State-owned enterprises in Ukraine are defined as a commercial
enterprise with the state share exceeding 50% of the authorized
capital
They are managed by the central & local government
bodies
The state can be classified into two groups:
Commercial partnership with the state share exceeding 50% of
authorized capital. This includes enterprises in the process of
privatization.
State Unitary (100% state owned) enterprises authorized to
posses, use and dispose property as well as to conduct operational
management.
4. Continued
Ukrainian legislation allows the transformation of state-owned
enterprises into fiscal according to the decision of the central
government body if this enterprise is not liable for
privatization.
Article 37 of Ukraine law states that "state-owned enterprises
may be transformed into fiscal one if
conduct activities which allowed only to state-owned
enterprise
the state is the primary consumer of the output (more than
50%)
the enterprise is classified as a nature monopoly
Non-corporate state enterprises do not belong to standard but
are similar to state-owned Unitary enterprises.
5. SOE in Ukraine: Performance
6. Economic Performance
Own 52.3% of the fixed assets held by all enterprises
(2002)
53.5% of total profits in the economy (2002)
But performance varies between sectors
Monopolized by SOEs
Companies receiving losses:
Ukrtelecom
Naftogaz
Ukrzaliznytsia
Loans from the World Bank, the European Bank for Reconstruction
& Development
Overview Energy & Utilities
7. Implications of Loss
Financial burden on the State
Poor service quality
1 employee : 100 customers (Ukrtelecom)
Gas cut off (Naftogaz)
40% of passenger cars are outdated (Ukrzaliznytsia)
Below-market prices
Corruption
Mismanagement
Profits to insiders, intermediaries & foreign
shareholders
Reasons for loss: Implications: Current situation: slow
privatisation
8. The Way Forward Policy Proposals for Ukraine
9. Finding the Optimal Balance between Entrepreneurial Autonomy
and State Control
Negotiations - Based Approach is the most efficient
solution.
Enterprise in question negotiates the allocation of profit with
the respective branch ministry.
Requires mandatory audit of state enterprises; assists in
calculation of normative rates.
Takes into account specifics of environment where the
enterprises are operating.
With agreement on profit distribution, enterprise gets clear
perspective for planning commercial activities; state gets
information for budget-financed investments.
Limits state support to enterprises, avoids misallocation of
budget resources.
Allows enterprises to implement medium and long-run investment
projects.
Improves management by introducing public-private partnership
schemes.
To be efficient negotiations-based approach must include the
following elements:
1) Transparent principles of profit distribution; prevent
arbitrary decisions.
2) Guarantee against requisitioning of entire profit to the
state budget.
3)Externally audited business plans of enterprises.
4) Flexibility in negotiating changes in normative rates of
profit distribution on case basis.
5)Abandoning current practice of granting certain enterprises
waiver of liabilities to the state, as it undermines the very basis
of the state as property owner.
10. Establishing the Rules of Profit Distribution and
Enterprise Investment
In Ukraine only enterprises own profit and depreciation can be
the source of investments (external funding budget funding, bank
credits, etc. is practically unavailable). Attempts to extort the
whole amount of profit will intensify the process of eating away
fixed capital.
Necessary Rules for Profit Distribution:
1. Any scheme of profit distribution must include provision of
establishing investment fund.
The amount of the fund must be determined by the administration
of the enterprise together with the branch government body
empowered to manage the enterprise.
2. The central governmental body must control decisions of all
state unitary enterprises regarding capitalization of earnings for
investments. Since the amount of the investment fund will determine
the amount of net profit to be transferred to the budget, should
make investment decisions of state unitary enterprises with
Ministry of Finance.
Efficiency of such an approach will depend on finding
economically expedient ratios. Failure to do so will result either
in underinvestment or overinvestment.
For Ukraine, use the average industry indicators of profit
distribution and investment activities (ratio of profit used for
investment purposes) as a benchmark for calculating respective norm
for the state enterprises.