI Electricity Distribution Company, but has stated its intention to sell those shares. The fund has not yet sold its shares, but still plans to do so: www.fund.ge  .

Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law.  Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. Major procedures and policies are described in the charters of respective SOEs.  Georgia particularly encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.

The senior management of SOEs report to Supervisory Boards where they exist (GRW, GOGC); in other cases they report to the line ministries.  Governmental officials can be on the supervisory board of the SOEs and the Partnership Fund has five key governmental officials on its board.  SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.

To ensure the transparency and accountability of state business decisions and operations, regular outside audits are conducted and annual reports are published.  SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tenders. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies.  There is no legal requirement for SOEs to publish an annual report or to submit their books for independent audit, but this is still practiced. In addition, GRW and GOGC are Eurobonds issuer companies and therefore are required to publish reports.

SOEs are subject to the same domestic accounting standards and rules and these standards are comparable to international financial reporting standards.  There are no SOEs that exercise delegated governmental powers.

Privatization Program

Georgia’s government has privatized most large SOEs.  Successful privatization projects include major deals in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate assets.  A list of entities available to be privatized can be found on the following website: www.privatization.ge  .  Foreign investors are welcome to participate in privatization programs.  Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at:  www.amcham.ge  .

Since gaining independence in 1992, Moldova privatized most state-owned enterprises, and most sectors of the economy are almost entirely in private hands. However, the government still fully or partially controls some enterprises.  The major government-owned enterprises are two northern electrical distribution companies, the Chisinau heating companies, fixed-line telephone operator Moldtelecom, the country’s largest tobacco company, and the state railway company. The government keeps a registry of state-owned assets, which is available on the website on the Public Property Agency https://app.gov.md/ro/advanced-page-type/registrul-patrimoniului-public  .

State-owned enterprises (SOE) are governed by the law on stock companies and the law on state enterprises as well as a number of governmental decisions.  SOEs have boards of directors usually made up of representatives of the line ministry, the Ministry of Economy and Infrastructure and the Ministry of Finance.  As a rule, SOEs report to the respective ministries, with those registered as joint stock companies being required to make their financial reports public. Moldova does not incorporate references to the OECD Guidelines on Corporate Governance for SOEs in its normative acts.

Moldovan legislation does not formally discriminate between state-owned enterprises and private-run businesses.  By law, governmental authorities must provide a level legal and economic playing field to all enterprises.

The Law on Entrepreneurship and Enterprises has a list of activities restricted solely to state enterprises, which includes, among others, human and animal medical research, manufacture of orders and medals, postal services (except express mail), sale and production of combat equipment and weapons, minting and real estate registration.

There are reports of state-owned enterprises having an advantage over privately-run businesses in Moldova.  Either from government representatives sitting on their boards or from their dominant position in their industry, state-owned companies are generally seen as being better positioned to influence decision-makers than their private sector competitors, and in some cases have used this perceived competitive advantage to prevent open competition in their individual sectors.

Privatization Program

Moldova launched the first of several waves of privatization in 1994.  In 2007, Parliament passed a new law governing management and privatization of state-owned assets.  Two major privatizations in 2013 – of the then-largest bank, Banca de Economii, and the 49-year concession of the Chisinau Airport – subsequently proved highly controversial. Privatization efforts in 2014 and 2015 emphasized public-private partnerships as means for companies to gain access to state-owned resources in infrastructure-related projects.  In 2018, the government held several rounds of privatization for state assets selling its stake in 19 companies, including airline Air Moldova and gas interconnector Vestmoldtransgaz. The government intends to privatize state telephone company Moldtelecom and the northern power distribution companies RED Nord and FEE Nord.

Moldova conducts privatizations through open tenders organized at the stock exchange that are open to any interested investor.  The government may also use open outcry auctions for some properties, the so-called investment or commercial tenders to sell entire companies to those who take on investment commitments or to the highest bidders as well as public private partnerships for infrastructure related projects.  The government publishes privatization announcements on the website of the Public Property Agency www.app.gov.md   and in the official journal Monitorul Oficial. Some investors complained in the past that privatizations are unfair and lack transparency.

