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State-Owned Enterprises – Do They Need Stronger Rules ?. International Conference , Prague 5th October 2011 Deputy Director General (R) Morten M. Kallevig Ownership Department, Norwegian M T I. Introductory remarks :. SOEs – a strange animal?

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state owned enterprises do they need stronger rules

State-Owned Enterprises – Do TheyNeedStrongerRules?

International Conference, Prague 5th October 2011

DeputyDirector General (R) Morten M. Kallevig

Ownership Department, Norwegian M T I

introductory remarks
Introductoryremarks:
  • SOEs – a strange animal?
  • Business activities – not for thebeaurocrats
  • Not fair to all, butegoistic and profitable
  • The Minister should not be responsible for day-to-day business decisions
  • Parliamentdecidesonsizeof State Ownership and budgetaryissues
why is a soe established
Why is a SOE established?
  • Historicalreasons, crises, nationalizations
  • Safeguardnationalownershipofkeycompanies
  • Retaincontrol over naturalresources
  • Secure a stable ownershipstructure
  • Control industrialdevelopment and production
  • ”Strategicreasons”
different legal framework
Different legal framework:
  • Limited Public Company Act
  • State-owned Enterprises Act
  • Special (individual) Company Act
  • Agency, Crown Corporation
  • GovernmentOwnedEntity

SOEsinclude all form ofcompanieswhere a State has a stronginterest as a shareholder

why should we have soes
Whyshouldwe have SOEs?
  • An activityneedsfreedom to operate under market conditions, free from thestatebudget
  • Must establishits business strategy and budget
  • Must be able to decideonproducts and prices; procurement and wages
  • Must operate under business conditions, in competitionwiththe private sector
boards of directors
BoardsofDirectors:
  • Hire (and fire) the Chief ExecutiveOfficer
  • Control Management and resultdevelopment
  • Strategic issues, ethical rules, CSR
  • No active politicians or ministry officials
  • Competence, diversity, evaluations
  • 1/3 elected by and amongtheemployees
  • 40 % ofeachgender
the state as an owner
The State as an owner
  • Acting at a General MeetingofShareholders
  • Electionof a competentBoardofDirectors
  • Setting aims for returnoncapital and dividends
  • Working for fair shareholderreturns and long-termindustrialdevelopmentofthecompany
  • Predictable and professionalownership, transparency and reporting, long-termpolicies
norwegian categories
NorwegianCategories:
  • Companieswithcommercialobjectives
  • Companieswithcommercialobjectives, ensuring head officefunctions in thecountry
  • Companieswithcommercial and otherspecificdefinesobjectives
  • Companieswithsectoralobjectives
supplementary material
Supplementary material:

Norwegian State ownership – developments

Ownership Department, MTI – key facts

Policy, 10 principles and implementation

Relationship Ministry – Board of Directors

important historical events
Important historical events
  • 1945 ->: Industrial development after WW2
    • State involved / driving force
      • Metals -> major owner in Norsk Hydro, Norsk Jernverk
      • Oil and gas -> major owner in Statoil
      • Energy -> owner of Statkraft
      • Military Companies -> Kongsberg, Raufoss, Horten
  • 1987: Kongsberg Weapon Industry transformed (composition proceedings)
    • Business mindset evident (new era)
  • 2001: Department of Ownership established
    • Professionalism, transaction skills, transparency
examples of different roles

Ministry of Trade and Industry

54 % ownership

Ministry of Transportation:

Open Network Provision

Universal Service Obligations

Ministry of Transportation:

Buys services to ensure transport services to low population areas

Ministry of Trade and Industry

14.3 % ownership

Examples of different roles
active role in restructuring 1

Entity

Current share, %

Corporat-isation

Establi-shment

Privatisation

/merger

New capital

De-merger

Acquisition, by State/company

Telenor

54

1994

2000,2003,2004

Yara/Hydro

36.2

 (2004)

2004

Statkraft

100

1992

StatoilHydro

62.5

1972

2001,2004,2005,2007

2007 

Cermaq

44.0

1995

2005

Arcus

0

2001,2003

Electronic Chart Center

100

1999

Olivin

0

2001,2003

NOAH

0

1991

2002, 2004

DnBNOR

34

(2003/2004)

