Openness and Accountability of State-Owned Enterprises (GE0080)

Commitment 15: Openness and accountability of state-owned enterprises

An important direction of the LEPL – National Agency of State Property (NASP) represents the management/disposal of state-owned enterprises (SOEs). The major objective of management of enterprises by the State is the effective implementation of the functions important for the State. Also, the State tries to develop business rather than act as its competitor. The NASP continues the policy of minimization in relation to state-owned enterrpises.

Such enterprises provoke a special public interest. Studies published by different organizations speak on lack of transparency of SOEs and on the necessity of introducing information accessibility standards therein. In this respect, of importance is the existence of information concerning the enterprises with 100% state sharing under the management of the NASP. At that, the enterprises were committed to proactively publish reports, including both the financial and conceptual parts.

For the purpose of increasing accountability and corporate responsibility of enterprises, it is important that the Agency would develop a corporate management guide, which will define the general enterprise management principles and directions. It is important that the Agency-developed guide would be based on the best relevant international practice.

Commitment 15: Openness and accountability of state-owned enterprises
Lead Agency LEPL – National Agency of State Property (NASP); Ministry of Economy and Sustainable Development of Georgia
Other Involved Actors Public Agency
Civil Society/ Private Sector /International organization Institute for Development of Freedom of Information (IDFI); Georgian Young Lawyers Association (GYLA)
Issues to be Addressed Studies published by different organizations speak on lack of transparency of SOEs and on the low quality of information accessibility standards. The SOEs provoke a special public interest; therefore, it is important that the stand ard of openness and accountability be improved.
Main Objective Increasing transparency of The SOEs activity and establishment of a unified corporate management standard.

OGP Principles Transparency Accountability Civil Participation Technology and Innovation
 
Milestones to Fulfill the Commitment New or ongoing commitment Start date End date
Development by the Agency for state-owned enterprises of a unified template containing the name of enterprise, contact data, information about its establishment, management, capital, activity, state share in its capital; at that, the template shall also indicate the financial standing and outcomes of the enterprise. Information shall be published on the Agency’s web-page nasp.gov.ge June 2018 October 2018
Drafting a state-owned enterprises corporate management guide September 2018 December 2019
Indicator Information about the state-owned enterprises under the unified template has been published on the Agency’s web-page; the corporate management guide for state-owned enterprises has been drfated.
Risks and Assumptions Enterprises failure to specify and audit annual financial plan and/or submit it on time. The project development/approval depends on the passing oth e Law on Entrepreneurs; accordingly, delayed passing of the Law will interfere with the guide drafting.

Commitment 15: Openness and Accountability of State-Owned Enterprises

Language of the commitment as it appears in the action plan:

“An important direction of the LEPL — National Agency of State Property (NASP) represents the management/disposal of state-owned enterprises (SOEs). The major objective of management of enterprises by the State is the effective implementation of the functions important for the State. Also, the State tries to develop business rather than act as its competitor. The NASP continues the policy of minimization in relation to state-owned enterprises.

Such enterprises provoke a special public interest. Studies published by different organizations speak on lack of transparency of SOEs and on the necessity of introducing information accessibility standards therein. In this respect, of importance is the existence of information concerning the enterprises with 100% state sharing under the management of the NASP. At that, the enterprises were committed to proactively publish reports, including both the financial and conceptual parts.

For the purpose of increasing accountability and corporate responsibility of enterprises, it is important that the Agency would develop a corporate management guide, which will define the general enterprise management principles and directions. It is important that the Agency-developed guide would be based on the best relevant international practice”

Milestones: 

1. Development by the Agency for state-owned enterprises of a unified template containing the name of enterprise, contact data, information about its establishment, management, capital, activity, state share in its capital; at that, the template shall also indicate the financial standing and outcomes of the enterprise. Information shall be published on the Agency’s web-page nasp.gov.ge
2. Drafting a state-owned enterprises corporate management guide 

Start Date: June 2018

End Date: December 2019

Editorial note: For the full text of this commitment, please see https://www.opengovpartnership.org/documents/georgia-action-plan-2018-2019/.

