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7. State-Owned Enterprises

Most of Armenia’s state owned enterprises (SOEs) were privatized in the 1990s and early 2000s; yet SOEs are still active in geodesy/cartography and the energy sector. SOEs in Armenia operate as state-owned closed joint stock companies that are managed by the Department of State Property of the Armenian Government and state non-commercial organizations (schools, universities, forest enterprises). 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 (GPA) and SOEs are covered under that agreement. SOEs in Armenia are subjected 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 at: (

Armenian state owned enterprises adhere to the OECD Guidelines on Corporate Governance for SOEs. The enterprises owned by the state are providing public services, like geodesy or nuclear power generation, and hence do not impact the competitive environment in the country.

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 a fair tender processes.

The Department of State Property Management publishes the announcements on tenders and auctions on its web-page. In the past, there have been reports that the process of privatization tenders and auctions is not always competitive and transparent enough.


7. State-Owned Enterprises

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.

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 such 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 and sovereign wealth funds 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 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: . Foreign investors are welcome to participate in privatization programs. Information on investment conditions and opportunities can be obtained from the Georgia National Investment and Export Promotion Agency. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at: .

Kyrgyz Republic

7. State-Owned Enterprises

There are approximately 166 SOEs in the Kyrgyz Republic that play a significant role in the local economy. The State Property Management Fund of the Kyrgyz Republic ( ) is the public executive authority representing the interests of the state as the owner of the state property. The purpose of the Fund is to ensure the efficiency of the use, management, and privatization of state property. The list of the largest SOEs and the responsible ministry is available online, but not comprehensive. Information on allocations to and earnings from SOEs is included in budget execution reports and is published (in Russian) on the Kyrgyz Treasury’s website. Information on assets, earnings, profitability, working capital, and other financial indicators is available on the State Property Management Fund’s website ( ). The State Property Management Fund also reviews the budgets for the largest SOEs, while the Accounting Chamber reviews the accounts of all SOEs and publishes audit reports on their website ( Within the framework of the Kyrgyz Republic current three-year extended credit facility (ECF) program with the IMF, the State Property Management Fund is required annually to submit the balance sheets of the ten largest SOEs to the Fund.

The State Property Management Fund executes corporate governance of SOEs and appoints members of the SOE boards of directors. The board, in return, appoints an executive director. In 2015, the Government adopted “Concepts of reforming the system of state property management” intended to ensure the integrity, proper development, and administration of SOEs. As a result of these Concepts, in 2017 the Government decided to liquidate non-operating SOEs.

While the Heritage Foundation’s 2017 Index of Economic Freedom report did not specifically address SOEs, previous analyses identified cronyism and corruption within SOEs as a major obstacle to the Kyrgyz Republic’s economic development. In many cases, the Foundation noted, elected officials appoint company board members based on political loyalty rather than professional skills and corporate governance knowledge. Positions on boards of directors are frequently used as rewards for political support, and the dynamic has reinforced the patronage system and resulted in poor economic performance and public service delivery. The Foundation also assessed that rule of law remains weak and the state lacks the capacity to enforce contracts and sufficiently protect property rights. Broadly, the country does not fully adhere to the OECD Guidelines on Corporate Governance of SOEs.

The government tries to practice an open and transparent policy when it comes to contracts and biddings. However, due to widespread corruption, there are common complaints that only individual government officials have access to government contracts and bidding processes. SOEs purchase goods and services from the private firms and usually place the calls for bids either on their websites or in public newspapers, as required. Private enterprises have the same access to financing as SOEs and are subject to the same tax burden. In some cases, SOEs have preferential access to land and raw materials. However, transparency initiatives attempt to hold the government accountable in such proceedings.

