Changes in public property management: towards efficiency, accountability, and profitability

Several analytical studies have examined corruption risks in state-owned enterprises. Reform of the state-owned companies has become necessary, especially in the context of the Republic of Moldova’s European aspirations.

The European standards governing this area, such as the G20/OCDE  Principles of Corporate Governance (OECD – Organisation for Economic Co-operation and Development), offer a clear path to improved management of state entities. By these principles, state entities’ administration and supervision roles must be allocated transparently and without duplication. State property rights must be identified and preferably centralized in a single entity. At present, the analysis of the regulatory framework of the Republic of Moldova on transparency of state entities shows that it is mainly in line with good practices, as set out in the OECD Guidelines on Corporate Governance, although there are some gaps. Adhering to these standards can significantly benefit the management of state-owned enterprises in the Republic of Moldova.

Successful implementation of the reform and improvement of public property management and privatization requires the promotion of a holistic approach and manifestation of clear political will on the part of the Government involving all stakeholders: state-owned institutions and companies, civil society, development partners, academia, etc. We can increase accountability, transparency, and performance in public property management and privatization through joint efforts and interventions.

Being aware of this pressing need, Soros Foundation Moldova and the Independent Analytical Centre „Expert-Grup” have joined their efforts to support the development of good practices in corporate governance for state-owned enterprises in our country through activities to develop policies, mechanisms, and tools to ensure transparency and effective management of state property.

Introduction

Starting in 2020, Soros Foundation Moldova and Expert-Grup are the only organizations in the Republic of Moldova that provide complex assistance and expertise for implementing public property management and privatization reform.

Improving the administration and privatization of public property plays a crucial role in developing an open society by creating a more transparent, competitive, and innovative economic environment. Efficient public property management ensures optimal resource use and reduces waste, contributing to sustainable economic growth. Implementing corporate governance practices, transparency, and accountability could increase public trust in state institutions.

Privatization, which means the transfer of public ownership to the private sector, has the potential to stimulate competition and attract foreign investment. This can lead to the creation of jobs and the development of infrastructure, helping to improve the living standards of the population. In an open society, private property is protected, and private enterprises are encouraged to innovate and compete freely in the market. This generates diversity and continuous improvement of products and services, enhancing consumer benefits.

Moreover, a transparent privatization process can prevent corruption and favor narrow interest groups, promoting equity and social justice. Essentially, improving the administration and privatization of public property contributes to the consolidation of the market economy based on democratic principles and supports the development of an open society where the rights and freedoms of citizens are respected and protected.

The reform of state-owned companies is one of the commitments of the Government of the Republic of Moldova in its relations with the International Monetary Fund. Within the program supported by the Extended Credit Facility (ECF)  and the Extended Fund Facility (EFF), one of the conditionalities related to strengthening governance in the field of state-owned enterprises is the fulfillment of the structural performance criteria set for December 31, 2023, aimed at improving tax administration and completing the triage of state-owned enterprises. In this context, we will highlight the elaboration with the assistance of Expert-Grup and the Foundation and the adoption of Government Decision no.819/2023 on approving the triage mechanism for state enterprises and joint-stock companies with state capital.

According to this act, the mechanism for the triage (categorization) of state-owned enterprises and commercial companies with state capital establishes unique, well-justified and transparent approaches to ensure a rigorous substantiation of the triage process of state-owned enterprises and commercial companies with state capital per the provisions of  Law no.121/2007 on administration and privatization of public property, as of Strategy on public property administration for state enterprises and joint-stock companies with state capital for 2023-2030, approved by Government Decision no.911/2022.

According to the Government Decision No. 819/2023, the triage of enterprises involves placing them in one of the following major categories:

1. Enterprises not liable to privatization;
2. Enterprises recommended for reorganization into another legal form of organization;
3. Enterprises liable to privatization after reorganization/restructuring;
4. Enterprises recommended for immediate privatization;
5. Enterprises recommended for liquidation.

In the triage process of enterprises, the Public Property Agency has the following duties:

1. to draw up the set of documents necessary for the enterprise triage process;

2. to facilitate obtaining the data and information necessary for the triage process from state companies;

3. to establish the Enterprise Triage Commission;

4. to coordinate the activity of the Enterprise Triage Commission;

5. to present to the members of the Commission the data necessary for the triage process of the enterprises, including the set of documents for each separate enterprise, the data on the economic and financial situation of the enterprises;

6. to draw up the drafts of legal acts based on the classification of enterprises according to the categories and criteria established in this mechanism.

