{"id":10329,"date":"2018-05-29T03:56:10","date_gmt":"2018-05-29T05:56:10","guid":{"rendered":"https:\/\/governance.lt\/valdysena-lietuvoje\/"},"modified":"2025-11-07T15:54:25","modified_gmt":"2025-11-07T12:54:25","slug":"valdysena-lietuvoje","status":"publish","type":"page","link":"https:\/\/governance.lt\/en\/valdysena-lietuvoje\/","title":{"rendered":"Governance in Lithuania"},"content":{"rendered":"

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SOE reform<\/h2>\n

Objectives of the reform<\/h4>\n

For a considerable period since the Restoration of the Independence, state institutions and politicians have neglected the governance of state-owned enterprises. One of the most apparent implications of this neglect is a lack of operating efficiency in this sector.<\/p>\n

The reform of state-owned enterprises aims to address these challenges, promote efficiency and transparency in state-owned enterprises and achieve that state becomes a professional and responsible owner of such enterprises actively seeking to increase the asset value. The purpose of the reform of state-owned enterprises is to make corporate governance transparent, based on good governance principles and geared towards clear goals.<\/p>\n

The key outcome expected out of this reform is better efficiency of state-owned enterprises. More efficient operations bring multiple benefits for the companies themselves as well as the state and its citizens alike. Increased efficiency of state-owned enterprises helps improve the quality of the services provided and products developed by the companies and reduce the price of the services offered.<\/p>\n

Greater efficiency of state-owned enterprises would also boost the profitability of the companies and their contribution to the budget, while these funds could be used to finance social security, education, healthcare, culture and other important sectors.<\/p>\n

Transparent operations of state-owned enterprises also contribute to the creation of a business-friendly climate, which is a necessary corollary to attract more foreign investors to Lithuania. Another important aspect is the development of capital market. Optimisation of the companies\u2019 business opens up the opportunities to attract some funds needed by the companies from capital markets. If more of the state-owned enterprises were listed on stock exchanges, this would give a significant boost to market capitalisation, increase the liquidity of the market and make it more appealing to both domestic and foreign investors.<\/p>\n

In line with OECD recommendations and international good practices, in 2010 the Government passed the Resolution approving the Schedule of the Guidelines for Ensuring Transparency in the Operations of the State-Owned Enterprises and Appointing the Coordinating Body (known as the Transparency Guidelines<\/em>), which set high transparency and accountability requirements for all SOEs. In 2012, the Resolution Approving the Schedule of the Procedures for the Implementation of State Property and Non-Property Rights in State-Owned Enterprises (known as the Ownership Guidelines<\/em>), which outlined the Government\u2019s ownership policy for the SOEs. The Ownership Guidelines<\/em> provide decisions on the principles to be followed in defining strategic objectives and setting financial indicators, separating regulatory and ownership functions, forming boards and supervisory boards of SOEs, etc. The Ownership Guidelines<\/em> sets out three key measures to strengthen the governance of SOEs: a strong shareholder, strong corporate executives and clear objectives. In order to strengthen the principles of independence and selection of boards and supervisory boards, the Resolution Approving the Schedule of Procedures for the Nomination of Candidates to the Board of Directors of a State or Municipal Enterprise and Candidates to the Collegial Supervisory or Governing Body of a State- or Municipality-Owned Enterprise to be Elected by the General Meeting (the so called Nomination Guidelines<\/em>) was adopted. The Nomination Guidelines<\/em> formalize the selection process, determine the composition of the collegial bodies of the SOE, requirements for candidates and more. The measure of clear objectives is implemented by setting the target average cost of equity and by preparing letters to companies regarding the State\u2019s objectives and the expectations for the SOEs (Letters of Expectations<\/em>).<\/p>\n

