POE Reform Initiative

1. Improvement of Corporate
Governance of POEs in line
with OECD practices
Ministry of Economic Development
Alban Kaçiu
POE Advisor
3 May 2016

2. Aim of the Initiative
The aim of this initiative is to establish:
• Solid grounds for improved corporate governance;
• Performance Based Framework;
• Proper financial and operational reporting of POEs in line with
EU Practices and OECD principles.

3. Background
• Treatment of Publicly Owned Enterprises initiative
• National Development Strategy
• Economic Reform Program
• POE 2014 Reports

4. Current Situation – General
• MED during the previous years has worked on improvement of
POE Corporate Governance.
• OECD Guidelines for Corporate Governance of State-Owned
Enterprises, updated in 2015:
• To reflect global economic situation where many countries are faced
with low economic growth and lack of fiscal space.
• In such, situations countries face challenges, and strengthening
oversight has become a necessity to ensure that the
shareholder is informed about the financial state of POEs

5. Changes of key elements of OECD Principles
2005 2015
I. Ensuring and effective and legal and regulatory
framework for State – Owned Enterprises
I. Rationale for state ownership
II. The state acting as an owner II. The state’s role as an owner
III. Equitable treatment of shareholders III. State-owned enterprises in the market place
IV. Relations with Stakeholders IV. Equitable treatment of shareholders and other
investors
V. Transparency and disclosure V. Stakeholder relations and responsible business
IV. The responsibilities of the boards of state-
owned enterprises
IV. Disclosure and transparency
VII. The responsibilities of the boards of state-
owned enterprises

6. Current Situation of POEs in Kosovo
• There is a lack of systems, processes and procedures for fiscal
oversight of publicly owned enterprises (PEFA 2009, 2013, 2015);
• Similar or worst situation at local POEs;
• Improper oversight does not allow proper exercise of
shareholders rights;
• Expenditure allocation by the government without any prior
assessment of medium-term and long-term impact.

7. Current situation
• Assets:
• 2.82% growth 2013/2014
• 1.05% decline 2014/2015
• Equity:
• 2.82% growth 2013/2014
• 2.80% decline 2014/2015
• Liabilities:
• 4.34% increase 2013/2014
• Sales:
• 24.35% decline 2013/2014
• 2.93% increase 2014/2015
• Staff Expenses:
• 3.78% increase 2013/2014
• 0.18% increase 2014/2015

8. Preliminary conslidated financial report (2015)
Assets ('000) Equity ('000) Liabilities
('000)
Revenues
('000)
EBITDA* (000) Net Incomes
('000)
Return
on Assets
Return of
Equity
Growth
2014
/2015
KEK SH.A 418,860 95,241 323,620 155,347 54,114 11,007 2.63% 11.56% -2.08%
KOSTT 199,196 84,519 114,677 25,765 15,359 8,086 4.06% 9.57% 18.73%
Iber Lepenc 129,985 128,757 1,258 4,153 436 (4,202) -3.23% -3.26% -3.02%
KMMK 6,189 4,589 1,600 1,521 208 (634) -10.25% -13.83% -12.86%
Telekomi i Kosovës 142,565 123,783 18,782 84,504 15,330 (6,185) -4.34% -5.00% -17.55%
PK Sh.A. 21,545 17,645 3,900 10,670 (915) (2,976) -13.81% -16.87% -2.82%
InfraKos 23,818 14,538 9,280 3,764 898 (264) -1.11% -1.82% -0.49%
TrainKos 10,604 4,608 5,996 4,724 740 (414) -3.90% -8.97% 3.83%
ANP - - - - - - #DIV/0! #DIV/0! -100.00%
KUR Prishtina 133,259 60,795 72,464 13,453 2,663 (489) -0.37% -0.80% 4.26%
KU Drini i Bardhë 3,535 3,354 181 468 366 (2) -0.05% -0.06% 3.51%
KU Radoniqi 2,939 3,534 633 814 205 3 0.08% 0.10% -1.15%
KUR Hidroregjioni Jugor Prizren 19,876 8,617 11,259 4,686 1,186 (33) -0.17% -0.38% 5.32%
KUR Mitrovica 35,121 27,505 2,718 3,960 1,502 232 0.66% 0.84% 2.99%
KUR Hidromorava Gjilan 13,684 7,096 6,588 2,125 328 (75) -0.55% -1.05% 2.21%
KUR Radoniqi Gjakovë 38,526 33,914 29,820 4,111 1,400 (293) -0.76% -0.86% 1.11%
KUR Hidrodrini Pejë 33,399 20,273 13,126 3,903 1,432 2 0.01% 0.01% 4.74%
1,234,329 638,768 615,902 323,967 95,251 3,764 0.30% 0.59% -1.05%
NdërmarrjetQendrore
Gjithsej
UjësjellësdheUjitjeRaj.
Based on Preliminary (unaudited) Financial Data