Privatization Program

The Kyrgyz government periodically auctions rights to subsoil usage and broadcasts tender announcements, including disseminating information to diplomatic missions, in order to attract foreign investors. There are no restrictions on foreign investors participating in privatization programs. The privatization process is not well defined and is subject to change. There is ongoing deliberation on the privatization of other state-owned assets, such as the postal service and the capital’s international airport, but lack of interest by private partners has stalled any potential moves.

In 2015, the Kyrgyz government privatized AlfaCom (operating as MegaCom), the country’s largest mobile telecommunications company. In February 2017, the leader of Parliament’s leading opposition faction was arrested and charged with corruption on allegations he received a bribe from a Russian businessman in connection with the sale of a MegaCom stake in 2010. After years of delays, the Kyrgyz government announced it would auction its 100 percent stake in MegaCom in July 2017; to date, the Kyrgyz government has been unable to divest itself of the telecommunications firm.

Foreign investors – both companies and individuals – are generally able to participate in public auctions of state owned properties unless specifically prohibited in the terms and conditions. There are, however, some land legislation restrictions concerning the property rights of foreigners. Information about terms and conditions of SOE sales are posted on the State Property Management Fund’s website (


7. State-Owned Enterprises

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 controls fully or partially some enterprises. The major government-owned enterprises are two northern electrical distribution companies, the Chisinau heating companies, fixed-line telephone operator Moldtelecom, state airline Air Moldova, 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 of the Public Property Agency: .

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 SOEs 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 SOEs, 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 SOEs having an advantage over privately-run businesses in Moldova. Either from government representatives sitting on their boards or from their dominant positions in their industry, SOEs are generally seen as being better positioned to influence decision-makers than their private sector competitors, and use 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 2017, the government held three big rounds of privatization for state assets selling its stake in 16 companies, including the Glass Container Company and Floare Carpet.

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 ( ) and in the official journal Monitorul Oficial. Some investors complained in the past that privatizations are unfair and lack transparency.


7. State-Owned Enterprises

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: ) 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. Indeed, both foreign and domestic private investors believe the current GOM 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 GOM has also created several dozen SOEs over the same period.

In 2010 Mongolia passed and implemented the Law of Mongolia on Competition applying to private enterprises and SOEs alike. Prior to passage, competition between state-owned and private businesses had been declining for the simple reason that many SOEs had been privatized. Currently, firms from Mongolia, China, Japan, Europe, Canada, and the United States have sought opportunities for renewable and traditional power generation, a sector still dominated by state-owned coal-fired power plants and a state-owned transmission grid. However, few want to invest in the power generation field until the regulatory and statutory framework for private power generation firms up and tariffs reflect commercial best practices and true cost recovery.

The 2006 Minerals Law of Mongolia (amended in 2014) and the 2009 Nuclear Energy Law grant the GOM 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. Once acquired, these assets are vested with Erdenes Mongol, the state-owned entity for mining assets. Mongolia requires Erdenes Mongol to use its profits to “benefit the Mongolian people.”

The role of the state as an equity owner in management of revenues and operation of mines remains unclear. Investors question the GOM’s capacity to deal with conflicts of interest arising from its position as both regulator and owner-operator. Specifically, they worry that the GOM’s desire to maximize local procurement, employment, and revenues may compromise the long-term commercial viability of mining projects. Investors also question the GOM’s capacity to execute its fiduciary responsibilities as both owner and operator of mines. Observers are concerned that the GOM 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 GOM has exempted Erdenes Tavan Tolgoi (ETT) mining operations from regulatory requirements imposed on other operations. Preferential treatment for SOEs creates the appearance that the GOM has one standard for its SOEs and another for foreign-invested and private domestic invested companies; and 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 World Trade Organization Procurement Agreement, although it has expressed a desire to join.

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: ). In reality, government officials note that management and board of director operations and appointments are subject to political interference to an almost crippling extent. In support of developing a professional management, the Asian Development Bank is funding a USD 35 million corporate governance strengthening project for Erdenes Mongol, an SOE holding key copper and coal mining assets.

