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BEYOND PERCEPTIONS CLIENTELISM ASSESSED OBJECTIVELY

BEYOND PERCEPTIONS CLIENTELISM ASSESSED OBJECTIVELY 2. Misappropriations of public monies from state-owned enterprises Romania Ana Otilia Nuțu Otilia.nutu @ expertforum.ro Bruxelles, Dec 2012. Off-budget misappropriations.

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BEYOND PERCEPTIONS CLIENTELISM ASSESSED OBJECTIVELY

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  1. BEYOND PERCEPTIONS CLIENTELISM ASSESSED OBJECTIVELY 2. Misappropriations of public monies from state-owned enterprises Romania Ana Otilia Nuțu Otilia.nutu@expertforum.ro Bruxelles, Dec 2012

  2. Off-budget misappropriations • Distortionary allocations for clientelism can evade scrutiny moving from: • Budgets – cash • Arrears (“accruals”) • State owned enterprises resources • Private money, through regulation (e.g., gas)

  3. Measurement • Two main ways to misappropriate funds from SOEs: • Overstated public procurement • SOE concludes non-competitively purchase contracts at above market price with favorite partners • Understated sales • SOEs sells non-competitively at below market prices to favorite partners • Measurement: benchmark with market price, compare profitability rates of companies

  4. Corporate governance issues Distance between manager and shareholder Providers of public goods or social services (state pays so that SOE delivers to citizen); vs provider of commercial goods (citizen pays in full). Ex: Passenger railways vs energy company Public good provision: to be paid in full by budget Profitability measurable and comparable with private sector

  5. Overstated procurement Issue: SOEs contract non-competitively with favorite partners at above market prices E.g., Hidroelectrica divested maintenance to Hidroserv subsidiaries; renegotiations reduced costs by 30% Employment / “sinecures” (IMF report):

  6. Understated sales Issue: SOE sells at below market price to favorite partners E.g. Hidroelectrica sold 12 TWh in 2011 @ 121 RON/MWh; average market price in 2006-2011 192 RON/MWh, foregone revenue 852 mn RON (about 200 mn EUR). Clients: trans-party; loss approx constant across time; frequent renegotiation Measurement: Foregone profits; profitability

  7. Understated sales Foregone profits: Profitability:

  8. Benchmarking to private sector IMF monitoring

  9. Data needs Market prices across time (OPCOM; competitive markets; international benchmarks) Information about contracts by company, quantities and prices Political affiliation (if contracts not trans-party) Data from Ministry of Finance – balance sheets of companies

  10. Indicators • Foregone profits as share of turnover, SOE industry average • Profitability of companies that have contracts with the state as % of the others’; in some cases, political affiliation • Profitability of SOEs compared to industry average (where competition with private companies); with average private sector profitability; or with similar SOEs abroad

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