The Mongolian government maintains various state owned enterprises (SOEs) in the banking and finance, energy production, mining, and transport sectors.  The Government Agency for Policy Coordination on State Property (PCSP: http://www.pcsp.gov.mn/en  ) manages the non-mining and non-financial assets.  The Ministry of Finance manages the State Bank of Mongolia and the Mongolian Stock Exchange, and SOE Erdenes Mongol holds most of the government’s mining assets.  The PCSP does not provide a complete list of its SOEs. Investors can compete with SOEs, although in some cases an opaque regulatory framework limits both competition and investor penetration.  Both foreign and domestic private investors believe the current government approach to regulating SOEs favors Mongolian SOEs over private enterprises and foreign SOEs. Although many private companies have been created or registered in Mongolia in recent years, including foreign private companies, the Mongolian government has also created several dozen SOEs over the same period.  The 2006 Minerals Law of Mongolia (amended in 2014) and the 2009 Nuclear Energy Law grant the government the right to acquire equity stakes ranging from 34 percent up to 100 percent of certain uranium and rare earth deposits deemed strategic for the nation.

Businesses have cautioned against the growing role of state-owned enterprises in the private sector, which they see as having the potential to crowd out business opportunities and limit investment in a free-market economy driven by an open private sector.  Specifically, they worry the Mongolian government’s desire to maximize local procurement, employment, and revenues may compromise the long-term commercial viability of mining projects.  Investors also question the Mongolian government’s capacity to execute its fiduciary responsibilities as both owner and operator of mines. Observers are concerned that the Mongolian government waives legal and regulatory requirements for state-owned mining companies that it imposes on all others.

Generally, approval for relevant environmental and operating permits for private coal mines in Mongolia takes at least two years.  However, there are indications that the Mongolian government has exempted the Erdenes Tavan Tolgoi mining operations from regulatory requirements imposed on other operations.  Preferential treatment for SOEs creates the appearance that the Mongolian government has one standard for its SOEs and another for foreign-invested and private domestic invested companies, and it also provides SOEs with substantial cost advantages via a more lenient interpretation or outright waiver of legal requirements.

Mongolian SOEs will source from foreign firms only when inputs are not available locally or cannot be produced competitively in Mongolia.  SOEs and private enterprises are under political pressure to source locally as much as possible and often resort to creating local Mongolian shell companies to act as domestic storefronts for foreign-sourced goods.  This unofficial requirement adds inefficiency and cost to serving the Mongolian market. Finally, Mongolia is not yet a party to the WTO Procurement Agreement, although it remains an observer.

Mongolian Compliance with OECD Guidelines on Corporate Governance of SOEs

Mongolian SOEs do not adhere to the OECD Corporate Governance Guidelines for SOEs; however, they are technically required to follow to the same international best practices on disclosure, accounting, and reporting as imposed on private companies.  When SOEs seek international investment and financing, they tend to follow these rules. Many international best practices are not institutionalized in Mongolian law, and SOEs tend to follow existing Mongolian rules. At the same time, foreign-invested firms follow the international rules, causing inconsistencies in corporate governance, management, disclosure, and accounting.

The SOE corporate governance structure is clear on paper:  an independent management answers to an independent board of directors, which reports to the Government Agency for Policy Coordination on State Property (PCSP:  http://www.pcsp.gov.mn/en  ).  In reality, government officials note that management and board of director operations and appointments are subject to political interference.    

Privatization Program

Parliament’s 2016 National Action Plan references privatizing some state-held assets, but the government has yet to identify the specific assets to privatize or the process to implement privatization.  The Mongolian government routinely floats the possibility of privatizing through sales of shares or equity in the Mongolian Stock Exchange, the national air carrier MIAT, the Mongol Post Office, and other properties but so far has sold only 30 percent of the Mongol Post Office to private buyers through an initial public offering on the bourse.  While stating it welcomes foreign participation in privatization efforts, the Mongolian government has not clarified a tendering process for the privatization of state assets not to be sold via the stock exchange. Mongolia has no plans to privatize its power or rail systems. The latter is jointly held with the government of Russia, but the law does allow private firms to build, operate, and transfer new railroads to the state.

