The efficient administration of state-owned enterprises is a challenge in the region

(La Paz, August 30, 2011).- The International Seminar on Good Management Practices for State-owned Enterprises (SOEs) organized jointly by CAF –Latin American development bank- and the Ministry of Development Planning was held with the participation of managers and board members of state-owned enterprises and persons responsible for designing public policies.

The purpose of the event was to facilitate access to successful experiences and good management practices in countries of the region for decision-makers at strategic state-owned enterprises and also to promote the efficient management of those enterprises.

Development Planning Minister Viviana Caro –who opened the seminar- stated that, after the nationalization of strategic companies during President Evo Morales’s term in office, one of the biggest challenges has been the efficient management of those companies by implementing administration models based on good management and governance practices, but with a vision of development and inclusion of social issues.

“From the State’s point of view, strategic companies should not only achieve surpluses, but they also have the obligation to contribute to generating the development of policies of equality and social growth.”

The minister admitted that achieving a balance between generating surpluses and contributing to social development is a difficult task; she also pointed out, however, that there are experiences that show that it can be done, highlighting the examples of administration of state-owned enterprises in Colombia and Peru presented at the seminar.

Michael Penfold, CAF’s Director of Public Policies and Competitiveness, stressed that CAF has a comprehensive vision when it comes to the management of public assets, and in this context, he considers that any company, regardless of its type of ownership, has to invest time and resources in good management.

He commented that the State should assume its role as an active and responsible shareholder and permit the appointment of boards of directors that are aligned with the state-owned enterprises’ long-term strategies and a professionalization of management that will permit targeted objectives to be actually achieved.

He maintained that all this implies very close coordination by the State, the boards of directors of the state-owned companies, and professional management.

Experiences

Carla Meza, an executive of Colombia’s Empresa Pública de Medellín (EPM), an enterprise whose sole owner is the municipality of Medellín and that has subsidiaries in Central America, the United States, and Spain, maintained that the principles that govern relations between this company that provides energy, water, and telecommunications services and its shareholder are transparency, responsible autonomy in its management, efficiency, and productivity, principles that “have allowed the company to be sustainable for 56 years.”

As for results, Meza said that the most important thing is for the profits that are handed over to the municipality to be sustainable over time, which allows the authorities to manage investment in social areas and benefits the inhabitants of the municipality of Medellín in general.

Mario Gonzales, the executive director of Peru’s National Fund for Financing Activities of State-owned Enterprises (FONAFE), the Peruvian State’s holding company that holds the political and economic rights over the shares of more than 40 state-owned companies, explained that the mission of this agency is to promote efficiency in the State’s corporate activities, thereby contributing to the well-being and development of the country. He also explained that one experience that is producing very positive results in his country is the “budget for results” model, which makes it possible to better control spending. “With this model, achievements are presented and the budget is allocated based on those achievements. In order to be successful, this model requires good auditing mechanisms, which, in Peru’s case, are quarterly,” he said.

He commented that, in Peru, they have managed to establish a single set of management guidelines for the State, which has standardized definitions of the functions and the funding and spending control procedures for state-owned enterprises so that they are managed in accordance with the same concepts.