[\/vc_column_text][vc_progress_bar values=”%5B%7B%22label%22%3A%22In%202011%22%2C%22value%22%3A%22152.1%22%7D%2C%7B%22label%22%3A%22In%202012%22%2C%22value%22%3A%2217.7%22%7D%2C%7B%22label%22%3A%22In%202013%22%2C%22value%22%3A%2216.8%22%7D%2C%7B%22label%22%3A%22In%202014%22%2C%22value%22%3A%2274.3%22%7D%2C%7B%22label%22%3A%22In%202015%22%2C%22value%22%3A%22111.4%22%7D%2C%7B%22label%22%3A%22In%202016%22%2C%22value%22%3A%22120.9%22%7D%2C%7B%22label%22%3A%22In%202017%22%2C%22value%22%3A%22173.6%22%7D%2C%7B%22label%22%3A%22in%202018%22%2C%22value%22%3A%22136.2%22%7D%2C%7B%22label%22%3A%22in%202019%22%2C%22value%22%3A%22122.4%22%7D%2C%7B%22label%22%3A%22in%202020%22%2C%22value%22%3A%22150.3%22%7D%2C%7B%22label%22%3A%22in%202021%22%2C%22value%22%3A%22151.3%22%2C%22color%22%3A%22peacoc%22%7D%2C%7B%22label%22%3A%22in%202022%22%2C%22value%22%3A%22189.6%22%2C%22color%22%3A%22sky%22%7D%5D” units=”EUR million of dividends and profit contributions”][vc_column_text]<\/p>\n

Clear objectives<\/h4>\n

In order for SOEs to operate as efficiently as possible and to have clear information about what the state expects from them, the SAI must clearly state the financial goals and expectations for the activities of the companies. As stated in the Ownership Guidelines, “the state, participating in the management of state-owned enterprises, aims to increase business value, yield dividends or profit contributions, ensure national security interests, implement strategic projects or other goals”, therefore, in the VAI’s expectation letters, individual SOEs present the main expectations related to commercial purposes, fulfillment of special obligations, etc. This shows that next to the regulated general state goals for SOEs, such as the financial return requirement, the setting of individualized goals related to specific company activities is increasing.<\/p>\n

Essential recommendations for letters of expectations prepared by VAI are presented in the “Recommendations for the preparation of the letter of the institution representing the state regarding the goals pursued by the state in the state-owned company and the expectations set for the state-owned company” (hereinafter – Expectations Guidelines). These guidelines define the principles of formulating financial and non-financial expectations, establish communication requirements when harmonizing and determining the indicators to be achieved and their values, indicate the obligation to establish basic requirements for special obligations and define accountability requirements.<\/p>\n

Statements of expectations must be an integral part of corporate strategies. Financial and non-financial performance expectations should be ambitious and measurable and quantifiable. In order to monitor the implementation of goals, companies should be regularly assessed as to how they are achieving the set goals. All this information, as determined by the Ownership Guidelines, is publicly available, so these letters must be made public on the websites of SOEs, VAIs and VKCs.<\/p>\n

Separation of commercial and non-commercial functions<\/h4>\n

The companies, which are owned by the state, provide certain services or develop certain products that are necessary for public needs, but they are unprofitable to the companies themselves. These are the non-commercial functions of the SOEs. Perhaps the most apparent examples illustrating the above activities are Lietuvos gele\u017einkeliai (the company carries passengers on certain unprofitable routes) and Lietuvos pa\u0161tas (which provides financially unviable services delivering subscription publications in remote rural areas).<\/p>\n

Since as early as the Restoration of the Independence, the scope of the non-commercial functions of the SOEs and the costs involved have been unclear. As a result, it has not been possible to determine whether the non-commercial functions of the companies have been carried out and funded efficiently.<\/p>\n

In order to solve these problems, the Government encourages all SOEs to define their non-commercial functions clearly and concurrently identify the costs involved. On the basis of the information received from the SOEs, the GCC prepares a report on special obligations (which is part of the annual report on the SOE activities). Giving unambiguous evaluation to the non-commercial functions (special obligations) helps achieve that the state and the public are well aware of how much individual state functions cost and avoid or reduce the manifestations of cross-subsidisation. Optimised financing of the non-commercial functions allows saving some funds and improving the quality of services on offer, thus enhancing the SOE business efficiency.<\/p>\n

