Transparency of state-owned enterprises

Georgia will continue working towards increasing transparency and accountability of the state-owned enterprises by publishing the necessary information.

Completion Status:
Fulfilled

Commitment filtering:

Specific:yes

Based on the text in the national statement, this commitment is a general statement of intent to increase the transparency and accountability of the state-owned enterprises (SOEs). However, further research shows that this is linked to the 2019-2020 National Anti-Corruption Strategy[1] as well as in the 2018-2019 National OGP Action Plan Commitment 15 “Openness and accountability of state-owned enterprises”. The mechanism the government plans to use to increase public access to information about the SOEs is the development of a unified data collection template and a corporate governance guide based on the best international practice.[2] Therefore, this commitment can be considered specific.

[1] Georgia’s National Anti-Corruption Strategy of 2019-2020, pp. 32-35

[2] Georgia’s National OGP Action Plan of 2018-2019, pp. 25-26, https://www.opengovpartnership.org/wp-content/uploads/2018/12/Georgia_Action-Plan_2018-2019_ENG.doc.

Measurable:yes

The commitment text mentions the general action of “publishing the necessary information” but does not indicate what specific steps need to be taken to carry it out nor what necessary information means. It can be construed by the feedback received from relevant stakeholders and from the OGP action plans that progress in implementation can be measured by:

4a) whether the state agencies regularly publish information about the operation, governance, and finances of the SOEs. The 2018–2019 OGP Action Plan indicates that necessary information that should be published on the website of the National Agency of State Property (nasp.gov.ge) should include the name of enterprise, contact data, information about its establishment, governance, capital, activity, state share in its capital as well as financial standing and outcomes of the enterprise;

4b) the adoption and publication of the data collection template;

4c) and the drafting of the corporate governance guide for the SOEs.



Last updated: 30 December 2021
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Evaluation:

This is a pre-existing commitment the implementation of which was started in 2016 and was on-going when the commitment was made at the 2018 IACC. In the 2018–2019 National OGP Action Plan,1 the government committed to the following:

4a) “the state agencies regularly publish information about the operation, governance, and finances of the SOEs. The 2018–2019 OGP Action Plan indicates that necessary information that should be published on the website of the National Agency of State Property (nasp.gov.ge) should include the name of enterprise, contact data, information about its establishment, governance, capital, activity, state share in its capital as well as financial standing and outcomes of the enterprise.”

In an interview conducted for this report, a representative of the Ministry of Finance noted that the first report published in 2016 about the operation, governance and finances of SOEs was a few pages long report about two or three enterprises only. This was the baseline. However, as of November 2021, the fiscal risk analysis produced annually by the MoF as an annex to the state budget, covers all SOEs operating at the national level as well as municipal SOEs. This document includes data on the profile, financing, dividends, lending, non-financial transfers and debt governance of the SOEs as well as their balance sheets and income statements with details on their assets, equity, liabilities, revenues and expenses. The document also provides sensitivity analysis of financial risks the state faces from several large SOEs over the next five years and the SOE reform concept.2 In addition, the MoF launched a new portal, reportal.ge, which contains financial and management reports from SOEs and private companies operating in Georgia.

4b) “the adoption and publication of the data collection template”

In 2017, the National Agency of State Property (NASP) within the Ministry of Economy and Sustainable Development created a data collection methodology and guidelines3 as well as a standard template consisting of the necessary categories of information that should be provided by the SOEs operating under the NASP management.4 The SOEs under the ownership of other public agencies are also using this methodology. Since 2017, the NASP published the completed annual reports of the SOEs (97 as of November 2021). These reports include key information about the SOEs, such as the name of enterprise, contact data, information about its establishment, governance, capital, activity, state share in its capital as well as financial standing and outcomes of the enterprise.5

The Partnership Fund, a state-owned investment fund with equity of GEL2.5 billion (approximately US$0.75 billion) and with 100 per cent shares in the Georgian Railway and Georgian Oil & Gas Corporation, publishes annual financial and independent audit reports of its subsidiary companies.6 In its audited standalone financial statements, the fund also publishes information about the annual total income from dividends, including the names of subsidiaries and the amount of dividends received from them each year.7 Finally, the asset declarations of SOE directors are published annually on declaration.gov.ge run by the Civil Service Bureau.8

4c) “development of the corporate governance guide for the SOEs.”

In 2021, the MoF published a report about the corporate governance practices observed in the SOEs,9 while in September 2021, the government adopted the corporate governance code including relevant guidelines for the SOEs.10 This code was adopted in the form of a government resolution. It applies to the Georgian SOEs identified by the State Enterprise Reform Council under the government, which is headed by the Minister of Finance. The code is not publicly available. The MoF representative shared it to the author of this assessment. The code covers issues related to the SOEs’ governance structure, staff promotion and remuneration, ethics and conflicts of interest, internal audit and their transparency. The SOEs have to submit reports to the MoF about their compliance with this code and provide justification if they refuse to send such a report.

