Transcript Orawiec-I - GO

Institutional aspects of the effective state property
usage
Grzegorz Orawiec
Baku
July 2010
State Property – so much, so different …
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Land
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Natural resources (gas, oil, forest etc.)
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Infrastructure (highways, railways, harbours)
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Builidings and constructions in public sector
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National heritage (e.g. monuments)
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State-owned Enterprises (SEO)
Companies with minority / majority Treasury shareholdings
Polish economy
38 million inhabitants
(the largest country in Central Eastern Europe)
 40 % share of the GDP generated by the new European
Union members
 GDP per capita 17.989 USD
 GDP rose by 1.7 % in 2009 & 3.1 % (OECD forecast:
export ^ consumption ^ Euro 2012 # 1.2 % in Euro
zone)
 The final stage of economic & systemic transformation
 Looking for optimal balance between private sector &
public sector (only strategic areas)
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Polish economy
The institutions/bodies involved in usage/control of the state property
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Ministry of Treasury:
- Regional Offices of State Treasury
Other appropriate Ministries:
- Sport (stadiums, training centres)
- Infrastructure (public roads)
- Economy (companies with Treasury shareholdings)
State legal persons
- Agricultural Property Agency
- Industrial Development Agency
Self-government units
I – Region
II – County
III – Local Municipality
OECD guidelines on corporate governance
for state owned entities (SOE)
 Transparency of operation
 Focus on management of the key risks facing each organisation rather than
imposing standard operational controls across various shareholdings
 Empower and professionalise management boards
 Clearly identified ownership function within government
 Ensure equal treatment of all minority shareholders
 Encourage SOE to develop long-term arrangements with its banks and other
financial institutions
The main purposes of corporate supervision
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improving performance, management effectiveness and value of
companies with Treasury shareholding,
rationally using state assets in order to assure correct functioning of the
national economy,
effective exercise of ownership rights by the Minister of the Treasury for
the purpose of implementing objectives of national economic policy,
implementing effective privatisation aimed at attaining the target model of
state sector participation in the economy, preparing entities for the
transformation process,
attaining transparency of companies owned by the Treasury comparable
with information standards of listed companies.
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The attainment of objectives
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Correct functioning of code prescribed organs of commercial companies
such as the general assembly/shareholders’ assembly, supervisory
board and management board
Improving the criteria of selecting management for companies with
Treasury shareholding,
Development and implementation of new standards and mechanisms for
monitoring and evaluating economic and financial functioning of companies
with Treasury shareholding enabling fast reaction to negative developments.
Supervisory boards directly supervise the functioning of companies with
Treasury shareholding. Such position of supervisory boards guarantees the
Minister of the Treasury the possibility of influencing processes taking place
within companies.
That is why the policy of corporate supervision lays such great stress on the
issues of competence, procedures, selection criteria, work organization
and evaluation as well as remuneration of supervisory boards.
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Corporate supervision - competences of supervisory board members
a) appointing and recalling supervisory board members from office,
b) expressing opinions on annual material-and-financial plans as well as longterm company strategic plans,
c) monitoring and controlling management decisions important for the
company, (basic aim → always to increase of company value)
d) controling the reporting and informative duties towards the Ministry of the
Treasury and reacting fast to detected irregularities,
e) granting the management its consent for undertaking actions resulting in:
change of the company asset structure, capital involvement in other
companies or increase of liabilities,
f) ongoing cooperation with the company certified auditor and monitoring the
auditing process.
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Selection procedures and criteria
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Legal base:
regulation of the Treasury Minister regarding the principles for selecting supervisory board
candidates for companies with Treasury shareholding
the regulation of the Council of Ministers in respect of trainings and examinations for
supervisory boards candidates in sole shareholder companies of the Treasury
Only persons with appropriate qualifications and experience, including Civil
Servants,
Selection criteria have to assure professional, accurate and politically neutral
performance of the tasks of the State in this respect.
- The companies with sole or partial shareholding of the Treasury: four year
experience in positions related to economic activity, finance and economic
law, management or corporate supervision,
- The companies strategically important for the state: seven year experience
in positions as above.
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Company management board
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The right procedure for interviewing and recruiting the president and
members of the management board is the recruitment proceeding organized
and conducted by the company supervisory board.
