Healthy, transparent, and accountable business sector institutions are critical for securing sustainable peace in Kosovo’s society. Declaration of Kosovo’s independence in February 2008 and thus resolution of its political status is expected to encourage greater investment and facilitate the country joining international financial institutions in the near future. Thus it is important to strengthen the governance systems in the enterprise sector and especially in the publicly-owned enterprises (POEs) which are the largest enterprises in Kosovo.
POEs in particular are susceptible to insider dealing and corruption. The situation is due to non-transparent practices and prevalent conflicts of interest of board members and company managers. Therefore the advancement of corporate governance (CG) principles is critical to improving the overall business climate.
In 2006, CIPE supported the Riinvest Institute for Development Research to carry out a program that introduced CG principles in POEs based on universally-accepted OECD standards. As a result, the Code on Corporate Governance for POEs was approved by the Kosovo Trust Agency (KTA), adopting the full set of Riinvest’s recommendations. In addition, Kosovo’s two largest POEs – the Electricity Corporation of Kosova and Post and Telecommunications Corporation of Kosova (PTK) – adopted CG standards in their operations and separated governance and managerial structures. However, full implementation of CG principles needed continued support and commitment from all the stakeholders.
In 2008, Riinvest revisited POEs’ corporate governance practices and released the results of its study on July 1. Riinvest’s President Muhamet Mustafa mentioned that this was a new practice in Kosovo that an organization follows up with a study to enhance outputs of the previous project and make them more sustainable.
The study found that although the KTA approved and published the Code on Corporate Governance of POEs, the code was not finally implemented. With the exception of Pristine International Airport, no other POE boards monitored the implementation of the code. It became clear that the government did not have a mechanism to ensure the implementation of the code by POEs which did not encourage POEs to fully adopt and follow CG practices.
Riinvest’s study found some positive developments as well. For instance, the boards of PTK and of Electricity Transmission System and Market Operator (KOSTT) were made of professionals rather than political appointees. In this way, the composition of these boards reflected the specific interest of the companies. Some POEs established Executive Committees to advise the full boards on particular issues. POEs were now more likely to link remuneration with management performance.
Other findings showed that the audited reports of POEs were not always made available to public and other stakeholders. KOSTT was the only POE that made public its audited financial report for 2007 with positive opinion from external auditors. PTK was the only POE that published its full annual report. However, none of POEs disclosed the remuneration of their top management. The study concluded that POEs in Kosovo are taking small steps in improving their transparency, disclosure, and full adoption of CG. Even though POEs need to show much more progress to fully comply with CG standards and Riinvest’s findings show some positive signs in the right direction.
On June 15, 2008, the parliament adopted a new law on POEs, however, Riinvest experts believe that the law seems to be biased towards concentrating ownership and control rights of all POEs within the Ministry of Finance and Economy. Such structure reduces the independence of POEs’ boards and management. The new law has also positive features like the recognition of the importance of corporate governance and requiring the adoption and implementation of the CG code by POEs.
The new law’s shortcomings need to be addressed in the near future to ensure that POEs are governed effectively and in the interest of the public. At the same time, Riinvest believes that steps must to be taken to restructure and privatize the POEs for Kosovo to be able to attract foreign investment and continue improving its business climate.
Published Date: December 02, 2008