Eksportfinans

15

2001

Argentum

100

2001

Aker Holding

30

2007

SND Invest

0

1993

2003

Nordfund

100

1997

Posten Norge

100

1996

Statnett

100

1992

Nammo

50

2006

Active role in restructuring (1)

2003

2008

active role in restructuring 2

Entity

Current share, %

Corporat-isation

Establi-shment

Privatisation

Merger

De-merger

Acquisition, by State/company

BaneTele

50

2001

2006,2009

NSB

100

1996

Flytoget

100

1992

2003

Norsk Medisinaldepot

0

2001

Grødegaard

0

1997

2003, 2005

Vet.med. Oppdr.senter

100

1992

Statsskog

100

1993

Avinor

100

2003

Mesta

100

2003

Secora

100

2005

Baneservice

100

2005

Entra

100

2000

Active role in restructuring (2)
goverment involvements 2010 highlights
Goverment involvements 2010highlights
  • Participated in capitalincreas 5 Bn SEK in SAS
  • Voted for convertibelbond in SAS, maydilutegovernmentownership to 12,6 pct
  • Participated in 10 Bn NOK capitalincrease in Hydro
  • AcceptedOwnershipdilution from 44 to 34 pct in Hydro as part ofValetransaction
  • Financed 14 Bn NOK capitalincreas in Statkraft
  • Boardrenewal in Statkraft – newChairman
active role in restructuring summary
Active role in restructuring, summary
  • Since 2000:
    • More than 30 major actions on M&A/restructuring, of which…
      • 15 sales/privatisations (mostly partial)
      • 6 establishment of new companies
      • 4 acquisitions
    • Other corporate/financial restructuring
  • In addition:
    • State-owned enterprises are closed down if necessary
      • Examples: Raufoss ASA, Sulitjelma Bergverk AS, Moxy Trucks AS
    • Focus on better Corporate Governance, Ownership reporting
    • Financial return and long-term industrial development are main priorities
dividends important funding source
Dividends – important funding source

Annual dividends received by the state

In 2010: 22,5 BNOK = 2.9 BEUR

BNOK

From Statoil (invested)

From others (spent)

ose performance
OSE performance

2009

2010

OSE Benchmark Index

Flat average, listed SOE

Cermaq

DnB NOR

Kongsberg Gruppen

Norsk Hydro

SAS

StatoilHydro (Statoil)

Telenor

Yara International

Share price gain (%)

but less state ownership at ose increasing foreign ownership
But less state ownership at OSE- Increasing foreign ownership

Ownership of companies listed at Oslo Stock Exchange, year-end

Source: Oslo Stock Exchange, www.ose.no

slide21
State ownership – developments

Department of Ownership – key facts

Policy, principles and implementation

Relationship Ministry – Board of Directors

organisation and mandate
Organisation and mandate
  • Other ministries manage sector-critical enterprises

Ministry of Trade and Industry

  • Manages ownership in 22 of the 50 state-owned enterprises
  • Portfolio worth 40-50 BEUR
  • 15 economists/lawyers - background from consulting, banking, law firms, research, and public administration
  • Extensive use of external advisors/investment banks

Political staff

Department of Ownership

Five other departments

Mandate: The state-owned enterprises must be managed with an objective to get a market based required rate of return and solid industrial growth over time.

Report to Parliament on Ownership Policy 08.12.2006

direct holdings listed
Direct holdings – listed
  • DnB NOR 34 % – Norway's largest bank
  • Telenor 54 % – international telecom operator
  • Norsk Hydro 44 % – aluminium
  • Yara 36 % – international fertilizer
  • Cermaq 44 % – sea farming & feeding
  • Kongsberg Gruppen 50 % – defence & maritime
  • SAS 14 % – Scandinavian airline
  • Aker Holding 30 % (holding, owns 40% of Aker Kværner) – engineering
slide24

Direct holdings – non-listed

  • Nammo 50 % – ammunition
  • Statkraft 100 % – power generation
  • Mesta 100 % – road construction and maintenance
  • Entra Eiendom 100 % – commercial property
  • Flytoget 100 % – main airport express train
  • SNSK 99.9 % – coal mining, Spitsbergen
  • Eksportfinans 15 % – export credits
  • Argentum 100 % – venture capital (fund in fund)
  • ECC 100 % – electronic sea maps
  • Kings Bay/ Bjørnøen 100 % – real estate and administration, Spitsbergen/Bjørnøya
  • Venturefondet 100 % – venture capital
slide25
State ownership – developments

