State-Owned Enterprises in Georgia: Transparency, Accountability and Prevention of Corruption

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Transparency International Georgia has published a new report which examines the questions of transparency, accountability and prevention of corruption in Georgia’s state-owned enterprises.

The problem of corruption risks in state-owned enterprises is the subject of growing attention and interest among the organizations and researchers focusing on corruption and anti-corruption policy throughout the world.

Based on a review of the international experience and the current practice in Georgia, the report offers specific recommendations for the Georgian Government, designed to reduce corruption risks in the state-owned enterprises and improve the effectiveness of the government’s anti-corruption policy.

The following are the study’s main findings:

Georgian legislation on state-owned enterprises contains a number of shortcomings:

  • The legislation does not establish criteria for the establishment of a state-owned enterprise or legitimate goals of such enterprise.

  • There is no unified system of transparency and accountability of state-owned enterprises.

  • Legislation on conflict of interest and corruption (with some exceptions) does not apply to state-owned enterprises.

  • The legislation does not set transparent rules for the appointment and dismissal of directors and board members of state-owned enterprises, which is a significant flaw in terms of conflict of interest and corruption, as well as the prevention of political interference in the operation of these enterprises.

  • There is no clear methodology or efficient system for the allocation of the profits of state-owned enterprises.

  • The National Agency of State Property is unable to effectively coordinate the activities of state-owned enterprises.

The Analysis of the activities of five large state-owned enterprises selected for this report also revealed a number of problems:

  • The practice of disclosing information, either proactively or upon request, is unsatisfactory.

  • These enterprises do not have any internal mechanisms for preventing conflict of interest and corruption.

  • There is an obvious political influence on the management of these enterprises, evidenced by the appointment of persons with close ties to the government to management positions.

  • The study revealed a number of cases when family members of public officials were employed in state-owned enterprises.

  • The study also found that heads of state-owned enterprises have made donations to the ruling party.

The following recommendations were elaborated based on the above findings:

  • Anti-corruption mechanisms must be strengthened through the introduction of standards of transparency, accountability and integrity for state-owned enterprises, and adoption of relevant regulations:

    • The accountability mechanisms and management model for state-owned enterprises must be improved and Parliament must acquire greater oversight powers vis-à-vis these enterprises.

    • The principles of Georgian anti-corruption legislation must be fully extended to cover state-owned enterprises. This includes prevention of corruption and conflict of interest, appointments based on fair and transparent competition, and establishment of clear grounds for dismissals.

    • A code of ethics and mechanisms for whistleblower protection must be elaborated for state-owned enterprises based on international best practices.

    • Principles of disclosure of information, transparency and accountability must be introduced for all state-owned enterprises on the legislative level based on international best practices. State-owned enterprises must be obligated by law to proactively publish information and respond to freedom of information requests.

    • State-owned enterprises must develop remuneration-related, social and environmental policies and publish them on their websites.

  • A high standard of transparent, open and fair competition must be set by law for the selection of the heads of state-owned enterprises. Clear and transparent criteria for the selection of the heads and board members of state-owned enterprises must be established by law.

  • The practice of political interference in the activities of state-owned enterprises must be eliminated.

State-Owned Enterprises in Georgia: Transparency, Accountability and Prevention of Corruption