# _SOE Management_

Attempts to improve the efficiency of State-Owned Enterprises through governance reforms are not new –frustration with an earlier round of such efforts in the 1970s and 1980s was one factor behind the push for private participation. Many approaches have not been carefully evaluated, and what we do know suggests mixed impacts (Irwin and Yamamoto, 2004, Gomez-Ibanez, 2006). Nonetheless, where full privatization is not an option, state-owned enterprises may still benefit from a number of internal and external governance measures, even if hopes for dramatic improvement should be tempered.

A first step is to extend alternatives to centralized monopoly provision where possible. Extending competition through deregulation or contracting out of non-core operations is one possibility. For smaller firms, (for example, local water operatives), customergoverned enterprises such as cooperatives may be an attractive option (Gomez-Ibanez, 2006).

Corporatization is an additional tool. This is designed to strengthen SOE autonomy, through a separate statutory authority, with a distinct legal identity, separate accounts and its own board of directors (preferably including members from the private sector and stakeholder groups as well as government) (Gomez-Ibanez, 2006). Full corporatization requires the enterprise to be incorporated under the same laws that govern private corporations.<sup>19</sup> Management is given considerable autonomy in areas such as HR, financial management, pricing (under regulation) and service provision. Measures of autonomy in these areas have been associated with considerably better performance in terms of coverage and quality in an econometric analysis of water utilities from Africa, Asia and the Middle East (Braadbaart et. al., 2007).

The World Bank has been involved in a number of such SOE reform efforts in infrastructure (See Box 7). The case of Chile’s performance in public works points out that there is also a role to extend the independent state-owned agency model beyond infrastructure to construction. Tanzania’s TANROADS agency has also moved some distance towards this model –supported by a hypothecated roads fund, emphasizing maintenance over investment and utilizing performance agreements with private contractors. A somewhat similar effort to establish a Road Sector Development Team overseeing output-based contracts in Nigeria is under development.

The experience of developed countries suggests that corporatization alone is a necessary but not sufficient condition to improve performance. Focusing only on the internal

> 19 SOEs might be owned by a body independent of sectoral ministries (on the model of Temasek, Singapore’s national holding company overseen by the Ministry of Finance, or the Indonesian Ministry of State Owned Enterprises).  Uganda’s Parastatal Monitoring Unit has the responsibility of publishing reports based on SOE submission of audited accounts and a certification of the safekeeping of the enterprise’s assets that summarize financial and operational performance, agreed actions to improve that performance, the value of direct and indirect government subsidies and the value and terms of debt stock (Irwin and Yamamoto, 2004).  At the same time, such approaches may create another level of decision-making, and their ability to prevent government intervention in management on short-term political grounds has proven limited (performance contracts have often suffered the same fate) (Gomez-Ibanez, 2006)

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