Overall conclusion: the analysis above shows that the NASP has developed and published a unified reporting template containing the name of the enterprise, contact data, information about its establishment, governance, capital, activity, state share in its capital, financial standing and outcomes of the enterprise. The SOEs under the ownership of the NASP complete this template and publish it on the agency’s web page, nasp.gov.ge, on an annual basis. The corporate governance code was also adopted in the form of a government resolution. Therefore, this commitment can be considered as fully implemented.

 

Challenges to effective commitment implementation
While commending the increased public access to information about SOEs in Georgia, the CSOs interviewed for this report also outlined a few challenges for the monitoring of corruption risks. According to them, a clear challenge is that the SOEs are not covered by the existing FoI legislation, which complicates obtaining information from them and is therefore a major barrier towards ensuring adequate transparency of their work. For instance, the SOEs do not publish the list of staff names and disaggregated data about their administrative costs and staff salaries that keep increasing.

This challenge was also confirmed by the NASP representatives who noted that this is personal data that cannot be made public. By publishing this data, the state would put the SOEs in a disadvantaged position in competition with private enterprises, which keep such data confidential. A related challenge mentioned by the CSOs is that the state has no common vision or criteria for establishing the state enterprise. It can be established in any sector in Georgia while the international standard is not to have the SOEs established in sectors where they would compete with private companies.

Finally, there is no single, publicly available registry containing full information about all SOEs that exist at all levels in the country. The existing reportal.ge platform is not a dedicated platform on SOEs and it does not contain data on all SOEs operating in the country.

 

Opportunities to accelerate commitment implementation
The new corporate governance code, adopted in the form of the government resolution on 8 September 2021, and the amendments to the Law on Entrepreneurs, which entered into force from 1 January 2022,11 provide a good opportunity to increase the transparency and accountability of the SOEs through specific provisions on information disclosure, accountability and integrity that will apply to all state enterprises operating in the country. In the context of providing more information about the SOEs, the NASP is considering an opportunity to publish the list of staff positions within the SOEs without specifying their names.

The corporatisation of the SOEs to transform and restructure them as businesses and to differentiate between the government-owned and the state-owned as well as between the market and the non-market enterprises is another good opportunity to increase the transparency and accountability of the SOEs and their financial sustainability and independence.

Finally, creating a unified online public registry, which would provide comprehensive information about finances and activities of all SOEs operating in Georgia, would be a good opportunity to increase their transparency and accountability.

 

Recommendations

There should be a single, publicly available registry where to find information about all SOEs that exist at all levels in the country, including all municipal SOEs.

Further, the respondents of this research noted that, while publishing financial information about the SOEs, the state agencies should also provide an overview on what they are going to spend their cash flow surplus from the operation of the SOEs on: new acquisitions or reinvestments. Information sharing and coordination on the SOEs between different state agencies should be institutionalised.12

For greater accountability, all SOEs should have a functioning supervisory board involving not only the prime minister and the relevant ministers but also independent members.

At the same time, the state agencies should continue to be attentive to the CSOs’ recommendations to further increase the transparency and accountability of the SOEs and should use the formats of the national anti-corruption and the OGP councils to take relevant commitments in this direction.

Sources:
  1. 30 Dec 2021
  2. 30 Dec 2021
  3. The NASP, Data Collection Methodology and Guidelines, https://drive.google.com/file/d/162uxt35xizaL83-clbxfFdq3orijNOPN/view
    30 Dec 2021
  4. 30 Dec 2021
  5. 30 Dec 2021
  6. Partnership Fund, Financial Audit Reports, https://www.fund.ge/site/view/12
    30 Dec 2021
  7. Partnership Fund, Separate Financial Statements for the year ended 31 December 2020, p. 15, https://fund.ge/upload/media/PF_%20SeparateFS2020_ENG.pdf
    30 Dec 2021
  8. Civil Service Bureau, https://declaration.gov.ge/
    30 Dec 2021
  9. Ministry of Finance, Report on Corporate Management Practices of State Enterprises in Georgia, August 2021, https://mof.ge/images/File/publications/2021/03-09-2021/SOE%20Corporate%20Governance%20Report_August%2031.pdf
    30 Dec 2021
  10. The Government of Georgia, Resolution #1618,
    8 Sep 2021
  11. 30 Dec 2021
  12. Interview with the senior consultant in public financial management at Policy and Management Consulting Group
    4 Nove 2021

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