# **<mark>Box 6</mark>**

# **<mark>Decentralized models: the cases of Bosnia and Herzegovina (BIH) and Zambia</mark>**

<mark>In BiH, corporatisation was slow process, partly as a result of the challenge of producing inventories of assets and liabilities for the successor utilities. The utilities were initially chartered under special sectoral legislation, but later transformed into government‐owned joint stock companies under company laws mandating a dual board structure. In both entities of BiH, in the case of the power utilities it was the Ministry of Energy which was responsible for representing the government’s ownership interest, with the Minister or Assistant of Energy sitting as Chairman of the utilities’ Supervisory Boards. In theory, members of Supervisory Boards have employment contracts with the company, and can only be removed with due cause. In practice, all members of Supervisory Boards, at all levels of government, are replaced when a new government takes office. This reinforces the perception that Supervisory Boards fulfill a political or regulatory role, the goals of which are set by the government in office; rather than a professional one, the goal of which is to ensure that the utility is operated as a going concern. Also in the case of Zambia, Ministers and boards of utilities and of regulators come and go.</mark> <mark>In Zambia several attempts to privatize infrastructure utilities including the electricity vertically integrated company ZESCO were abandoned, due to both to global changes in the appetite of strategic players and a growing domestic opposition to private sector involvement. The Commercialization strategy encompassed the revision of legal provisions of ZESCO, including an amendment to ZESCO’s Articles of Association and the composition of its Board to ensure independence from political interference and to provide a mandate to operate on commercial principles. In spite of the progress in commercialization, the utilities’ Boards of Directors do not exert the most important influence on the company. The crucial oversight relationships are not between the utility and its formal government and regulatory overseers – but between the chief executive of the utility and the office of the President. In electricity, the same individual was chief executive of ZESCO, the dominant vertically integrated electricity utility throughout the ten‐year Chiluba era. President Mwanawasa followed a similar pattern by appointing a trusted confidante as successor. In telecommunications, President Mwanawasa also appointed a new and trusted chief executive of Zamtel upon acceding to power. When the Chair of the board of the regulatory agency unilaterally fired him, within days, the board of the regulatory agency was dissolved.</mark> _<mark>Source:</mark>_ <mark>Martin and Cox (2004) Vagliasindi and Verbeek (2008)</mark> The first factor is the size of the shareholding of the State (whether the state holds a majority or minority share in the company). There are separate sets of MoST Principles for supervisory board members of wholly, majority and minority state‐owned SOEs. The second factor is whether the company’s operations focus on strategic sectors of the economy (e.g. the energy sector). In the case of strategic sectors, the exercise of ownership rights is done in consultation with the sectoral ministries (see Box 7).

The Polish case provides useful lessons, in many respects. In the case of manufacturing enterprises it highlights the advantages of the centralized model in monitoring SOE performance and governance. In the case of infrastructure SOEs, it provides strong evidence of the difficulty of applying a purely centralized model, since infrastructure service providers are considered as “ strategic” enterprises, not subject to the same governance arrangement as other SOEs.

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