The key purpose of the reform is to ensure transparency of activities and accountability of state enterprises, to improve operational and financial performance through the organisation of corporate governance of state enterprises, to reduce the Government’s share in the economy and to liquidate idle enterprises.
A small state ownership must be preserved in strategic enterprises operating transparently and efficiently. The enterprises that will remain owned by the state should be managed properly to the benefit of the people of Ukraine.
The Government is the largest owner of Ukrainian assets. There are about 3,500 registered state-owned entities having a variety of legal forms. 40% of these entities are deadhead and only exist on paper. Every third enterprise is unprofitable being a potential source of fiscal risks. The lack of adequate control mechanisms and low transparency make state enterprise activities a source of corruption risks causing financial loss to the state.
The public sector of the country’s economy has remained almost unchanged since 1991, so it is a much-needed reform. The Government’s key current task is to make the state enterprise management process transparent and professional by implementing profound changes using the best international standards.
Transparency and accountability — the Government, businesses and public will have access to reliable, accurate information about each state enterprise.
State enterprises must submit electronic financial statements via a single e-system, be audited by independent external experts, publish complete and accurate information about their activities on a publicly available portal, including audit reports and financial statements prepared in compliance with the IFRS; enterprise management must be responsible for non-disclosure of required data or disclosure of inaccurate information.
Corporate governance — state enterprises must operate effectively in line with clear strategic goals having a modern management system.
The modern state enterprise management model requires the introduction of corporate governance tools such as strategic planning, development and approval by the Government as a shareholder of separate ownership policies for each enterprise, appointment of independent supervisory boards and preparation of incentives for the management and supervisory boards. As evidenced by many state enterprises in other countries it is an indispensable condition in ensuring efficient operation of an enterprise. This approach will create financial benefits for the Government’s balance sheet, improve the quality of public services, have a positive effect on the national economy and business environment, increase Ukraine’s attractiveness to investors, and eliminate corruption risks.
Privatisation — the number of state enterprises must be decreased in a transparent privatisation process.
The Government should use a strategic vision to classify state enterprises by categories: the ones to continue to be controlled by the state and the ones to be privatised, liquidated or conceded. Fair and transparent privatisation process must be ensured: an investment adviser should be engaged for large enterprises while small entities should be sold at transparent auctions in ProZorro. Sales e-procurement system, and to reduce the number of state entities that will not be privatised.
Liquidation — the Government asset portfolio must be optimised by streamlining the restructuring and liquidation procedure.
Fifty percent of state enterprises are idle or have been in the process of liquidation for years. A non-operating company still requires maintenance, labour and other material costs. In addition to fiscal risks, most of these enterprises cause a number of corruption risks due to the lack of information about their actual activities, and as a result of the Government’s inefficient use (if any at all) of its assets. Once the liquidation process is completed, the mess in the Government asset portfolio will be sorted out which will have a positive effect on the Government asset management system in general.
Lease — governmental and municipal property must be leased transparently in ProZorro e-procurement system in accordance with new rules. Sales.
Lease of governmental property is one of the ways to increase the efficiency of its use. Income from the lease of state-owned property can become a source of regular government revenue. However, the lease sector has been unregulated for many years having significant possibilities for misuse.
TRANSPARENCY AND ACCOUNTABILITY
Creating a risk management system (implementing red flags for deviated parameters of enterprises)
Launching a public portal with aggregate results of activities of state enterprises
Designing and launching a public business analysis module on the portal
Developing and approving ownership policies for state enterprises particularly important for the economy
Distinguishing the Government’s functions as the enterprise owner and as the enterprise regulator
Implementing modern corporate governance tools
Electing competent managers and members of supervisory boards of state enterprises in a transparent procedure
Continuing the state enterprise corporatisation process
Classifying state enterprises by their functions and status as the ones to continue to be controlled by the state and the ones to be conceded, privatised or liquidated
Reducing the number of state enterprises banned for privatisation
Introducing an effective procedure for restructuring and liquidation of unprofitable, unpromising and non-operating enterprises
Selling the Government’s assets by the use of small and large privatisation mechanisms
Creating conditions for a transparent governmental property lease process
Launching active liquidation of idle state enterprises by streamlining the liquidation process at the legislative level and by engaging external professional liquidators
Developing and adopting a new law on lease of governmental and municipal property, drafting delegated legislation to ensure the implementation of the law
Conducting initial transparent auctions for the right to lease governmental property
Developing and adopting a draft law on concessions, launching pilot concession projects
The Secretariat of the Cabinet of Ministers of Ukraine, the Ministry of Economic Development and Trade of Ukraine, the Reform Support Team of the Ministry of Economy, the State Property Fund of Ukraine, the National Securities and Stock Market Commission, ProZorro. Sales, Ukrainian Corporate Governance Academy