State-owned enterprises (SOEs) are active in travel, automotive/ground transportation, energy, mining, metal manufacturing/products, food processing/packaging, agriculture, construction, building and heavy equipment, services, finance, and information and communication sectors.  The government divested itself of smaller SOEs in successive waves of privatization, but retained ownership of the largest Soviet-era enterprises and any sector deemed to be a natural monopoly.

The government appoints directors and boards to SOEs, but there are no clear governance and internal control procedures.  Tajik SOEs do not adhere to the Organisation for Economic Co-operation and Development (OECD) Guidelines on Corporate Governance for SOEs.  Tajik government fully controls SOEs.  When SOEs are involved in investment disputes, it is highly likely that the domestic courts will find in the SOE’s favor.  Court processes are generally non-transparent and discriminatory.

The Committee for Investments and State Property Management maintains a database of all SOEs in Tajikistan, but does not make this information publicly available.

Major SOEs include:

• Travel: Tajik Air, Dushanbe International Airport, Kulob Airport, Qurghonteppa Airport, Khujand Airport, and Tajik Air Navigation;
• Automotive & Ground Transportation: Tajik Railways;
• Energy & Mining: Barqi Tojik, TajikTransGas, Oil, Gas, and Coal, and VostokRedMet;
• Metal Manufacturing & Products: Tajik Aluminum Holding Company (TALCO), and several TALCO subsidiary companies
• Agricultural, Construction, Building & Heavy Equipment: Tajik Cement; Food Processing & Packaging: Konservniy Combinat Isfara;
• Services: Dushanbe Water and Sewer, Vodokanal Khujand, and ZhKX (water utility company);
• Finance: AmonatBonk (state savings bank), TajikSarmoyaguzor (state investments), TajikSugurta (state insurance);
• Information and Communication: Tajik Telecom, Tajik Postal Service, and TeleRadioCom

In sectors that are open to private sector and foreign competition, SOEs receive a larger percentage of government contracts/business than their private sector competitors.  As a general rule, private companies cannot compete successfully with SOEs unless they have good government connections.

SOEs purchase goods and services from, and supply them to, private sector and foreign firms through the Tajik government’s tender process.  Tajikistan has undertaken a commitment, as part of its WTO accession protocol, to initiate accession to the Government Procurement Agreement (GPA).  At present, however, GPA does not cover Tajik SOEs.

Per government policy, private enterprises cannot compete with SOEs under the same terms and conditions with respect to market share (since the government continually increases the role and number of SOEs in any market), products/services, and incentives.  Private enterprises do not have the same access to financing as SOEs.  Most lending from state-owned banks is politically directed.

Local tax law makes SOEs subject to the same tax burden and tax rebate policies as their private sector competitors, but the Tajik government favors SOEs and regularly writes off tax arrears for SOEs.

Privatization Program

The Tajik government conducted privatization on an ad-hoc basis in the 1990s, and then again in the early 2000s.  The government plans to split national electrical utility Barqi-Tojik into three public/private partnerships, responsible for generation, transmission, and distribution, by the end of 2020, but progress has been slow.

Foreign investors are able to participate in Tajikistan’s privatization programs.

There is a public bidding process, but the privatization process is not transparent.  Privatized properties have been subject to re-nationalization, often because Tajik authorities claim on illegal privatization process.

