Natl Audit Office finds many problems in governance of public companies

Photo: Peeter Langovits

The National Audit Office finds in a fresh report that the management of the operations of Estonia's public undertakings and owner's supervision over them has basically not improved at all in five years, as often the state does not know why it maintains a certain undertaking and what it expects from it.

The state has not set clear goals for the undertakings and doesn't check whether goals are achieved. Regardless of that, public undertakings have been given several hundred million euros of taxpayer money.

The audit revealed that the owner of public undertakings has often not set any goals for them – almost half of the audited undertakings had no strategy approved by the supervisory board. As at the beginning of 2013, the country's biggest state held company, Eesti Energia, did not have a strategy approved by the supervisory board either. In undertakings that do have such a strategy, the supervisory board does not assess its implementation and the achievement of the goals set, National Audit Office said.

Of the nine companies audited – Eesti Energia, Elering, Estonian Air, Eesti Railways, Estonian Air Navigation Services, Port of Tallinn, Eesti Loto, Andmevara and Eesti Kaardikeskus – only at Elering did the supervisory board assess the strategy and its implementation every year.

The lack of strategy, however, has not prevented the enterprises from investing and the state from giving them hundreds of millions of euros. The state had given the audited undertakings approximately 227 million euros from the state budget over the period from 2006-2012.

Interviews conducted in the course of the audit also revealed that officials, management board members and in some cases also the chairmen of supervisory boards find that the capability of supervisory boards of having a say in setting goals for the undertakings and tracking progress against these goals is often poor. The reasons named are the practice by which supervisory boards are formed and lack of transparency in the appointment of members, which means that the people on the supervisory boards do not have the necessary skills and knowledge.

It is also somewhat unclear what the owner actually expects from supervisory board members in the management of the undertaking and how a member of the supervisory board should be held responsible if the undertaking's performance deteriorates significantly as a result of the member's incompetence or negligence.

Minister of Economic Affairs and Communications Juhan Parts, who by virtue of office is responsible for the biggest public undertakings, agreed with the conclusions made by the National Audit Office and found that its recommendations were largely appropriate.

Minister of Finance Jurgen Ligi as the minister who coordinates the management of public undertakings did find that the governance of holdings can be improved further, but only agreed with one of the recommendations made by the National Audit Office. The minister basically agreed with the National Audit Office that all undertakings must have a strategy and budget, and promised to analyze whether the State Assets Act needs to be amended.

Minister of Environment Keit Pentus-Rosimannus, Minister of Interior Ken-Marti Vaher and the managers of the audited businesses largely agreed with the conclusions and recommendations made by the National Audit Office.

Estonia's public undertakings own five billion euros worth of assets, that is, approximately a quarter of all assets of the public sector.