Chapter 20, “Industrial and Entrepreneurial Policy” of the Government Decision no.829/2023 on approving the National action plan for the accession of the Republic of Moldova to the EU for 2024-2027  and the Action Plan for deoligarchization specifies the actions proposed for be implemented in 2024:

• Draft a government decision on the approval of the program on public property management for 2024-2027 to implement the strategy on state property management in state-owned enterprises and commercial companies with the entire or majority state capital for the years 2023-2030.
• Draft a law improving the legal framework of public property management and privatization by including provisions on the non-admission of corrupt and fraudulent companies or individuals into the privatization/alienation/capitalization processes.

At the same time, from the perspective of European integration, in the Report on the enlargement package for 2023 for the Republic of Moldova, published in November 2023, Chapter 20 states that our country should “accelerate the implementation of the Strategy on Management of State Property, State-owned Enterprises, and State-owned Entities and delimit the role of the Ministry of Economic Development and Digitalization in regulatory and policy-making functions, as well as the role of the Public Property Agency in exercising corporate governance functions in state-owned enterprises.” Therefore, the reforms related to improving public property management in the Republic of Moldova will be based on implementing the strategies above and strengthening the institutional framework in this field.

Progress in public property management and privatization

To rethink and resize the role of the state in the economy, as well as to streamline and make transparent management in state-owned companies and public property management, during 2022-2024, Soros Foundation Moldova and Expert-Grup have carried out several activities and made significant progress described below.

First, we will highlight the assistance provided to state authorities in developing public policies in line with EU best practices and OECD principles, namely the Strategy on public property administration for state enterprises and joint-stock companies with state capital for 2023-2030 and the draft Government Decision on approving the Program on public property administration for 2024-2027.

Also, at the authorities’ request, Expert-Grup, with the financial assistance of the Soros Foundation Moldova, has provided consultancy on the elaboration of the triage mechanism of state-owned companies, the Model Code of corporate governance of state/municipal enterprises, the Regulation on the selection of candidates for the position of member of the board of state-owned companies, etc.

On October 5, 2023, Expert-Grup organized the Round Table: Reform of State Companies and Public Property Agency. Adrian Lupusor and Vitalie Rapcea presented the conclusions and proposals on advancing the reforms in state-owned companies. Following this event, we published the functional analysis of the Public Property Agency, which we hope will be the basis for the reorganization and reform of the institution planned by the government for 2024.

The Functional Analysis, a comprehensive document, examines the existing organizational structure and comes with over 20 recommendations for its improvement to streamline the agency`s activity in the context of public administration reform. Following the implementation of the recommendations of this analysis, we want to have, in the end, a depoliticized, transparent, and accountable institution able to cope with all the functional requirements put forward for an impeccable implementation of state policy in the field of public property management and privatization.

In 2023, the Expert-Grup team prepared the mandates for seven state-owned companies from (SE “Posta Moldovei,” „Moldtelecom” JSC, „Termoelectrica” JSC, „Energocom” JSC, SE „Chisinau International Aiport,” Wine Factory ”Cricova” JSC, Quality Wines Factory ”Milestii Mici” JSC ), which are in the process of validation by the Public Property Agency. The mandate is developed by the provisions of the Strategy on public property administration for state enterprises and joint-stock companies with state capital for 2023-2030. This is a working document that specifies the performance expected from the governing bodies of the state-owned company and formulates the desiderates of the Public Property Agency, as founder, regarding the results and development of the enterprise over the next four years.

As of January 2024, at the request of the Ministry of Energy, Expert-Grup, with the assistance of Soros Foundation Moldova, offers expertise for the development and implementation of a Corporate Governance Programme for seven state-owned enterprises in the energy sector (SE „Moldelectrica,” „CET-Nord” JSC, SE „Nodul Hidroenergetic Costesti”, „FEE-Nord” JSC, „RED-Nord” JSC, „Termoelectrica” JSC, „Energocom” JSC ). The expert-Grup team has organized meetings with all envisaged companies. The set of documents for each enterprise is currently being completed: Corporate Governance Code; Regulation of Board of Directors Activity; Regulation of the Executive Body Activity; Regulation of the Audit Committee Activity, etc. In June-July 2024, information sessions for all seven enterprises on the practical application and implementation of the developed documents are planned.

