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2007 Assessment

Latvia: Integrity Indicators Scorecard

Latvia: Integrity Scorecard Report > Sub-Category: State-Owned Enterprises
Indicators		Score
64	In law, is there an agency or equivalent mechanism overseeing state-owned companies?	0
65	Is the agency or equivalent mechanism overseeing state-owned companies effective?	45
66	Can citizens access the financial records of state-owned companies?	85

Indicator and sub-Indicator Details

In law, is there an agency or equivalent mechanism overseeing state-owned companies?

64: In law, is there an agency or equivalent mechanism overseeing state-owned companies?

Score:

YES

Comments: State-owned companies are formally established by an order of the Cabinet of Ministers. Then the Cabinet of Ministers designates a public institution to be the holder of state capital shares. It could be any of the ministries or other public institutions. Although the law "On State and Local Government Capital Shares and Companies" does provide some rights and duties of such holders of state capital shares, there is no single agency or elaborate mechanism for overseeing such companies.

References: Law "On State and Local Government Capital Shares and Companies". Chapter B. Holder of capital shares and a representative of capital share holder.

Is the agency or equivalent mechanism overseeing state-owned companies effective?

65a: In law, the agency or equivalent mechanism overseeing state-owned companies is protected from political interference.

Score:

YES

Comments: It is explicitly stated in the law that the Cabinet of Ministers designates public institutions to oversee state-owned companies. These institutions are commonly ministries.

References: Law "On State and Local Government Capital Shares and Companies". Chapter B. Holder of capital shares and a representative of capital share holder.

65b: In practice, the agency or equivalent mechanism overseeing state-owned companies has a professional, full-time staff.

Score:

100

Comments: The Cabinet of Ministers designates public institutions to oversee state-owned companies. These institutions are commonly ministries and ministries always have professional, full-time staff, although whether or not that staff is fully sufficient varies from ministry to ministry. An often-cited problem is the close links between public officials who oversee state-owned companies and political parties. The officials are often very highly paid but are expected to donate a share of the payment to political parties.

References: Statistical data on civil service in Latvia as of 30.06.2007. Data by the Civil Service Board of Latvia. [ LINK ]

Karpovics, A., Stafecka, L. Partiju ienakumu analize: Valsts un pasvaldibu uznemumu padomju un valzu parstavju ziedojumi. Starpzinojums [Analysis of Parties Revenue: Donations by Members of Councils and Boards of State and Local Government Companies]. Sabiedriba par atklatibu - Delna (2006). [ LINK ]

65c: In practice, the agency or equivalent mechanism overseeing state-owned companies receives regular funding.

Score:

100

Comments: The Cabinet of Ministers designates public institutions to oversee state-owned companies. These institutions are commonly ministries and ministries receive guaranteed regular funding from the state budget. To be sure, the relative increase or decrease in the total funding available to any single ministry may vary according to political considerations.

References: Law "On the State Budget for Year 2007." [ LINK ]

65d: In practice, when necessary, the agency or equivalent mechanism overseeing state-owned companies independently initiates investigations.

Score:

100

Comments: Because there is no single agency or mechanism (other than the council and board of each company) for overseeing state-owned companies, it understandably cannot initiate investigations.

However, ministries that oversee state-owned companies - through designated officials - appoint and supervise council and board members of the companies. Important decisions require the consent of the council or shareholders, i.e. the ministry. A problem exists with regard to personalities appointed to company posts. They are often representatives of the political party of the minister, which is a detriment to impartial supervision.

Moreover, council and board members of state-owned companies are public officials and as such are required to submit asset declarations and subject to investigations of the Corruption Prevention and Combating Bureau should suspicions of violations occur.

References: Law "On State and Local Government Capital Shares and Companies" Law "On Prevention of Conflict of Interest in Activities of Public Officials". Sec.4, Clause 1, Point 17. [Public officials].

Written comment sent by Viktors Sadinovs, teacher at the Faculty of Law, University of Latvia; former senior official of the Latvian Privatization Agency; co-author of a number of legislative bills in the field of company management.