Corporate governance and market regulation<\/h4>\n

While controlling SOEs, the state often finds itself in an ambiguous situation. On the one hand, it (through certain institutions) is the shareholder of the SOEs; while on the other hand, it (through other bodies) regulates certain market sectors which its companies operate in. This leads to a conflict of interest, which is sought to be resolved through the separation of corporate governance from market control to the extent possible.<\/span><\/p>\n

The experience of many foreign countries demonstrates that SOEs can operate as efficiently as their peer private companies and that the SOE performance is determined to a great extent by motivated and competent management. The government intends to reform the appointment and motivational systems for the SOE executives and collegial governing and supervisory bodies. The objective of this reform is to attract, to the SOE boards of directors, supervisory boards and top executive positions, more independent competent professionals, who can ensure that the company would be run efficiently and pursue the implementation of the approved strategy. Although the regulation is invariably evolving, at least half of all supervisory board or board members of state-owned enterprises must already meet the independence criteria, i.e. must not serve as civil servants or must not be employed by the state-owned enterprises, they must rather be qualified professionals working in private sector with sound knowledge of the market which the state-owned enterprise operates in as well as financial and strategic planning competencies.<\/span><\/p>\n

Following the reform, SOEs stand on a level playing field with similar private companies in terms of employing executives. Following the practices of the European Union and other countries, audit committees are established and they oversee the companies\u2019 financial reporting process and ensure the efficiency of internal control, internal audit and risk management systems and the prevention of unauthorised activities.<\/span><\/p>\n

Ensuring transparency in the companies’ business<\/h4>\n

Lithuanian SOEs must operate in compliance with the same principles of transparency as the companies listed on the stock exchange.<\/p>\n

The Transparency Guidelines approved by the Government back in July 2010 stipulate that all state-owned enterprises shall keep the accounts in accordance with international accounting standards and prepare sets of both annual and interim (quarterly) reports and financial statements. Since it had been observed that three- and nine-month statements created a rather significant administrative burden, the obligation to have these statements prepared was repealed. The statements are presented to the Governance Coordination Centre and are made public.<\/p>\n

The Governance Coordination Centre draws up summary reports on a regular basis, where it presents the details across the entire portfolio of state-owned enterprises enabling to see combined business and financial performance of the companies over a particular period of time. Every year, the Government and the public are provided with two (annual and semi-annual) summary reports on state-owned enterprises. Such time frames have been chosen in order to establish a practice of regular public corporate accountability, monitor the developments in the state-owned enterprise portfolio and appropriately respond to them by taking expeditious decisions. The annual activity reports of SOEs provide information on enterprises (number and legal form of enterprises, changes in the share of state-owned companies in the authorized capital), overview of SOE management policy, total value of SOEs, overview of financial and non-financial performance, information on fulfillment of special obligations , sponsorship provided by companies, a general overview of the implementation of the remuneration policy of the SOE, as well as other information related to the activities of the SOE. The summary reports and the specified conclusions and proposals are submitted to the Ministry of Economy and Innovation and the authorities representing the state, submitted to the Government within the deadlines set in the Transparency Guidelines<\/em>. The reports are also published on the Governance Coordination Centre website, where the financial statements, annual and semi-annual reports or activity reports of all SOEs and other relevant information is available.<\/p>\n

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The purpose of establishing clear ownership functions is to ensure that the state is an active owner of the assets. It sets the objectives for the enterprises, demands efficient operations and good performance, but does not interfere with the day-to-day activities of the companies. Foreign countries use three models for the implementation of the state ownership functions:<\/span><\/p>\n

