Ownership and Governance of State-Owned Enterprises A Compendium of National Practices Please cite this publication as: OECD (2018), Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. © OECD 2018 FOREWORD State-owned enterprises (SOEs) are an important element of most economies, including many more advanced economies. SOEs are most prevalent in strategic sectors such as energy, minerals, infrastructure, other utilities and, in some countries, financial services. The presence of SOEs in the global economy has grown strongly in recent years. Today they account for over a fifth of the world's largest enterprises as opposed to ten years ago where only one or two SOEs could be found at the top of the league table. This means that high standards of corporate governance of SOEs are critical to ensure financial stability and sustain global growth. The OECD Working Party on State Ownership and Privatisation Practices is the only international forum for government officials charged with the oversight of state-owned enterprises. The Working Party is responsible for the implementation of the OECD Guidelines on Corporate Governance of State-Owned Enterprises (the “SOE Guidelines”). This Compendium of National Practices was developed with a view to facilitating greater awareness and more effective implementation of the SOE Guidelines. It provides a comprehensive overview of the state of SOE ownership and corporate governance in both OECD and partner countries. The Compendium serves as a source of up-to-date information on SOEs’ institutional, legal and regulatory frameworks presented country-by-country. It is organised around key pillars of the SOE Guidelines: organising the state enterprise ownership function; transparency and disclosure practices; safeguarding a level playing field between SOEs and private businesses; professionalising board of directors; and enhancing risk management. Each section draws on practices in up to 50 jurisdictions and international good practices as described in the SOE Guidelines. It compiles information collected for OECD publications issued from 2013 to 2017, updated prior to publication based on inputs from the Working Party. The target audience includes national governments, state ownership entities, SOE board management, international organisations and academia, but also the broader policy and business communities that interact with the SOE sector on a regular basis. The SOE Compendium was prepared by Hans Christiansen, Mary Crane-Charef and Chung-a Park of the Corporate Affairs Division of the OECD Directorate for Financial and Enterprise Affairs, with substantive inputs from Korin Kane and Sara Sultan. The authors are grateful for valuable assistance provided by Pamela Duffin, Anne Nestour, Lynn Kirk, Edward Smiley and Arianna Ingle who assisted with editing and typesetting and prepared the manuscript for publication. 4 TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................... 9 INTRODUCTION ....................................................................................................................... 13 CHAPTER 1: THE STATE ENTERPRISE OWNERSHIP FUNCTION .................................. 15 1.1. Rationales for state enterprise ownership ......................................................................... 16 Approaches to expressing a state enterprise ownership rationale ........................................ 18 Objectives for state enterprise ownership ............................................................................ 18 Applying the ownership rationale in establishing and terminating state ownership ............ 20 1.2 SOE Ownership Models .................................................................................................... 23 Overview: Organisation of the ownership models for commercially operating SOEs ........ 23 Centralised model ................................................................................................................ 32 Dual model ........................................................................................................................... 32 Twin track model ................................................................................................................. 33 Coordinating agency ............................................................................................................ 33 Decentralised model ............................................................................................................. 34 1.3. Models for annual aggregate SOE reporting .................................................................... 35 General approach to aggregate reporting ............................................................................. 38 Reporting on the state ownership policy .............................................................................. 39 Public policy objectives ....................................................................................................... 40 Board composition and/or remuneration .............................................................................. 40 Reporting on individual SOEs ............................................................................................. 41 CHAPTER 2: SOES IN THE MARKETPLACE ....................................................................... 42 2.1 Competitive neutrality – An overview of national practices ............................................. 43 Competitive neutrality commitments ................................................................................... 44 Regulatory and tax exemptions ............................................................................................ 45 Transparency and disclosure around cost allocation ............................................................ 48 Compensation of public policy objectives ........................................................................... 49 Public procurement practices ............................................................................................... 51 2.2. Measures to ensure market consistency of debt and equity financing .............................. 53 General approach to capital structure efficiency .................................................................. 54 Debt financing ...................................................................................................................... 55 Equity financing from the state budget ................................................................................ 56 Direct state support .............................................................................................................. 56 Rate-of-return requirements ................................................................................................. 57 Dividend pay-out expectations ............................................................................................. 57 CHAPTER 3: SOE BOARDS OF DIRECTORS ........................................................................ 59 3.1 Boards of directors of state-owned enterprises: an overview of national practices ........... 60 Board nominations ............................................................................................................... 60 Board composition and size ................................................................................................. 64 Board training and remuneration ......................................................................................... 70 Board evaluations ................................................................................................................. 71 5 3.2 Risk management by SOEs and their ownership ............................................................... 74 Legal and regulatory framework applicable to SOE risk governance .................................. 77 Risk governance at the level of the SOE .............................................................................. 77 Risk governance at the level of the state .............................................................................. 80 BIBLIOGRAPHY OF PUBLICLY AVAILABLE REFERENCES ........................................... 84 Tables Table 1. Outline for the Compendium and main sources of information .......................... 14 Table 2. State enterprise ownership rationales in 30 jurisdictions .................................... 17 Table 3. Procedures and practice for creating and terminating SOEs in 30 jurisdictions . 21 Table 4. Types of ownership model structures .................................................................. 24 Table 5. National approaches to exercising the ownership function in 32 countries ........ 26 Table 6. Examples of coordinating agencies in Israel, India, Latvia and Lithuania .......... 34 Table 7. Decentralized ownership: Agencies executing the ownership function in Argentina, Colombia and Mexico