The Government of Ukraine operates 1,600 state-owned enterprises (SOEs) out of 3,358 registered SOEs, with an economic output of approximately ten percent of GDP.  While the government lists 3,358 enterprises, more than 1,700 of them no longer operate as profitable businesses. SOEs in Ukraine are defined as companies which the state owns at least 50 percent +1 share.  SOEs are active in areas such as energy, machine-building, and infrastructure. There is no common public list of all SOEs in Ukraine and each ministry publishes a list of SOEs under its respective management.  The Ministry of Economic Development and Trade periodically updates information on annual financial reports of significant SOEs (100 of the largest SOEs), which it publishes on the ministry website. http://www.me.gov.ua/Documents/List?lang=uk-UA&id=40a27e1b-8234-43d3-a37f-c4c752729fca&tag=FinansovaZvitnistPidprimstv     

The corporate governance law, which entered into force in 2016, requires SOEs to publicize annual financial reports and disclosures on official websites, including information on financial indicators, company officials, transactions, etc.  Ukrainian law also stipulates that SOEs publish their annual financial statements and audits. In 2018, the government of Ukraine stepped up its corporate governance reform efforts, and created supervisory boards in strategic SOEs. Strategic SOEs, including Ukrzaliznytsia, Ukrenergorynok, Ukrposhta, and Ukrenergo, have selected independent and government board members.  These reforms have been an important step in improving the management, efficiency, and responsiveness of the companies.

Most SOEs rely on government subsidies to function and cannot directly compete with private firms.  Several SOEs capable of making a profit have already been privatized, and the result has been that mostly inefficient firms have remained in government hands.  The Government of Ukraine heavily subsidizes its state-owned enterprises (especially in the coal mining, rail transportation, gas, and communal heating sectors) and has supported debts of many SOEs with sovereign loan guarantees.  SOE access to extensions of tax payment deadlines remains nontransparent, especially where SOEs are directed to sell their products at below-market prices.

SOE senior managers traditionally report directly to the relevant Ministry.  Ukrainian law specifies that ministries are not permitted to interfere with the daily economic activities of an SOE, but numerous anecdotal reports indicate that ministries and vested interests ignore this restriction.  The Cabinet of Ministers has the power to decide on the creation, reorganization, and liquidation of SOEs, and to adopt and enforce SOE charters. It can delegate this authority to relevant ministries supervising the SOE.  The Cabinet of Ministers may also delegate to ministries the permission to create joint ventures with state property and prepare proposals to divide state property between the national and municipal levels. 

Privatization Program 

In March 2018, the government began implementing a new law on the privatization of state property aimed at attracting more investors.  The legislation allows investors to settle disputes under international law, makes it obligatory to employ international advisers for the sale of larger firms, and bans Russian and off-shore companies from participating in the privatization process.  Despite the launch of the new law, the government did not complete a single large-scale privatization in 2018.

On May 3, 2018, the government approved a list of companies designated for sale.  The list contained 26 SOEs, including several regional energy providers, or oblenergos, the Odesa Portside Plant (OPP), and electricity generator Centrenergo.  With the exception of Centrenergo, sales of the remaining SOEs were targeted to proceed under terms of the new law signed in 2018.  Of the 26 companies designated for privatization, the government initiated advisor tenders for six companies in 2018.  Five of these tenders were challenged by competitors believed to be acting on behalf of vested interests.  As of 2019, the five advisor appointments remained stalled.  A lackluster interest and poorly-prepared bidders led to the government’s decision to cancel the sale in late 2018 of the sixth company, Centerenergo, despite a promising start to the process. In 2018, Ukraine’s central budget received only UAH 0.3 billion (USD 11 million) from privatization, comprising only 1.4 percent of the original plan.

The GOU approved a revised list of 21 SOEs designated for privatization on January 16, 2019.  The 2019 list excluded most utility companies due to a government decision to transfer the utilities to a communal ownership structure.  The government also approved a list of smaller-scale SOEs to put up for sale in 2019.  

The State Property Fund (SPC) oversees privatizations in Ukraine.  The rules on privatization apply to foreign and domestic investors and, theoretically, a relatively level playing field exists.  Observers have cited, however, numerous instances in past privatizations where vested interests influenced the process to fit a pre-selected bidder.  Despite these concerns, the government has stated that there would be no revisions of past privatizations. Still, some court cases have surfaced wherein private companies are challenging earlier privatizations.