The Center for Economic and European Studies (CEES) is currently conducting a project where it has analyzed the 20 largest state-owned enterprises, whose assets constitute over 70 percent of all state-owned companies in the country.
As reported to the Mina-business agency, CEES analyzed Electric Power Industry, Railway Infrastructure (ŽICG), Railway Transport (ŽPCG), Montenegrin Power Distribution System (CEDIS), Montenegrin Power Transmission System (CGES), Plantations, Airports of Montenegro, Institute “Simo Milošević”, Budva and Ulcinj Riviera, Coal Mine, Regional Water Supply Montenegrin Coast, Port of Bar, Sveti Stefan Hotels, Monteput, Post, Radio-Television of Montenegro, Montenegro and Bar Shipping Companies, and Montenegro Bonus.
“The analysis of the financial statements of these companies for the year 2022 showed that they face the greatest challenge with profitability, i.e., an increased risk of profitability, and even 20 percent of the analyzed companies operated at a loss,” said CEES.
As explained, when they refer to “profitability risk” at the level of these 20 companies, they mean how capable they are of making a profit.
“Previously, summing up for all 20 of them, there was a lower risk of not being profitable, but now that risk is higher, although not alarming,” added CEES.
They stated that the risk of increasing illiquidity, according to 2022 data, is still low, but has increased for several companies.
“When we mention the ‘risk of increasing illiquidity,’ it means how capable companies are of quickly converting their assets into cash to cover their debts. Most companies are still doing well, but some of them have started to have problems with that, which means it is harder for them to quickly get money,” CEES explained.
The overall risk of entering the insolvency zone for all 20 companies is low, but if the risks of profitability and liquidity continue to increase, solvency indicators would worsen.
“Although the danger of all these companies becoming unable to pay their debts is currently small, if the trend of decreasing profitability and less accessibility to money continues, bigger problems could arise. So, if this trend continues, the situation could become more serious, meaning that some companies might have greater difficulties in paying what they owe,” they believe at CEES.
Sectorally observed, as they stated, the greatest risk of profitability, i.e., negative return rates, is in the sectors of agriculture, forestry, and fishing, wholesale trade, and health and social protection.
At the same time, profitability risks have increased in the sectors of electricity, gas and steam supply and air conditioning, transportation, and storage.
“The greatest risk of worsening liquidity is in companies in the construction sector, transportation, and storage, water supply, and wastewater management, and extraction of ores and stone,” specified CEES.
The biggest risks of profitability and liquidity in 2022 stem from the operations of CEDIS, Montenegro Bonus, Barska and Montenegrin Shipping Companies, ŽICG, Plantations, and Regional Water Supply.
CEES stated that the analyzed financial results at the level of the 20 companies are not characteristic only for the year 2022 but also for the previous ones.
“The causes largely stem from unfinished transition and weaknesses in corporate governance,” they conveyed from CEES.
CEES analyzed the compliance of corporate governance in the 20 largest public companies with the guidelines of the Organization for Economic Cooperation and Development (OECD) on corporate governance in public enterprises.
“Although it is very difficult to obtain data from all 20 companies because some of them do not respond to CEES requests, the data was largely obtained from other available sources. The obtained data indicate that a certain number of companies are making progress in corporate governance, but criteria for good corporate governance are partially unfulfilled in most companies,” CEES announced.
At the same time, the fulfillment of these criteria largely depends on the state as the majority owner.
“So clear procedures and goals of the state as the owner in companies are not clearly set,” they assessed from CEES.
When it comes to the role of the state as an owner in companies, although the legal framework for their operations is largely aligned with the EU acquis, it hinders the operations of state-owned companies in some areas – public procurement, property-legal relations, etc.
“Also, one of the problems is the lack of criteria and completely transparent procedures for the selection of independent boards of directors, and these criteria should be defined by the Government. Some companies are recipients of state subsidies and guarantees, which can put them in a more favorable position in the market. The awareness and involvement of minority owners in the decision-making process are not the same in all companies,” they said from CEES.
Therefore, as they pointed out, it is clear that the limited, and in some companies minimal, application of OECD corporate governance criteria has also influenced their unfavorable business results.
Regarding recommendations for improvement, CEES stated that the state, first of all, must more precisely define and align its goals in companies where it is the majority owner with strategies at the national level.
“Also, it must adopt regulations with criteria for the selection of boards of directors and increase transparency about the financial support of the state and transactions with the state, as well as fees for members of the Boards of Directors,” they said from CEES.
Also, as they said, it is necessary to adopt a state strategy on models of supervision over the operations of state-owned companies.
“Also, a clear model for reporting and assessing the fiscal risks of their operations at the aggregate level are important steps in improving the overall situation in state-owned companies,” concluded CEES.
