Board directors to be accountable for failure
The finance minister and 13 state-owned enterprises (SOEs) yesterday signed an annual performance pact (APC), one of the targets of which is to promote good corporate governance culture.
The financial year of SOEs are aligned with the calendar year but the signing of the APC for this year was delayed due to the Covid-19 pandemic.
Although the details of each of the SOE’s targets were not shared with the media, the APC in general requires SOEs to resort to innovative ways of providing services and come up with innovative products.
Speaking at the signing, Finance Minister Namgay Tshering said SOEs’ survival should purely depend on innovation, not on dominance.
In the long run, however, the finance minister said that the full-fledged SOEs should work towards handing over the activities of commercial nature to the private sector.
The finance minister said, “It’s a paradox that while every government has been emphasising on the need to develop the private sector, the number of SOEs have been increasing.” He said that the existence of the SOEs would depend on their relevance in the economy.
Gradually, he said, that SOEs must divest shares as part of their strategy to bring the private sector on board. He assured the government’s support to the SOEs without hindering the private sector growth.
“The signing of the APC today is a stepping stone for us to collectively bring reforms in SOEs and the corporate governance culture. This will help SOEs work with focused targets and enable the government to fix the accountability,” he said.
The key objectives of the APC are to provide companies with a framework for annual targets, review and evaluation of the targets. This is expected to improve the performance of SOEs, fix accountability, enhance transparency, provide clear directions for the SOEs and their boards.
There are 16 SOEs under the finance ministry. But the ministry signed the APC only with 13 SOEs that are fully owned, which include Bhutan Helicopter Services Ltd., Farm Machinery Corporation Ltd., Bhutan Broadcasting Services Ltd., Bhutan Development Bank Ltd., National Housing Development Corporation Ltd. and National CSI Bank Ltd.
APC not a political bond
The finance minister requested the representatives of the SOEs not to construe the APC as government’s involvement in the operations of SOEs. He assured “zero political interference” in the functioning of the SOEs.
But he added, “In case of failures or lapses on part of the SOEs, we will question not the management but the board. If the management is not functioning, we will leave that decision to take action to the board,” he said.
According to the finance minister, the performance of the SOEs will not be judged solely on the financial performance given their social mandate. “SOEs’ mandate should be dynamic, not static.”
Citing the Constitution and the Public Finance Act, Lyonpo Namgay Tshering said that SOEs have an important role to play in narrowing the economic gap. He said that SOEs should capitalise on the areas of economic opportunities where the private sector cannot reach.
A press release from the finance ministry states that SOEs constitute a vital component of the economy and play a strategic role in the socio-economic development of the country. “They operate in key strategic sectors of the economy and have been the engine of growth.”
SOEs have been a major source of revenue to the government, employment generation and wealth creation. The government as the shareholder plays an important role exercising ownership role in the best interest of the general public and the nation.
The APC forms a critical component of good corporate governance and with the signing of APC, that is expected to be enhanced. It is also expected to build close coordination and working relationship between the finance ministry and the SOEs.
The Public Finance (amendment) Act 2012 mandates the finance ministry to manage government investments in SOEs for long-term benefits of the country and the people. In addition, the Corporate Governance Guidelines 2019 requires the respective boards of SOEs to sign APC with the finance minister.
The government would provide support in terms of operational subsidy and equity injections depending on the need in the next financial year.
The SOEs, including DHI-owned, provide employment for about 12,600 people, out of which about 3600 are in the finance ministry-owned SOEs.
SOEs, including DHI companies, generate about 30 percent of annual domestic revenue.