STATE-OWNED ENTERPRISES AND PARASTATALS (SEPs) POLICY DISCUSSION Hugo Caneo Consultant World Bank hcaneo@fen.uchile.cl hcaneo@gmail.com hugo@caneoabogados.cl 1
Chilean SOE sector Chile faces a profound crisis of trust regarding government, traditional institutions, political parties, corporations, etc. (83% of Chilean population do not identified with any political party). Chile is growing, but a very low rates, mostly unknown in the recent 30 years. Results: Unemployment level has grown. Poverty has grown. Codelco (SOE producing cupper) has suffered losses. Probably if Chile does not recover the previously known growth rate the trust crisis would become deeper.
Chilean SOE sector As we know the main problem of the Economy is dealing with scarce resources. Therefore, the use of those scarce resources should be efficient and effective, in order to satisfy as much population ´ s needs as possible. SOEs should be a tool in order to satisfy population ´ s needs or providing resources for such satisfaction, providing goods and services, in a efficient and effective manner. Otherwise, their existence would be at least doubtful. Why? Because they use resources that could be multiple and important uses: education, housing, health, logistics, etc.
SEPs sector What to expect from SEPs: - Efficient use of resources and in the fulfillment of their goals. - If their goal are producing profits, the latter should be the highest possible. On the other side if they have to perform purposes that produce deficits, they should be the lowest possible. - Governed by council or boards, comprised by the best possible members. No rock stars, good teams. - Governed by boards whose members have been selected on a basis of merit. - Governed by members that have been appointed in an objective process with no political interference. REASON: The closer the government in their selection, the more probable any SEP problem would be attributed to the government. - Being producers of richness.
Chilean SOE sector What to expect from SEPs: - Boards selects and dismiss management. BECAUSE it is responsible of the good performance of the SEP. - Boards monitor the management performance - Boards are the corporate structure to which any kind of public police maker should relate, not the management. - Appointment processes should be: - Well structured - Previously known. - Use of Head hunters is advisable - Transparency is the key
How the good things could be kept on time In order the processes and their benefits could be sustainable on time, it is necessary that a robust legal and institional framework provides the support to this system, regarding: Option centralized and decentralized models. • The centralized legal entity functions, powers and • responsibilities. The power to appoint and dismiss boards or council ´ s • members. The capacities to assess SEPs performance. • The power to act as owner, determining objectives, goals and • metrics. Chile is characterized by being a mixed system: Most of SOEs are under a Centralized entity, but some of the most important are under the policy maker.
WHY DO WE NEED SOEs? Ø As counterparts and regulators regarding essential facilities, e.g., harbour companies. Ø For managing strategic assets such as Codelco or Enap, providing money to the State. Ø For insuring diversity and pluralism in media (TVN). Ø For facilitating access to financial markets to certain segments of the community (Banco Estado). Ø For protecting small producers from problems in the formation of prices ´ process (Cotrisa). Ø National security (Enaer, Asmar and Famae). Ø For issuing public documents (CasaMoneda).
RELATIONSHIP WITH PRIVATE SECTOR The legal and regulatory framework for SOEs ensure a level-playing field in markets where SOEs and private sector companies compete in order to avoid market distortions. The above explained situation explains why most SOEs have been structured as corporations or other companies. SOEs, even those created by law, are subject to the same rules applicable to private listed corporations. Furthermore, SOEs have a stronger regulatory burden since they are subject to the Transparency Act, and directors and managers are subject in certain cases to responsibility as public officers; control of Congress and the General Comptroller (CGR).
RELATIONSHIP WITH PRIVATE SECTOR SOEs face competitive conditions regarding access to finance and regulations: -They request financing from private banks. - The State is restricted to certain amounts for granting indebtedness to SOEs. Case in which a specific agreement must be subscribed between SEP and the SOE. -SOEs must comply the same disclosure requirements as private listed corporations. - SOEs in which the State participates as shareholder it has the same rights as any private shareholder. -SOEs are subject to a larger transparency standards than private similar companies.
An overview on Chilean State Owned Enterprises sector State owned enterprises (“SOEs”) develop and participate in business activities in strategic sectors of the economy such as transport and harbors (12), mining (3), banking (1), media (1), agriculture (2), utilities (3), services (3), oil field exploitation and refining (1), money printer (1) and defense (3). Some of those SOEs can take the form of corporations, partnerships and a special form, not available to private companies, called “created by law”. An important number of them are under control of the Sistema de Empresas –SEP, agency responsible for exercising ownership rights, but some of the most important are under a decentralized model Chilean law uses a formal definition of enterprise, applicable to SOEs and private sector companies (Labor and Commercial Code).
SOEs The SOEs cannot implement any kind of commercial activity unless it has been previously approved by a law (special quorum for such approval). The concept of SOE is a formal one, SOEs are those enterprises specifically approved by law (20). The law that creates the SOE defines their business purpose, corporate governance, board remuneration, etc. (SOEs created by law). The other SOEs are those approved by law, but that are incorporated and structured as private companies (10 corporations or joint stock companies, 2 of them in liquidation process). All of them are subject in the development of their businesses to private law, but also they are the supervision supervision of the Securities Regulator and of the General Comptroller (CGR).
SOEs relationship with the State. 22 of the 30 SOEs are subject to SEP ´ s evaluation of their performance, strategies and goals, as well as appoinment and evaluation of their boards. SEP is a committee of the Corporation for the Promotion and Production (CORFO). It has no a strong legal framework. Furthermore, SEP exercises rights as a minority shareholder, without evaluating the management, in certain private utilities companies.
Empresas Públicas por sector de la economía 10 Puertos Transportation EFE Metro Banking B. Estado Correos Mining Codelco Enap Asmar Enami Defense Enaer Sectors Famae Media TVN Zofri Polla Correos C. Services Moneda Cotrisa Econssa Water L. Peñuelas
CORPORATE GOVERNANCE OF CHILEAN SOEs UNDER SEP Board of Directors Authority SEP´s code and guidelines: Advice of Good Practices State-Owned Enterprises SEP as representative of the State directly and indirectly
SEP’s ROLE ON SOEs: GUIDELINESS FOR CORPORATE GOVERNANCE AND SEP CODE Rationale behind the duties of SEP: Ø Expertise representing the Rights of the State as owner Ø Adding vision beyond the particular one of each company Ø Centralization of monitoring performance of the SOEs Ø Coordination with Sectorial Authorities affecting SOEs (i.e. Transports, etc) Ø Unification of management styles, reporting duties, goals. Ø Creating scale economies (e.g. 10 harbour companies) Ø The appointment and removal of members of the board directors in our SOEs made by SEP on a basis of labor experience and professionalism and observed formal rules called Procedure for Selection and Appointment of Company Directors in SEP. Ø SEP follows the recommendations listed in the OECD Guidelines on Corporate Governance.
GENERAL FRAMEWORK AND GUIDING PRINCIPLES Guiding Principles Good Board of Directors ( teams, no rock stars ) Composition of the Board ( balance and coordination ) Knowledge of the business ( time devoted to the enterprise ) Accountability of board of directors (SEP) Clear focus and goals (SEP advice ) Strategy ( Board ) Efficiency and Competitiveness ( Board ) Administrative and Financial Integrity ( Board ) Transparency ( Board ) Social Responsibility ( Shared value ) Importance of Labor Relationships Environment Commitment
LEGAL STATUS OF SOEs The Owner-State Present Creating Value for the State REGULATORY STATUS Enforcement by the Chilean Stock Accountability and Exchange of Commission (SVS) Boards of Directors
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