65e: In practice, when necessary, the agency or equivalent mechanism overseeing state-owned companies imposes penalties on offenders.

Score:

100

Comments: Because there is no single agency or mechanism (other than the council and board of each company) for overseeing state-owned companies, it understandably cannot impose penalties on offenders.

However, council and board members of state-owned companies are public officials. As such they are required to submit asset declarations. They are subject to administrative penalties imposed by the Corruption Prevention and Combating Bureau. Company officials may also be held responsible to cover losses caused by their action.

The penalty system functions effectively. However, a problem exists with regard to personalities appointed to company posts. They are often representatives of the political party of the respective minister, which is a detriment to impartial supervision.

Can citizens access the financial records of state-owned companies?

66a: In law, citizens can access the financial records of state-owned companies.

Score:

YES

Comments: State-owned companies operate according to the law "On State and Local Government Capital Shares and Companies." This law does not stipulate any special disclosure requirements. In matters other than those regulated by the above laws, state-owned companies operate according to private law. According to the law "On the Annual Accounts of Undertakings" all companies depending on the volume of activity shall either publish their annual accounts or they shall be available from the State Enterprise Register upon payment of a state fee. Special disclosure requirements may apply where a business enterprise is entrusted with the implementation of public policy.

References: Law "On State and Local Government Capital Shares and Companies" Law "On the Annual Accounts of Undertakings". Sec.66, Clause 4 and 5.

66b: In practice, the financial records of state-owned companies are regularly updated.

Score:

100

Comments: Reports on delayed annual reports do not mention any larger state-owned companies. With some exceptions, the annual reports of state-owned companies are accurate and up to date.

A problem has been mentioned in the media that state-owned companies that were transformed into state agencies became subject to a lower standard of financial transparency.

References: Vaivars, A. Sudraba: haosa apstaklos daziem ir komfortablaka sajuta [Sudraba: Some Have It More Comfortable in the Conditions of Chaos, Interview with the Auditor General Inguna Sudraba]. Newspaper "Dienas Bizness", 05.07.2007.

Sauka, E. Ministriju un valsts iestazu gada parskatos VK saskata nepilnibas [The State Audit Office Sees Deficiencies in the Annual Reports of Ministries and State Institutions]. Newspaper "Diena", 23.05.2006.

Ercmane, E. Kave valsts agenturu kontroli [Control Over State Agencies Hindered]. Newspaper "Diena", 22.07.2005.

Ercmane, E. Gada parskati klust gudraki [Annual Reports Become Smarter]. Newspaper "Diena", 24.01.2005.

66c: In practice, the financial records of state-owned companies are audited according to international accounting standards.

Score:

100

Comments: All companies whose indicators exceed certain criteria are audited by a sworn auditor commercial company. Thus exceptions apply only to small companies. Nevertheless, according to the Auditor General, the quality of the annual reports of state-owned entities do not always give the correct view of the situation.

Ercmane, E. Gada parskati klust gudraki [Annual reports Become Smarter]. Newspaper "Diena", 24.01.2005.

On the Annual Accounts of Companies. Sec.62, Clause 1.

66d: In practice, citizens can access the financial records of state-owned companies within a reasonable time period.

Score:

100

Comments: No later than seven months after the end of the accounting year, companies must submit a copy of the audited annual accounts and of the report of the sworn auditor (if such exists) to the State Revenue Service and to the State Enterprise Register. The accounts of larger companies are published in the official bulletin and as such are freely available. All annual accounts are available instantly online.

References: Web site where annual accounts are available: www.lursoft.lv

Law "On the Annual Accounts of Companies". Sec.66.

66e: In practice, citizens can access the financial records of state-owned companies at a reasonable cost.

Score:

100

Comments: The cost of a scanned electronic page of an annual account is approximately US$0.38 (0.20 lats), which is higher than the cost of a photocopy in the market at large.

References: Price list of the company Lursoft, which runs an electronic data base of information from the State Enterpise Register: [ LINK ]