    \n
  1. The decentralised one implies a model where the enterprises fall under the ministries which supervise relevant sectors. The main drawbacks of this model are the difficulties in separating the ownership and the regulatory functions and the clear identification of what owns the company. It is often presumed that it is the ministry which is responsible for the day-to-day running of the enterprise and its strategic decisions as opposed to the company\u2019s board of directors.<\/span><\/li>\n
  2. The dual model relies on the approach that the ownership functions are carried out by ministries, but the entire system is coordinated by a single authority. This model is most often opted for by the countries gradually transitioning from decentralised to centralised corporate governance. However, such choice does not eliminate the drawbacks of the decentralised model.<\/span>.<\/li>\n
  3. A centralised model is such where all enterprises are owned by one authority. This model is considered to be the most advanced and the best, and stems from the state-owned enterprise (SOE) reforms implemented abroad over the recent years. Centralisation helps clearly identify the ownership functions and separate them from policy implementation. In addition, this model allows mobilising competent experts and efficiently using their knowledge and expertise<\/span>.<\/li>\n<\/ol>\n

    It is the centralised ownership model that has been introduced across the Scandinavian countries, which were successful in reforming their SOE sector and where the profitability and efficiency of many SOEs are similar to respective results achieved by private companies. At present, Lithuania follows the decentralised model (with the coordinating body at the forefront).<\/span><\/p>\n

    The role of the coordinating body is vested with the Governance Coordination Centre. It is responsible for setting indicators, monitoring them, appraising and forming of collegial bodies as well as integration of governance principles. The ownership function is undertaken by ministries.<\/p>\n

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    Governmental priorities<\/h3>\n

    According to March 13, 2017 approved Government program, consistent management optimization of state-owned enterprises is being carried out. The merger of companies performing the same activities – public authorities and road maintenance companies – was successfully completed, as well as by consolidating and centralizing their management. A review of the activities (functions) of companies and their legal form is being carried out, changing the legal status of a joint-stock company to an AB, etc. The planned improvements of corporate governance include the concentration of institutions undertaking the functions of shareholders, a rollout of good corporate governance practices, the improvement of collegial body nomination process and an increase in the number of independent and professional members of collegial bodies.<\/p>\n

    The Government has confirmed that the key indicator to demonstrate that its working programme has been achieved is a reduction of the SOE. Following the mergers in the road maintenance companies and the forestry enterprises, the number has recently fallen down to 38 from 118 at the start of the Government\u2019s work.<\/p>\n

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    Institutional framework<\/h2>\n

    In Lithuania, the state implements its functions of SOE owner through ministries or subsidiary bodies<\/span>.<\/p>\n

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    Government of the republic of Lithuania<\/h4>\n

    The Government has a role of establishing a strategy for the implementation of the state ownership functions and the main guidelines therefor. It is the key decision-maker on the critical SOE governance matters.<\/p>\n

    However, the Government not only approves the Ownership and the Transparency guidelines and passes other resolutions applicable to all SOEs, but it also deals with the issues related to individual enterprises, i.e. approves large-scale asset transactions, which fall under the remit of the general meeting of shareholders and exceed the asset proportion criteria provided in the legislation, when the institution representing the state may adopt such a decision only with the Government\u2019s approval.<\/p>\n

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    Ministry of the Economy and Innovation<\/h4>\n

    The Ministry of the Economy and Innovation shapes the general SOE governance policy, drafts appropriate pieces of legislation and submits them to the Government. The Ministry of the Economy and Innovation also disposes of and reviews the GCC information designed for the Government and the public, and manages the enterprises, thereby being involved in all stages of the SOE policy development and implementation.<\/p>\n

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    Governance coordination centre<\/h4>\n

    In September 2012, the SOE Governance Coordination Division was founded under Valstyb\u0117s turto fondas. The division has been undertaking the GCC functions provided in the Ownership and the Transparency guidelines, and, since 2017, in the Law on the Management, Use and Disposal of State and Municipal Assets<\/span>:<\/p>\n