Department of Ownership – key facts

Policy, principles and implementation

Relationship Ministry – Board of Directors

governance a brief overview

Parliament

Ministry

General Meeting

General Assembly

Nomination Committee

Board of Directors

Company Mgmt

Operations

Governance – a brief overview
  • The State’s ownership is formally exercised through the Annual General Meeting
  • The company is managed by the Board of Directors – not by the State
  • The Ministry is not represented in the Board of Directors / Supervisory Board
  • Quarterly contact meetings with the companies
  • The Ministry sets goals/expectations regarding return on capital and dividend
  • Companies wholly owned by the government shall be managed in a similar way as a well-managed private company
transparent ownership
Annual report on ownership

Economic and financial portfolio review and a review of state owned companies

Presentation of each company

Presentation of Board of Directors

Policy document

Division of roles within the public administration

Legal framework for the Governments control of ownership

The relationship between the owner, BoD og company

General expectations to all companies

The aim behind state ownership in each company

Transparent ownership

URL: www.ownershipreport.net

the state s principles 1
The State´s principles (1)
  • All shareholders shall receive equal treatment. 
  • There shall be transparency in State ownership of companies. 
  • Ownership decisions/ resolutions shall be taken/ adopted at the annual general meeting.
  • The State, in cooperation with other owners when relevant, shall set performance targets for the companies; the boards shall be responsible for achieving these targets.
  • The capital structure of the company shall be consistent with the objective of ownership and circumstances of the company.
the state s principles 2
The State´s principles (2)
  • The composition of the board shall be characterised by competence, capacity and diversity, and reflect the distinctive characteristics of the company.
  • Wage and incentive schemes shall be formulated so that they promote value creation in the companies and are perceived as reasonable. (Vote against equity option schemes.)
  • On behalf of the owners, the board shall exercise independent control of the company management.
  • The board shall adopt a plan for its own activities and work actively to develop its own competencies. 
  • The company shall be aware of its responsibilities to society at large.
a professional owner
A professional owner

The State will comply with internationally recognized Corporate Governance principles:

  • The Norwegian Code of Practice for Corporate Governance
  • The State’s principles of Good Corporate Governance
  • OECD Guidelines on Corporate Governance of SOEs
agenda
Agenda

State ownership – developments

Department of Ownership – key facts

Policy, principles and implementation

Relationship MTI – Board of Directors

state ownership in order to secure

BACK-UP

State ownership in order to secure…
  • national ownership and foundation of key companies
  • control over important natural resources
  • a stable ownership in Norway
  • long term growth, industrial development and production in Norway
board of directors 1 responsibility
Board of Directors: (1) Responsibility
  • Responsibility and liability set out in the companies act
  • Legal obligation to act in the best interests of the company and to treat all shareholders equitably
  • The Board of Directors shall monitor the management and give strategic guidance
  • Mandate set out in the articles of association
  • Hire and fire the CEO – no interference from the state
2 nomination
(2) Nomination
  • There should be established (external) Nomination Committees
  • The Government is together with other shareholders represented in the Nomination Committees which prepares the elections
3 composition and independence
(3) Composition and independence
  • Broad shareholder representation
  • The composition of the board shall be characterised by competence, capacity and diversity and shall reflect the distinctive characteristics of each company
  • Separation of Chair and CEO
  • Mainly independent board members
  • 1/3 members elected by and among the employees, acting in the interest of the company and all shareholders. Shall have access to the same information as the other directors
  • 40 percent female board members in listed companies and SOEs
4 remuneration
(4) Remuneration
  • The remuneration of the Board of Directors should reflect the board’s responsibility, expertise, time commitment and the complexity of the company’s activities
  • No link to the company’s performance
  • Members of the Board of Directors and/or companies with which they are associated should not take on specific assignments for the company in addition to their appointment as a member of the board
corporate social responsibility
Corporate Social Responsibility
  • High ambitions and conscious priority on R&D
  • Open and constructive handling of restructuring processes
  • Environmental considerations in the entire value chain
  • Work against corruption within each company
  • Ethical guidelines
  • Equality/diversity/apprentice schemes

Social responsibility can contribute to good long-term development

references
References
  • The State’s Ownership Report 2008www.ownershipreport.net
  • The Government’s Ownership Policywww.ownershippolicy.net