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 GOM routinely floats the possibility of privatizing through sales of shares or equity in the Mongolian Stock Exchange (MSE), 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 MSE. While stating it welcomes foreign participation in privatization efforts, the GOM has not clarified a tendering process for the privatization of state assets not to be sold via the MSE. 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.


7. State-Owned Enterprises

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 their actions are not governed or reviewed by any internal control procedures. Tajik SOEs do not adhere to the OECD Guidelines on Corporate Governance for SOEs. Third party market analysts regard SOEs as closely connected to the Tajik government. 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 State Committee for Investments and State-Owned 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 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 Company (TALCO), and AluminSohtMon (TALCO subsidiary);
  • Agricultural, Construction, Building & Heavy Equipment: Tajik Cement; Food Processing & Packaging: Konservniy Combinat Isfara;
  • Services: Dushanbe Water and Sewer, Vodokanal Khujand, and ZhKX (water utility);
  • Finance: AmonatBonk (savings bank), TajikSarmoyaguzor (insurance), TajikSugurta (insurance);
  • Information and Communication: Tajik Telecom, Tajik Post, and TeleRadioCom.

In sectors that are open to both the 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, Tajik SOEs are not covered under the GPA.

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 domestic law makes SOEs subject to the same tax burden and tax rebate policies as their private sector competitors, but the Tajik government regularly writes off SOE tax debts via administrative orders or decrees. SOEs are afforded material advantages, including preferential access to land and raw materials that are not granted to private enterprises.

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 privatizations historically have been non-transparent. Privatized properties have been subject to re-nationalization, often on the grounds that the original privatization process was conducted illegally.


7. State-Owned Enterprises

The Government of Ukraine operates 1,833 SOEs out of 3,350 registered SOEs, with an economic output of approximately 10 percent of GDP. SOEs, which are defined as companies in which the state owns at least 50 percent +1 share, employ 900,000 people. SOEs are active in areas such as energy, machine-building, and infrastructure. There is no common public list of all SOEs in Ukraine. Each Ministry publishes a list of SOEs under its management.

The corporate governance law, which entered into force in 2016, requires SOEs to publicize their annual financial reports on their official websites, including information on financial indicators, officials, transactions, etc. SOEs must also publish their annual financial statements and audits.

The majority of SOEs rely on government subsidies to function and cannot directly compete with private firms. Most of the SOEs capable of making a profit have already been privatized, leaving mainly inefficient firms in government hands. The Government of Ukraine heavily subsidized its SOEs (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 anecdotal reports indicate that this restriction is often ignored. Ministries have the power to decide on the creation, reorganization, and liquidation of SOEs; adopt and enforce SOE charters; conclude and cancel contracts with SOE executives; grant permission to the State Property Fund to create joint ventures with state property; and prepare proposals to divide state property between the national and municipal levels. Amendments from 2015 to the Law on Joint-Stock Companies enabled owners of 50 percent +1 share in a company to call shareholder meetings.

Privatization Program

On March 7, 2018 a new law on privatization of state property, aimed at attracting more investors, came into force in Ukraine. The legislation allows investors to settle disputes under international law, makes it obligatory to employ international advisers for the sale of larger firms, and also bans Russian and offshore companies from participating in privatizations.

In addition to the sale of large SOEs, Ukraine plans to privatize about 600 small SOEs in 2018. Assets assessed at less than USD 10 million—generally real estate and small businesses—will be sold at electronic auction, using the ProZorro Sales platform.

The State Property Fund oversees privatizations. Privatization rules generally apply to both foreign and domestic investors and, on paper, a relatively level playing field exists. Observers note numerous instances of past privatizations adjusted to fit a pre-selected bidder. The government has stated that there will be no revisions of past privatizations. Still, some court cases have surfaced wherein private companies are challenging earlier privatizations. In 2017 the budget received approximately USD 125 million from privatizations, which was 20 percent of the original plan, but still the best result in recent years.

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