Improving Corporate Governance in Kosovo’s Publicly-Owned Enterprises

Participants at the Riinvest conference in Pristina

The concept of corporate governance is relatively new in Kosovo. Although corporate governance was mentioned during the discussions and debates surrounding privatization policy in the immediate post-war period, it was not the central point of the debate as it was mainly used to highlight some of the consequences of alternative methods of privatization. The absence of a stock market and specific regulations for private companies, coupled with a low level of awareness, explain the low level of compliance with corporate governance principles. The only group of companies that are legally expected to comply with these principles are publicly-owned enterprises (POEs), which are utility companies offering basic public services to the citizens of Kosovo. Because of their specific features, the way in which these companies are governed is of central importance.

The Riinvest Institute for Development Research, with the support of CIPE, was the first organization in Kosovo to organize seminars and conferences on the topic of corporate governance particularly in POEs. These activities have created a positive impact in this field in the country. By increasing awareness for the need for corporate governance, they have improved the legal framework and also managed to achieve positive changes in the implementation of OECD corporate governance principles.

Over this last year, Riinvest has been working on a follow-up study analyzing the challenges faced by the Kosovo government in the process of strengthening corporate governance in POEs. By using primary and secondary data, this study analyzes the developments achieved from the last evaluation made in 2008.

On November 13, 2012, Riinvest organized a conference in Pristina to present the findings of the follow-up study. The event gathered representatives of the most important institutions in Kosovo, including parliament, the government, and civil society organizations. The findings of the research were generally accepted and some excellent additional insights were given which are being incorporated in the final version of the report.

The study finds that progress has been made in the legal and institutional frameworks; however, implementation of legal provisions, including monitoring and supervision, has stagnated. The most contested issue remains the appointment of board members. The political influence of the ruling party in both the appointment of the board members and deciding on policies of the company were highlighted as endemic.

Board members were elected on the basis of their political affiliations and not their merits and qualifications. As a consequence, POEs have been historically mismanaged and systematically depreciated. This problem becomes especially important in current conditions when Kosovo’s government, as an owner in trust of central POEs, has made its position clear, which is to involve the private sector in these industries.

Weak corporate governance discourages strategic investors and consequently vital sectors run the risk of being transferred to dubious owners. Within the Kosovo government, a monitoring unit has been established to oversee the functioning of POEs and to support the government in exercising property rights. However, this unit has limited capacities and their reporting to the government is marred by frequent delays.  While the delays mainly come from the POEs themselves, no penalties are applied to discipline this behavior.  In turn, the government does not act as an informed or responsible owner.

Under current conditions, improvements in the legal framework to minimize political influence, coupled with increased pressure from the parliament and civil society organizations, are the key reforms that need to be pursued to ensure better corporate governance of POEs.

Alban Hashani is the Research Director of the Riinvest Institute for Development Research.