The reform which will reveal the real face of the new government

Saulius Skvernelis is not the first prime minister to pursue more transparent and effective governance of state owned enterprise.

During his 2008-2012 term Andrius Kubilius proposed to have all government property overseen according to the Scandinavian model, under a single company – “Visuomis”.

This was rejected by Seimas. Algirdas Butkevičius’ far less ambitious plan of reforming forest directorates also failed with Seimas also rejecting the idea in 2015.

Nothing specific so far

The S. Skvernelis cabinet has so far been reticent regarding details of planned changes. The PM’s press representative Tomas Beržinskas told Delfi that the plan is still being prepared.

“All the ministries are working, but for today I would not yet be able to reveal a specific data (when it will be announced – Delfi). Definitely by March 10 (when the new Seimas spring session begins – Delfi), perhaps even earlier,” he said.

The Seimas economics committee chairman Virginijus Sinkevičius urged Delfi not to rely on information that appeared in the media earlier that all of the state run enterprises would be merged into two management companies.

“There are some sort of rumours of the creation of a single large holding, but that is impossible due to EPSO-G and Lietuvos Energija, which have to be in separate companies based on the EU third Internal Energy Market legislation,” he said.

V. Sinkevičius reminded that soon the so-caled fourth EU railway package will reach Lithuania which will mean that even Lietuvos Geležinkeliai will likely have to be split into separate companies.

Two options

President of the Baltic Institute of Corporate Governance (BICG) Rytis Ambrazevičius told Delfi that the majority of challenges related with such reform are a question of political will.

“Both from ourselves and from other countries we know that any changes are typically faced with resistance from those used to or benefiting from the old situation. However in fact these tasks are simple, rational and definitely achievable, if sufficient will and resolve is available,” he said.
V. Sinkevičius commented that the Lithuanian Peasant and Greens political group should support the reforms.

“Recently we spoke within the fraction that we have two options. Either we adjust to those who have already took in the European funding, distributing the company funds and services into their wallets. Or we enact reform and change. The voters gave us a mandate and I believe that we should not falter here,” the member of Seimas said.

Making use of recommendations

V. Sinkevičius stated that the current work of state owned enterprises does not satisfy him and needs changing.

“We will have to take into account the OECD (Organisation for Economic Co-operation and Development) guidelines. A coordinating institution will have to be established, the activities of managements need to become more transparent, terms of leadership need to be established,” he listed.

Sinkevičius described the persistence of the same leaders in the same positions for 20 years as a harmful practice.

“Entrenching themselves within the collective, getting used to the chair…” the member of Seimas noted.

Lithuania is currently pursuing OECD membership and this organisation demands depoliticisation and consolidation of state run enterprise.

Having participated in the process of preparing OECD recommendations for Lithuania, R. Ambrazevičius recounted that the government must clearly and transparently explain the goals pursued by each enterprise.

“There are well over 100 state run enterprises in Lithuania working in various spheres. Sometimes the enterprise itself, other than its main activities is burdened with auxiliary activities, for example managing holiday homes. Thus the challenge to the cabinet is to specify what the government has to work on and why,” he commented.

The president of the BICG said that another challenge will be to present state run enterprises with clear, transparent and ambitious goals and ensure implementation control for these.

“The good news is that in this case we already have fairly good examples, for example among energy infrastructure companies. Those companies that already have collegial management organs (oversight councils, managements), my aforementioned mechanism (clear goals, implementation control) already bring about positive results,” he explained.

The third challenge identified by Ambrazevičius is the depoliticisation of state owned enterprise management.

“In Lithuania, unlike neighbouring Latvia which has already joined the OECD, there currently isn’t a single state owned enterprise where oversight councils or managements would contain only independent professionals of one sphere. Cases where they are in the majority can also be counted on your fingers of your hand. In most cases there are no independent members in the collegial management organs at all,” he explained.

Finally the expert noted that it is necessary to ensure the transparency of all state run enterprises.

“Often the impression arises that some of the heads of state run enterprises believe they are the only stockholders of that company. However all of us Lithuanian tax payers are stockholders and we have to know how and why these companies are working – their activity reports have to be easily available to us,” the president of the BICG stressed.

State owned stores to be forgotten?

V. Sinkevičius told Delfi that ineffectively operating state owned enterprises have to be privatised or even handed over to municipalities to administer.

Experts also note that state run property should be the exception and not the rule. Does this mean that the recent ideas of a state owned bank, alcohol stores and pharmacies can be forgotten?
V. Sinkevičius suggested to discuss extremes less.

“State owned pharmacies and the state bank were extreme measures in the electoral campaign programme. There are other things that need resolving before that. Firstly we need to review the enterprise portfolio because there are too many of them. Their management is still unclear,” he said.

The member of Seimas stated that citizens will benefit from the reform through larger dividends being paid into the state budget.

“If we plan to receive around 100 million euro this year, then we hope that the number will rise after reform. A specific dividends policy will be made,” he said.

Lithuania currently has 163 state owned enterprises. 27 work in the transportation sphere, 16 with energy infrastructure, 43 in forestry and another 77 in various spheres.

In mid-2016 the market value of state run enterprises was 5.49 billion euro, the carrying amount reached 9.33 billion euro and the value of personal capital was 5.25 billion euro.

The income from portfolio sales over the first half of 2016 were 1.273 billion euro, while profits reached 154 billion euro, normalised net profit was 137 million euro. The personal capital returns were 5%.

In mid-2016 state run enterprises employed 40,684 staff.