OECD Review of the Corporate Governance of State‑Owned Enterprises in Thailand

3. Conclusions and recommendations

Abstract

This chapter provides conclusions emanating from the review, along with policy recommendations to help Thai authorities implement planned reforms and undertake further changes to better align Thailand with the revised OECD Guidelines on Corporate Governance of State-Owned Enterprises.

The Government of Thailand has made important strides in enhancing the framework for the ownership and corporate governance of state-owned enterprises (SOEs) in recent years. Key advancements include the establishment of the State Enterprise Policy Committee (SEPC) in 2014, formalised as a legal entity in 2019, along with the designation of the State Enterprise Policy Office (SEPO) within the Ministry of Finance to act as the SEPC's secretariat and as an ownership entity to oversee supervision and monitoring of the government’s 52 most economically significant SOEs. This was complemented by the enactment of the new Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) (“2019 SOE Act”) and 2019 Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E. 2562 (2019) (“2019 Principles and Guidelines”), providing comprehensive guidance for the SOE sector.

Operational enhancements include the SOE Development Plan B.E. 2566-2570 introduced by SEPO in November 2022, outlining strategic directions and objectives aligned with national policies. A refined performance evaluation framework, synchronised with the five-year economic plan, has also been implemented. Looking ahead, the government plans to revise the 2019 Principles and Guidelines to align more closely with SOE Guidelines and international best practices on a regular five-year basis.

However, significant challenges persist. The majority of centrally-held SOEs are organised as statutory corporations, affording them various exemptions from laws and regulations, including those related to disclosure and board practices that apply to private incorporated companies. State ownership and market regulatory functions frequently intertwine, with major SOEs assuming a dual role as both market actors and regulators in many instances. Regulations governing SOE management, when influenced by government policy objectives, blur the lines between business operations and political authority, complicating oversight.

Competitive neutrality issues arise from regulations favouring SOEs over private entities, including exemptions from competition law and corporate taxes, and preferential treatment in public procurement. Political involvement in board and CEO appointments, and varying independence criteria, further challenge governance integrity and may increase the potential for conflicts of interest.

While the Ministry of Finance establishes internal audit standards, external independent audits by accredited audit firms are not clearly mandated, instead most SOEs are audited by the state audit body. Finally, the 2019 Principles and Guidelines operate on a comply-or-explain basis and lack enforcement mechanisms, resulting in sporadic compliance by SOEs, in particular with regards to transparency and disclosure and risk management.

3.1. Recommendations

At the request of Thailand, this report reviewed the Thai SOE corporate governance framework relative to the revised OECD Guidelines on Corporate Governance of State-Owned Enterprises. The Guidelines were developed by the Working Party on State-Ownership and Privatisation Practices to help governments ensure that their SOEs are competitive, efficient, and transparent. The implementation of the Guidelines can be important for Thailand given the prominent role of SOEs in the economy.

This report identifies several areas for consideration by Thai authorities to improve the corporate governance framework applicable to SOEs. These are summarised below by theme:

State’s role as an owner

• Strengthen SEPO’s oversight role. While SEPO acts as the coordination body through its supervision and management of SOEs, its lack of enforcement powers hinders its effectiveness. The state should enhance SEPO’s oversight role over SOEs.

• Simplify and standardise the legal forms under which SOEs operate. Currently, SOEs in Thailand operate under five different legal forms. The state should simplify and standardise these legal forms, incorporating SOEs to the extent possible, and ensuring that the same corporate norms applicable to private companies apply to the economic activities of SOEs. Such measure would avoid granting SOEs a special status or privileges unless such privileges are absolutely necessary for achieving public policy objectives. Standardising the legal forms of SOEs would also enhance transparency.

State-owned enterprises in the marketplace

• Establish a policy framework for ensuring competitive neutrality. Economically significant SOEs are exempted from the Trade Competition Act, especially in relation to the public interest exemption. Collaboration between the competition authority and regulatory bodies may be required in specific sectors to ensure policy coherence and avoid unintentional competition distortions. Furthermore, the government should grant the Competition Authority the necessary powers to effectively enforce actions against anti-competitive behaviours exhibited by SOEs.

• Ensure major SOEs do not have a dual role as both market actor and regulator. SOEs should not have regulatory powers, in general, and especially not in the sectors in which they are market actors. Regulatory powers should be entrusted with relevant state institutions and separated from any ownership functions to alleviate conflicts of interest and increase accountability and transparency.

• Ensure transparency regarding state support measures. The state should ensure full disclosure on any state support, financial assistance or subsidies received by SOEs. This approach is essential for fostering fair competition and averting potential for market distortions where SOEs compete in the marketplace. In particular, where SOEs carry out public service obligations (PSOs), there is a need for more consistent compliance by SOEs on the maintenance of separate accounts between PSO and other activities, and their reporting.

• Enhance transparency during the procurement process. SOEs as bidders sometimes receive preferential treatment, for example, through the Ministry of Finance’s Regulation on the Procurement of Supported Goods B.E., 2563 (2020). The state should adopt mechanisms to ensure that the procurement process is transparent and competitive.

Strengthening board autonomy and independence

• Supervisory boards should have independence in decision-making regarding the operations of the SOE. This involves providing a clear definition of independent directors to prevent conflicts of interest, increasing the proportion of truly independent directors on boards, and reducing the overall number of directors to enhance board efficiency. The criteria for independent directors should also be standardised. Furthermore, it is advisable to refrain from specifying ex officio directors, in legislation. This helps to support more independent decision-making in the board for the benefit of the SOEs.

• Establishing a monitoring and evaluation system for the performance of SOE boards. Currently, monitoring and evaluation of SOE board performance primarily serve internal purposes. To better align with the state's role as a shareholder, it is crucial to selectively share evaluation results that directly impact the board nomination process. This approach ensures that the state is informed of relevant findings without compromising the candor or integrity of the evaluations, thereby supporting more informed decision-making for future board appointments.

Enhancing accountability, transparency and disclosure

• Consistently require independent external auditing of SOEs by accredited auditing firms. External independent audit should be a requirement for all SOEs and state audit procedures, such as audits conducted by the State Audit Office, should not serve as a substitute.

• Upgrade financial and non-financial reporting. The 2019 Principles and Guidelines state that SOEs may refer to the Corporate Governance Code for Listed Companies 2017 for disclosure guidelines. However, as mentioned previously, the 2019 Principles and Guidelines are implemented by SOEs on a comply-or-explain basis. Compliance with disclosure requirements by SOEs also appears sporadic and lacks enforcement. The state should take measures to ensure that disclosure requirements are systematically implemented by all SOEs and are actively monitored by the ownership entity.

• Adhering to international practice in internal control and risk management. The 2019 Principles and Guidelines specifies that the boards of SOEs should formulate a risk management policy, which should be reviewed annually, and establish a risk management committee for evaluating and supervising risks. Ownership entities should take care to ensure that these measures are complied with by directors, and that the members of the risk management committee possess adequate qualifications. Independent evaluations of the risk management systems could be conducted periodically to provide an objective assessment of their effectiveness. Additionally, ongoing training for board members on their risk management best practices and emerging risks could be provided to enhance their oversight capabilities.

Incorporating sustainability into the state ownership policy

• State-owned enterprises, particularly in the energy, transportation and infrastructure sectors account for substantial sources of greenhouse gas emissions. The state should set specific and ambitious sustainability-related expectations for SOEs, and these should be reflected in future revisions of Thailand’s 2019 SOE Act, State Enterprise Development Plan and 2019 Principles and Guidelines.