Goal of Good Governance in State-Owned Enterprises 

1.1 Motivation for State-Owned Companies

Motivations for state property may increase or decrease over time, but state-owned companies appear to be a sustainable feature of the economic environment and will remain an influential force on economies for at least a few years from now. This is especially true in the current context when the crisis related to the Covid-19 pandemic has again highlighted the demand from the society for the Government’s intervention role in the economy. Therefore, state-owned companies remain an important element in the range of tools of any Government for creating societal and public value. At the same time, the experience over time has shown that they can both serve as means of correcting market failures, but can themselves become a source of governmental failures, given poor administration or inappropriate presence in certain sectors, which slows down free competition. Based on this context, the governance mechanism of state-owned companies should start from the state's motivations to own companies. Based on the realities of the Republic of Moldova, the following actions are recommended in this chapter:

• Establish the objectives and functions of state property, as well as the good governance principles in the legal framework, by Parliament’s vote. Though the Law on Administration and Denationalization of Public Property  states the objectives of public property administration: i) harmonize the public property proportions and structure and the administration mode, ii) attract investments in the public sector, iii) ensure efficient management; iv) develop the competition, they have a general character. At the same time, the law does not state the objectives and functions of ownership or governance principles related to state-owned companies. 

• Formulate an adequate justification for state property. International good practices recommend that state property policy should take the form of a concise, high-level policy document outlining the general reasons for state-owned companies. It can be considered a good practice to include in the state property policy some objectives such as: creating value, providing public services or strategic objectives such as maintaining certain industries that are nationally owned. The role of the state is to decide on rationale for state property, but whatever they are, they should be clearly communicated to the public and all stakeholders, including the executive, that exercise property rights or are involved in the implementation of property policy. Currently, the law on the administration and denationalization of public property contains an annex listing the enterprises that may not be subject to privatization, which in fact means entities of strategic importance to the state. Though this list may be amended only by the Parliament, which is an element of state property protection, there is neither a clear vision or algorithm of why these companies are included, nor clearly stated grounds for reviewing the list. In the same context, the other state-owned companies may be included at the discretion of the Government in another list  of companies that may be subject to privatization. However, as in the case of companies not subject to privatization, changes to this list are not made always in a clear and understandable manner and for the broad public, for the same reasons of the lack of a systemic approach regarding the justification of state ownership.

• Review periodically the public property, by the Government, which should be part of political accountability procedures and should be disclosed to the general public. The property justification policy should be reviewed periodically (for example, each year). This policy must be made public (subject to specific omissions to protect the confidentiality of commercially sensitive information, if such information is included). The property justification policy will be an important document, for which the Government will be politically responsible, both before other state institutions and citizens. The Government will thus be motivated to ensure that the objectives set out in the property policy are achieved.

• Define, by the property entity (PPA), the reasons for holding individual state-owned companies and subject them to a recurring review. Any public policy objectives assigned to state-owned companies should be clearly mandated and disclosed by the competent authorities. For each of the subordinated/coordinated state-owned companies, the property entity should clarify the motivations for owning the enterprises/stocks of shares, in order to clarify their objectives regarding these enterprises: commercial and profitability objectives, objectives for the provision of universal services under the operation of regulated monopolies, or objectives for the implementation of public policies. 

As a long-term motivation for holding stakes in public enterprises, the Government should set targets for public enterprises to focus on research, development and innovation, as well as on the development of human capital, so that they can ensure their competitiveness, profitability and long-term value generation. The property entity (PPA), depending on the specifics and operational-financial situation of each public enterprise, will pursue these motivations in setting specific expectations from each public enterprise.

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