Polish commercial companies code:
- joint-stock company – appointed and removed by the supervisory board
- limited liability company – appointed and removed by the general
assembly
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Management board members shall possess appropriate professional
educational background and experience, motivation to always improve
economic-and-financial situation of the company and they shall have the
ability to cooperate with the rest of the company crew;
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Veryfication statement in area of cooperation with secret services PRL
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Co-operation of organizational units of the Ministry of the Treasury
executing supervisory tasks with supervisory boards
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The direct link assuring communication between the Ministry of the
Treasury and supervisory boards are departments carrying out supervisory
tasks:
- organizational and administrative functions
- controlling in respect of company boards with regard to the correctness and
timeliness of the performance of duties resulting from the statutes and acts
of law
- organizing meetings (in trade and sector groups) between supervisory board
members, representatives of the Treasury Minister at least twice a year
(economic, financial, managerial issues, presenting the development strategy )
uniform system for raising qualifications of persons representing the
Treasury at supervisory boards – e.g. trainings at least once year (knowledge
and qualifications in respect of functioning of companies, economic law,
economy and finances as well as the capital market). Trainings shall be
organized by the supervision department of the Ministry of the Treasury. 12
Co-operation of organizational units of the Ministry of the Treasury
executing supervisory tasks with supervisory boards
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The Ministry of the Treasury shall also provide supervisory boards’ members
with a Bulletin – addressed to this professional group and oriented on its
informational and educational needs – including a section devoted especially
to the problems of corporate supervision.
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Information about the composition of supervisory boards with sole Treasury
shareholding, the names of persons representing the Treasury at supervisory
boards as well the lists of persons responsible for supervising individual
companies on behalf of the Treasury shall be published in the Bulletin.
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Ministry of Treasury
The main tasks:
- supervision of state-owned enterprises
exercising Treasury rights and responsibilities
monitoring the economic and financial standing of companies;
monitoring the restructuring and recovery processes in companies;
qualification of state enterprises and companies for commercialisation and
privatisation
monitoring the effects of salary increase on financial situation of the
supervised entities
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The main supervised sectors:
- metallurgy / metal industry / engineering industry / shipbuilding industry /
mining sector (coal, copper, aggregate) / financial and capital market
institutions / insurance companies / games of chance and betting
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Monitoring extra-price obligations
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Privatising a given entity → the Treasury Minister can oblige strategic
investors to sign additional agreement elements defining extra-price
obligations of the investor:
- social packages,
- minimum employment level in a given medium term time span
- investment obligations of an investor including options regarding purchases
of remaining shares/stakes of the Treasury.
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The representatives of the Treasury Minister at supervisory boards of
companies is obliged to inform in writing appropriate Regional Office of the
Treasury Ministry on the basis of certified auditors’reports or management’
or investors’ statements about threats.
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Monitoring extra-price obligations
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The Records and Property Administration Department of the Treasury
running collective records in respect of extra-price obligations resulting from
privatisation agreements.
The Records and Property Administration Department of the Treasury shall
each year:
• prepare the list of investors not fulfilling their extra-price obligations,
• prepare a detailed report on: actions undertaken by appropriate departments
of the Treasury Ministry with regard to such investors and effects of these
actions.
Any delays in the fulfilment of extra-price obligations shall provide
competent departments of the Treasury with the basis for launching
appropriate legal procedures in order to discipline the investor and enforce
obligations guaranteed by the agreement.
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Monitoring extra-price obligations
Positive example – PZL Mielec
- Polish Aviation Factory
- the largest aircraft manufacturer in Poland (over 60 years of production)
agricultural & fire-fighting planes, passenger / cargo commuters and trainer
aircraft.
till 2006 PZL Mielec was state-owned enterprise
Lack of new technologies and new projects
”capital consuming” sector (R&D)
Loosing position on the market
Increasing debt → need for complex restructuring
Supervison of Industrial Development Agency
Direct privatization (strategic investor – 100% shares)
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Monitoring extra-price obligations
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Investor from USA
The price = 80 mln € (100% shares + debt repayment + planned
investments)
Restructuring Plan
The base for production ”new generation” helicopter
Technological ”jump”
Extra-price obligation
no group layoffs for the next 5 years (+ 22%)
Intensive trainings for staff (extending present qualifications)
”Know-how” transfer
environmental protection clauses
Three privatisation bonuses for the staff
Production plan = 20 helicopters per year
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Increasing number of cooperators (23→100)
State-owned land
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Main managing institutions:
Public aministration – II level = Counties (Treasury land)
Ministry of Interior and Administration (land used by central governmental
bodies)
Agricultural Property Agency (land for agriculture)
Military Property Agency (after reorganization of polish army)
State Forests Organization
National Roads and Highways Authority
The forms of state-owned land disposal:
sale (tender)
perpetual usufruct (minimum 99 years → sale)
Donation for public aims (social housing)
Municipalization
Regional Operational Programme 2007-2013 –
Świętokrzyskie region
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Operation 2.4 „Creation complex investments areas”
Local municipalities & associations of local
municipalities
Types of projects: creating and extention of
investments area by building armature (water-supply
systems, sewage systems), local roads, reparations of
existing builgings, old military and industry
infrastructure etc.)
The aim – new economic investments supporting
regional development and new jobs.