To increase the transparency of state property management and privatization, within the partnership between the Soros Foundation Moldova and Expert-Grup, we supported the development of a new website for the Public Property Agency, launched in April 2024. The Agency’s new website has advanced functionalities and an intuitive interface, facilitating access to essential information and administrative processes, thus improving communication and interaction with citizens and businesses. This website reiterates the commitment of state authorities and international partners to promote accountability and good governance in the management of public resources.

Taking into account the results of the training organized in 2022 by Expert-Grup for the members of the Boards of Directors and Executive Bodies of several state-owned companies (JSC RED Nord, JSC Moldova Gaz, JSC Termoelectrica, JSC Energocom, JSC Franzeluța, JSC Metal Feros, SE Poșta Moldovei), our team has established a dedicated online platform with five training modules which was successfully integrated into the new website of the Public Property Agency. The online training platform is designed for people interested in acquiring new knowledge and skills in the field of good corporate governance of state-owned companies. The training will contribute to increasing the level of professionalism of the members of the boards of state-owned companies so that they can carry out their duties efficiently, judiciously, and responsibly.

Considering the efforts to digitize the public sector, Expert-Grup, jointly with PwC Romania, has offered a professional consultancy to the state authorities in developing the .” This ambitious and essential information system aims to automate all processes and digitize public property management and privatization documents. The new information system will be integrated into the Agency`s new website to facilitate the institution’s transparency by automatically publishing, in real-time, on https://app.gov.md/ the data related to the management, privatization, and capitalization of public patrimony.

In 2023, with the Expert-Grup assistance, the complete mapping of the registers was carried out, based on which the Roadmap for the digitization of the Public Property Agency was developed.  Based on the Terms of Reference, the tender for selecting a legal entity or association of legal entities that will create the Information System “Registry of Public Patrimony and Administration of Public Property” will be launched soon.

Also, in 2024, Expert-Grup will organize several study visits to EU countries for the Public Property Agency team to exchange experience and assimilate new knowledge.  These visits also aim to promote the initiative to attract the diaspora to the Boards of state companies, with the subsequent creation of a database of potential candidates from the diaspora, this being a commitment of the Government to include independent members to ensure the transparency and impartiality of the boards’ activity.

Challenges and constraints in public property management and privatization  

Among the main challenges and constraints that need to be overcome by the authorities to accelerate the process of reforming the state-owned companies’ sector and improving the management and privatization of public property, we will point out:

1. Adoption of the draft Government Decision on approving the Program on public property administration for 2024-2027 and taking a firm decision to implement it.
2. Reforming the Public Property Agency in line with the recommendations of the Functional Analysis, presented in October 2023.
3. Improving corporate governance of state-owned companies by:
   • professionalization of the Boards of Directors through training, attracting independent members, and ensuring remuneration of management and supervisory bodies comparable to that applied in the private sector;
   • an end to the practice of interim and the practice of political appointment of interim directors brought in from outside who do not demonstrate the minimum competencies required;
   • providing interim managers in state-owned companies through the deputy directors of the enterprises concerned;
   • approval and implementation of corporate governance tools, such as Corporate Governance Code; Regulations on the activity of the Board of Directors, Censor`s Committee, Audit Committee, and Executive Body; Remuneration policy for members of governing bodies; mandates of state-owned companies; transition to management contracts with the executive body of state-owned companies, etc.;
   • operationalizing specialized permanent and ad hoc committees as the main pillars supporting the activity of the Board of state-owned companies.
4. Increasing the accountability of all actors involved in public property management and privatization by:
   • compliance with the legal provisions related to the annual public Reporting of the Government to Parliament on public property management and privatization;
   • periodical publication, without delays, of the Annual monitoring report of the Government on the implementation of the Strategy on state property management in state-owned enterprises and commercial companies with entire or majority state capital for the years 2023-2030;
   • systematic publication of the Annual Report of the Public Property Agency on the performance of the functions of management, capitalization, and privatization of public property;
   • publication by the management and control bodies of state-owned companies of the Annual Activity Reports and those implementing the Corporate Governance Code.
5. Update information on the Agency of Public Property’s official website to ensure transparency in public property’s record-keeping, management, capitalization, and privatization.
6. Complete public property’s primary registration and delimitation and ensure its irreproachable record.
7. Ensuring a high valuation of public land owned by the state.

In conclusion, Soros Foundation Moldova and Expert-Grup commit to continue providing assistance and expertise to support the Government of the Republic of Moldova’s vision in the field of public property management and privatization: transforming the state into an efficient and responsible owner that does not compete with the private sector and manages public property with maximum diligence and profitability.