This week’s presentation of the Proposal for the Law on Legal Entities Owned by the Republic of Croatia is worth 835.6 million euros. This amount represents the sixth tranche of funds from the Recovery and Resilience Mechanism that has been halted because Croatia did not timely adopt, in simplified terms, the promised corporate governance rules for state-owned companies. Although the draft law, experts claim, was ready a year ago, the political conditions for its release into procedure had not been met. The most likely reason was the internal struggles within the government (i.e., the HDZ), as the new rules bring new power relations.
Judging by what can be gleaned from the materials presented at the meeting of the Economic and Social Council, the pendulum of management of companies of strategic state interest is swinging from the responsible ministries, primarily the Ministry of the Sea, Transport and Infrastructure, to the Ministry of Finance. Namely, the umbrella institution will become the Coordination, which will be located in the Ministry of Finance. Given the power relations within the HDZ and the fact that this difficult decision has been postponed for several years, the determination of Finance Minister Marko Primorac to make a step forward should be commended. After all, the Proposal for the Law clearly states that the existing legal framework has not achieved the necessary efficiency in managing state assets.
Nothing from the holding
It is a pity that there has not been a significant step forward in establishing a state holding, an independently managed institution that has long existed in Slovenia, Austria, and many other developed countries. Coordination instead of a holding is somewhat like a loose confederation. But, well, that could be better than what we currently do not have.
And we do not have a state ownership policy towards strategic state companies (HEP, Croatian Forests, Croatian Roads, Janaf, Jadrolinija…). It would be hard for someone from the outside to believe, but Croatia, even after thirty years of independence, does not have in writing what it wants from the management of the aforementioned companies as an owner. Thus, the managements of these state companies set fluid and non-binding goals for themselves. They do not get fired from their positions for not achieving some KPI, but only if some scandals are revealed about the managers. Or if they displease the leadership of the party that appointed them.
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In the discussions that will follow in the process of adopting the law on legal entities owned by the Republic of Croatia, it is very likely that the hook on which the majority will get caught will be the composition of supervisory boards, the manner in which they will be elected, what the criteria for independence are, and how much money can be obtained for the position. Perhaps someone will touch on the ambiguities regarding who has the final say. The Ministry of Finance or some other ministry? Because the election of the supervisory board is, as it were, under the jurisdiction of the Ministry of Finance, but the assembly would, as it stands now, still be represented by the relevant minister.
However, attention should primarily be paid to the state ownership policy towards HEP, Croatian Forests, Croatian Roads, and another thirty strategic companies. And to the setting of financial and non-financial goals and sustainability goals. Objectively, this is difficult to define. For example, put on paper what goals Croatian Electricity Company should have, and what tasks should be set for the Management. Is the current security of supply more important or maximizing profit to invest in the distribution network and renewable energy sources?
Or what to define as the interest of the state owner towards Croatian Forests? To preserve forests for future generations or to sell timber to the domestic wood industry at favorable prices so that it can be more competitive in markets where other countries subsidize their processors? Is the goal of Croatia Airlines to transport as many passengers as possible or to achieve a profit margin of, for example, five percent per year?
HEP has no strategy
It is difficult to define answers at a strategic level. And it is even harder to translate that into ‘relevant, clear, precise, measurable, and time-bound’ criteria. No matter how difficult it is, it should have started long ago. Namely, it is absurd that a system like HEP does not have an official development strategy that has been approved by the owner. It does not exist!
The discussion that will follow regarding the proposal for new management of state companies (in addition to strategic companies at the state level, there are also about 800 companies at local levels, the exact number is not known…) should be used for a greater shift. Ownership policies, for example, should perhaps be determined by the Parliament, not the current government. It would be good to raise the question of why not establish a state holding.
It would be a shame if a strategically important law turned out to be just meeting minimal criteria so that Croatia receives a passing grade from the OECD and the administration in Brussels finally releases the frozen 835.6 million euros.
