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Montenegro’s top 20 state-owned enterprises grapple with profitability and liquidity challenges

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The 20 largest state-owned enterprises in Montenegro are facing challenges in maintaining profitability and liquidity management, with an increased risk of entering the insolvency zone, as assessed at a round table organized by the Center for Economic and European Studies (CEES).

In a document presented by CEES titled “Corporate Governance and Financial Performance of Public Enterprises in Montenegro,” which analyzed the 20 largest state-owned enterprises representing about 90% of all state-owned companies’ assets in the country, it is stated that strengthening transparency and oversight could be crucial in improving their business performance.

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CEES analyzed companies such as the Electric Power Company, 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, as well as Montenegro Bonus.

During the event, a panel discussion was held on the topic of “Better Oversight for Better Performance of Public Enterprises.”

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A participant in the panel, the State Secretary in the Ministry of Finance, Bojana Bošković, pointed out the inadequate regulatory framework that has resulted in negative economic and fiscal losses for the state.

As she stated, the Ministry of Finance is working on a strategy for corporate governance of state-owned enterprises.

Welcoming the government’s decision to develop a strategy, the Vice President of the Chamber of Commerce (PKCG), Dragan Kujović, emphasized the necessity of adhering to two principles in managing state-owned enterprises – having experts in charge and ensuring good control and self-control.

Kujović also mentioned the importance of separating ownership and managerial functions in both public and private enterprises.

Boris Vukašinović, Assistant Director of the Anti-Corruption Agency (ASK), highlighted the significance of implementing integrity plans in public enterprises and identified personnel policy as a major challenge.

He emphasized that human resources management is the biggest risk in these enterprises, and ASK will define it as a priority in its work, regulating their operations.

Research Policy Analyst from the Institute Alternative, Marko Sošić, spoke about the negative consequences of the lack of a unified state ownership policy towards public enterprises.

He stated that there is some progress in transparency, but comprehensive improvement in this area requires a centralized policy, not fragmented action by individual ministries.

Nina Vujošević, a member of CEES’s research team, assessed that challenges in public enterprises result from an unfinished transition, weaknesses in corporate governance, and the lack of clear procedures and goals from the state as the majority owner.

“Implementation of OECD guidelines for corporate governance, along with greater transparency and oversight, is crucial to improving the performance of these enterprises,” said Vujošević.

The analysis of the financial reports of these enterprises for the year 2022 revealed their biggest challenge with profitability and an increased risk of profitability. The presentation of the analysis announced that the risk of increased illiquidity, according to 2022 data, remains low but has increased for several companies.

“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 deteriorate,” the statement said.

Sector-wise, the highest risk of profitability, or negative return rates, is in the sectors of agriculture, forestry, and fishing, wholesale trade, and health and social protection. Profitability risks have increased in the sectors of electricity, gas, and steam supply, air conditioning, transportation, and storage.

The highest risk of worsening liquidity, as shown by the analysis, is in companies in the construction, transportation, and storage sectors, water supply and wastewater management, and mining and quarrying.

During the event, it was noted that the state needs to specify its goals in line with national strategies, establish clear criteria for the selection of boards of directors, increase transparency in financial support and transactions, as well as in the remuneration of board members. An important step is also the establishment of a model for reporting and assessing fiscal risks at the aggregate level, which would improve the overall situation in state-owned enterprises.

The event was organized as part of the project “Partnership for Sustainability and Greater Responsibility of Public Enterprises,” supported by the Institute Alternative through the Civil Society Organizations support program under the project “Civil Society for Healthy, Effective, Sustainable, and Transparent Public Enterprises (BEST SOEs).” The project is financed by the European Union and co-financed by the Ministry of Public Administration.

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