Context and Objectives

This commitment aims to address the current lack of transparency related to state-owned enterprises (SOEs) in Georgia. Important information on SOEs—such as annual financial reports, audit reports, administrative expenses, procurement, management policies, and number of employees—is not available publicly. Moreover, according to civil society research from 2015, [78] Georgia lacks specific regulations for minimum transparency standards for SOEs in Georgia. Most SOEs either do not have a webpage or the information published is limited and outdated. SOEs operate under the general management of LEPL.

The National Agency of State Property (NASP) provides information limited to SOE titles, identification codes, fields of operation, equity shares, addresses, and director names. The 2019 updated list on the NASP webpage counts 92 SOEs, [79] while only 28 provide contact information for the person responsible.

According to Transparency International (TI) Georgia, the lack of transparency around SOEs poses challenges in fighting corruption. For example, the procedures for appointing SOE directors or board members are not transparent, and the legislation does not regulate the criteria or the legitimate goals for the establishment of SOEs. This absence of standards entails high risks of conflicts of interest, nepotism, and corruption, as well as decisions being motivated by personal and/or political interests. According to TI–Georgia, anti-corruption mechanisms must be strengthened through the introduction of transparency, accountability, and integrity standards for SOEs. [80] They suggest the introduction of mechanisms for proactive disclosure of various types of information and the extension of freedom of information standards to SOEs. [81] 

NASP aims to enhance transparency of SOEs (i.e., those established with 100 percent state contribution) by first creating a standard template with basic information about the enterprise. Such information would include data on the director, capital, projects, and more. NASP would publish this data on nasp.gov.ge. Secondly, NASP would draft a corporate management guide for such enterprises. Accordingly, this commitment is relevant to the OGP value of access to information. The main activities (the standards, SOE information, and corporate management guide) are verifiable.

If fully implemented as written, this commitment could represent a minor but important preliminary step toward improving transparency of SOEs. Namely, the introduction of unified standards could trigger disclosure of more detailed information that is currently not publicly available, such as administrative expenses, number of employees, and financial and audit reports. The commitment could also encourage more SOEs to publish information proactively.

According to stakeholders, this initiative is an important first step, as SOEs are perceived to be the “nest” for nepotism and corruption in Georgia. [82] However, this commitment is limited in scope, due to its encouraging nature. That is, it does not mandate disclosure of information that would be institutionalized by specific transparency and accountability legal norms. In addition, the commitment is limited in scale. It focuses only on 100 percent state sharing, which represents only 53 of 98 SOEs (54 percent). The state holds the control stock in 73 percent of SOEs. Thus, the commitment leaves out 19 percent of the enterprises with control stock owned by the state. [83]

Next steps

The IRM researcher recommends carrying this commitment forward to the next action plan, provided that disclosure of detailed and up-to-date information is institutionalized through relevant legal norms and will extend to all state-owned enterprises (SOEs). Furthermore, a future commitment could clarify if SOEs’ own procurement tenders will be made available.

[78] Institute for Development of Freedom of Information and Georgian Young Lawyers’ Association, Management Transparency and Accountability of State-Owned Enterprises in Georgia, 2016, https://bit.ly/2YTzcVk.

[79] National Agency of State Property, “List of State-Owned Enterprises,” https://bit.ly/30xTOTK.

[80] Ilia State University, Study: State-Owned Enterprises in Georgia, 2018, https://bit.ly/2NSmVj2.

[81] Transparency International–Georgia, State-Owned Enterprises in Georgia: Transparency, Accountability and Prevention of Corruption, 2016, https://bit.ly/2Y4rF95.

[82] IRM researcher’s focus group discussion with experts, researchers, and master’s students of public administration, 18 June 2019.

[83] National Agency of State Property, “List of State-Owned Enterprises,” https://bit.ly/30xTOTK.

15. Openness and accountability of state-owned enterprises

Theme V: Increasing Corporate Accountability

Limited

The National Agency of State Property (NASP) developed a data collection methodology and a standard template [60] consisting of detailed information for the 100 percent state-owned enterprises (SOEs), available on nasp.gov.ge. While the updated list of SOEs is available online, [61] detailed information of SOEs is only available for 2017 [62] and 2018. [63] According to NASP, the updated information will be available along with the updated website tentatively in 2021. [64]

While NASP started developing the corporate management guide, it was not finalized within the action plan timeframe. [65]