9. Current Ownership Architecture
Parliament
Government of the Republic of Kosovo
Ministry of Economic Development Inter-Ministerial Committee on POEs
POE Policy and MonitoringUnit
KeyPolicyElements:
1. Corporate Objectives and Business
Activities;
2. Selection and appointment of
Directors;
3. Annual Meetings;
4. Capital Structure;
5. Enterprise Perfromance;
6. Dividend;
7. Other State Entities;
8. Private Sector Involvement..

10. Shareholders Contribution Channels
Ministry of Economic Development
Chief Administrative Officer
Chief Financial Officer POE Policy and Monitoring Unit
Budget Program: POEPMU
Sub-program: POE 1
Sub-program: POE 2
Sub-program: POE Sector
However these are not the
only budget lines used for
allocation of resources to
POEs

11. Specific Issues with current legislation
• Undefined terminology such as: macro vs micro management;
• Board of Directors without any reason can terminate the
contract of the senior management
• Does not specify what after the mandate of senior management
expires;
• There are cases where some POEs and related policy decisions
are not in line with OECD principles, especially in relation to
competitive neutrality

12. Specific Issues with Reporting
• Period reports do not contain targets to be used for
performance measurement;
• Where targets exist, there is a lack of their relevance;
• Non-timely reporting by POEs;
• Annual Performance Report irrelevant for the needs of
shareholder, as well as other stakeholders (Parliament,
Development Partners, etc).

13. Goal and Objectives
• Improvement of Central and Local POE management in line with
OECD standards.
Objectives
• Improvement of corporate governance of central and local
POEs;
• Central and Local POE reporting in line with OECD practices, and
in line with EU corporate reporting practices;
• Review of possibilities for sector approach.

14. Desired Ownership Architecture
Government
POEOversight Commission (Ministers,
Ministry of Finance, Chaired by a Minister
without POE0)
POECorporate Policy Coordination and
Oversight Unit
Line Minister
Prime Minister’sOffice
Board of Directors
Chief Executive Officer
Chief Financial Officer Chief OperationsOfficer Corporate Secretary
Internal Audit
Governance Regulation:
1. Corporate Governance Code
2. Board Selection;
3. Financial and sustainability targets
process
4. Renumeration policies;;
5. Guideline for reporting;
6. Ownership Policy Review Process

15. Classification of POE
Financial Non-financial
Operating in
Competitive
Market
Pursuing Policy
Objectives of
the Government

16. Classification of POEs
• Shareholder makes sure that its contributions are used only for
companies that provide public services,
• Elimination of bureaucratic practices that may derive from that fact of
being under state/public ownership;
Example:
• POEs Pursuing Public Objective may be preferred to have low
equity/assets ratios, which indicates that increasing their assets
means better services for the public (water supply);
• On the other side this may not be the case with POEs operating in
competitive markets.

17. Priorities
• Raising capacities of POEPMU for Oversight and Monitoring
• Development of Corporate Planning and Reporting Templates
(MBO)
• Development of a POE Oversight and Monitoring Management
Information System