Reimbursement of 60% total costs - ERDF
Regional Operational Programme 2007-2013 –
Świętokrzyskie region
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Operation 2.4 „Creation complex investments areas” –
12,4 mln euro
Five applications from local municipalities – 9,2 mln
euro
Value of these projects = 74% of the allocation
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Why ?
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Regional Operational Programme 2007-2013 –
Świętokrzyskie region
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The problem of project’s durability
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Directive 2006/1083/EC laying down general
provisions on the European Regional
Development Fund, the European Social Fund
and the Cohesion Fund and repealing
Regulation (EC) No 1260/1999
Regional Operational Programme 2007-2013 –
Świętokrzyskie region
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According to Article 57:
The Member State or managing authority shall ensure
that an operation retains the contribution from the
Funds only if that operation does not, within five years
from the completion of the operation undergo a
substantial modification:
resulting either from a change in the nature of
ownership of an item of infrastructure
How to do it?
Regional Operational Programme 2007-2013 –
Świętokrzyskie region
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In the case of investment’s areas supported from
ERDF there is possibility to sell this land to private
investors, if:
Infrastructure remains to local municipality for the
period of project durability
The aim of the project will not change
case study – transport sector
PKS Kielce
State-owned enterprise
 Public transport sector (regional and inter-regional)
 Division of PKS enterprise to independent regional companies
 Very good location of Kielce city
 Kielce: popular tourist destination
 The city of students
 Very good location of the PKS Kielce head office (bus terminal)
 Possibility of additional services (e.g. bus service, charters)
BUT ….
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case study – transport sector
PKS Kielce
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Lack of Development Strategy (e.g. wireless Internet)
Lack of managers
Political pressure – especially at the regional level
(supervisory board and mangement board)
Activity only during election-time
Increasing competition of private sector
- bus terminal
- transportation
- timetable
- local and inter-regional connections
Strong position of trade unions
case study – transport sector
PKS Kielce
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Present situation:
First attempt for privatization (3 mln €) – public tender – no offers
Offer from Kielce City – municipalisation – free of charge – 97 % staff
reduction
Second attempt for privatization (2.4 mln €) – negotiations – 31 July 2010
Serious problems with financial flows and current payments (salaries, social and
healthy contribiutons)
No chance for price and quality competition with private sector
Restructuring Plan – 42% staff reduction
Trade unions and staff protests
The main value – very attractive building plot in the city centre (4 ha)
KKSM – case study
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State-owned enterprise (100%) & 600 workers
Mining sector (building materials, aggregate for roads)
The power of tradition (since 1874)
Five opencast mines & processing factory
Good financial standing
BUT …
Increasing competition
Needs for new investments
Needs for new opencast mines
Decision for privatization & using a new tool (SAO)
2007
Net profit
(euro)
4.2 mln
2008
3.4 mln
2009
1.7 mln
KKSM – case study
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Civic activity company (limited liability v joint-stock company)
Cooperation: Ministry of State Treasury & Economy & Finance
Special Program supporting polish privatization & activity of workers and
self-government units in this process
creation of a new company (partnership): workers & local municipalities
- min. 30 of the workers as shareholders
- min. 33 % shares taken by these workers
motion for bank loan (secured by partners’ assets & market margins)
loan’s guarantee from BGK (polish state-owned bank) – max 80% ^ 30 mln €
the enterprise taken over by new company (direct / indirect privatization)
repayments of the loan from company’s profits
KKSM: partnership: 80% of the workers & 4 local municipalities
Proceeding of the negotiations
Increasing market & plans for new mines
Institutional aspects of the effective state property usage
– important issues
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Companies with minority Treasury shareholdings (5-10% ”remains”)
Dividend paid by the companies (income to state budget #
investments)
Different types of the State Property:
- State Treasury – central level
- Self-government - regional / local level (e.g. municipalisation)
Question – Should the managers in companies with majority
state shares have the salary limitation ?
- business issue & political aspect
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Institutional aspects of the effective state property usage
”Chimney Act”
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Act on income’s limitation for managers in companies with majority state shares
Company management board & supervisory board = average salary in companies’
sector in IV quarter of the previous year
-e.g = 650 € x6 v x4 v x3 v x1 + annual bonus = x3 + reimbursement: phone,
apartment = ∑ x12
No participation in company’s shares
Inventive tricks: granddaughter company v ban on competition
Breaking EU rules – No discrimination & no preferential treatment of any business
activity
New legal act:
- Limitation only for SOE (100%)
- Basic salary (max x10) + motivation bonus + share in company’s profit (max 2%)
Wishful thinking
EU (65/70%) v PL (35/40%)
Public or private ?
Looking for the best strucutre of the economy
- net profitability in companies with state-owned shares in Pland