Public Report on the State- Owned Enterprises and Shares in 2016 Cross-Sectoral Coordination Centre 2017 This is the latest annual report on the state- owned enterprises and shares prepared by the Cross-Sectoral Coordination Centre of the Republic of Latvia, and it provides information on the governance of state-owned enterprises and performance results in 2016. Dear cooperation partners and citizens, State-owned enterprises play an important role in the national on the activities of state-owned enterprises and the government’s economy of Latvia. State-owned enterprises not only eliminate awareness of strategic issues of governance of state-owned market failures, manage strategic assets of the Latvian State enterprises, consolidated performance and investment plans and carry out important tasks for the society, but also promote have improved. Cross-Sectoral Coordination Centre has created the development of the national economy, provide significant an interactive database that allows to select and compare diverse financial benefit to the public and provide affordable and high information and indicators about the state-owned enterprises, quality services in general. thus providing the possibility for anyone interested to evaluate 2016 has been an important time of change in the sector of and analyse this information in conjunction with developments in governance of the state-owned enterprises. According to the the economic process. Work on development of methodologies Law On Governance of Shares and Enterprises owned by Public for determining the desired return on equity is started, because it Entities and Corporate Governance guidelines of state-owned is important to ensure the effective use of capital invested by the enterprises of the Organization for Economic Cooperation and state, setting ambitious financial goals, which simultaneously are Development (OECD) professional supervisory councils were balanced with the non-financial targets set by the industry and established in the large commercially oriented state-owned reflect, in the medium term, the increase in the value of a capital enterprises, the transition to the use of International Financial company. This report presents the progress in the corporate Reporting Standards in the preparation of the annual reports of governance of state-owned enterprises and allows to assess the large state-owned enterprises was launched, the development of effectiveness of the measures implemented, while being open medium-term operational strategies in state-owned enterprises and calling for professional guidance on how to improve the and the evaluation of annual performance results using common governance of state-owned enterprises. standards were continued. During the reporting period Cross- I would like to thank all the co-operation partners who are Sectoral Coordination centre has developed series of guidelines actively involved in the implementation of reforms and affirm in such essential matters as development of medium term Latvia’s ability to demonstrate progress in the governance of operational strategies, selection and evaluation of management state-owned enterprises, which was evaluated last year by the board members and supervisory council members, evaluation of OECD, recognizing the compliance of governance of state-owned the performance of state-owned enterprises, determination of enterprise in Latvia with the recommendations of the OECD! strategic objectives of state ownership, disclosure of information on state-owned enterprises. When assessing an experience in management board and supervisory council member’s Pēteris Vilks, nomination process, the Cabinet of Ministers supported the Head of the Cross-Sectoral Coordination Centre legal framework for the selection and evaluation process of the members of the management board and supervisory council members of state-owned enterprises. With the implementation of the state-owned enterprises governance reform, both the general availability of information 2 Table of contents Introduction .............................................................................................................................................................................................................................................................................. 6 1 Governance of State-Owned Enterprises ................................................................................................................................................................................................... 9 1.1 Development of Strategies ......................................................................................................................................................................................................................... 9 1.2 Nomination Commissions and Nomination Processes ..........................................................................................................................................................10 1.3 Work on Normative Acts ............................................................................................................................................................................................................................11 1.4 Work of Supervisory Councils in the SOEs ......................................................................................................................................................................................12 1.5 Cooperation with OECD .............................................................................................................................................................................................................................12 1.6 Training, Consulting for SOEs and Holders of Shares ...............................................................................................................................................................13 1.7 Development of SOEs Governance in 2017 ...................................................................................................................................................................................14 2 Methodology Used in the Report.....................................................................................................................................................................................................................15 3 Performance of State-Owned Enterprises ...............................................................................................................................................................................................16 3.1 Summary of SOEs Performance .............................................................................................................................................................................................................16 3.2 Return on SOEs ................................................................................................................................................................................................................................................19 3.3 On Changes in State-Owned Enterprises, State-Owned Equity Shares, Equity Shares Belonging to the SOEs and Capital Shares in the Enterprises Effectively Controlled by the State and Capital Companies that Currently Are not Carrying out Economic Activities and Are Insolvent in 2016 ........................................................................................................................................................................................................ ...22 4 Characteristics of State-Owned Enterprises ..........................................................................................................................................................................................23 4.1 Energy ....................................................................................................................................................................................................................................................................23 JSC Augstsprieguma tīkls (AST)..............................................................................................................................................................................................................24 JSC Latvenergo .................................................................................................................................................................................................................................................25 4.2 Forestry and agriculture .............................................................................................................................................................................................................................26 LLC Latvijas Lauku konsultāciju un izglītības centrs (LLKIC) .................................................................................................................................................28 JSC Latvijas valsts meži (LVM) ..................................................................................................................................................................................................................29 SLLC Meliorprojekts (MP) ............................................................................................................................................................................................................................30