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Ukraine prepares to take corporate governance reforms in the electricity sector to the next level

 

The OECD will conduct an online launch of the publication State-Owned Enterprise Reform in the Electricity Sector in Ukraine and kick off Ukraine’s adherence review against the OECD Guidelines on Corporate Governance of State-Owned Enterprises on 22 June 2020, starting at 11:00am EEST (10:00am CEST). The event will open with a keynote by Prime Minister Denys Shmyhal of Ukraine and will be attended by high-level representatives from Ukraine, OECD member countries and IFIs.


22/06/2020 - Ukraine has made strong commitments and significant progress in reforming the corporate governance of state-owned enterprises (SOEs) in recent years. To ensure a sustainable reform process in line with international standards, these efforts now need to be translated into a more comprehensive legislative framework and stronger policy frameworks, according to a new OECD review.

State-Owned Enterprise Reform in the Electricity Sector in Ukraine analyses the recent reform of SOEs in Ukraine’s electricity sector with a focus on the energy company Ukrenergo as a case study. The review commends the reforms implemented in Ukraine’s SOE sector since 2014. These include the gradual corporatisation of SOEs, the establishment of independent boards for its ten most important SOEs, new transparency and disclosure requirements and the introduction of mandatory independent external audits for economically important SOEs. The review also recognises Ukraine’s broader reform in its energy sector with a view to liberalising energy markets and ensuring European integration. SOE governance is a crucial aspect of this effort, as European requirements set out clear expectations for the role and corporate governance of SOEs.

More must be done, however, to entrench these reforms in robust legislative and policy frameworks and to reduce the risk of ad hoc changes and undue political interference. The review recommends that the government establish a professionalised ownership entity that either centralises or co-ordinates ownership at arm’s length from policymaking and regulation to shield SOEs from unwarranted and ad hoc interventions. The review also points out that SOE reform, and particularly that of Ukrenergo, needs to be combined with improvements in the design and functioning of the newly-launched electricity market.

More can be done to ensure that the design and structure of the electricity market are aligned with the intentions of the reform. Key challenges relate to the risk of abuse of market power; public service obligations for SOEs; unclear solutions to debt settlement for SOEs; the adequacy of tariffs; and the risk of corruption and rent-seeking. To address these concerns, Ukraine needs better regulation, a stronger competition policy framework, stronger anti-corruption institutions, more solid corporate governance management capacities and greater opening of the market to investment.

The review identifies 19 detailed recommendations that draw on the OECD Guidelines on Corporate Governance of State-Owned Enterprises (OECD SOE Guidelines), both as a point of departure and as a roadmap for reform going forward. At Ukraine’s request, the OECD will participate in monitoring implementation in the next phase of the work over the course of 2020-21. This will involve evaluating Ukraine’s national position relative to the OECD SOE Guidelines.

The OECD and Ukraine have worked together since 1991 to improve governance and stimulate economic development. In 2014, the two parties signed a Memorandum of Understanding (MoU) and developed a joint Action Plan to identify the priority areas for OECD work in Ukraine. This work has helped build capacity, strengthen institutions, and support reforms in many areas of public policy, including investment, competition, public administration and corporate governance. The OECD is supporting Ukraine’s energy sector reform with the financial support of the Government of Norway.

 

Download State-Owned Enterprise Reform in the Electricity Sector in Ukraine

 

 

For further information, journalists can contact Sara Sultan Balbuena (sara.sultan@oecd.org) and Arijete Idrizi (arijete.idrizi@oecd.org) in the OECD’s Directorate for Financial and Enterprise Affairs, or Gabriela Miranda (gabriela.miranda@oecd.org), OECD’s Ukraine Country Manager.


Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.

 

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