Pacific governments can improve the performance of their state-owned enterprises (SOEs) and reduce fiscal risks by implementing clearer and more consistent government ownership and oversight arrangements, according to a policy brief published on 24 June by the Asian Development Bank’s (ADB’s) Pacific Private Sector Development Initiative (PSDI).

The policy brief, ‘Structuring for Success: Models of SOE Ownership’, examines the impact of different ownership models in the Pacific and globally, and finds that when the different roles of government—as owner, policymaker, regulator, and purchaser—are clearly defined and kept separate, SOEs are better able to operate commercially and deliver improved results and services.

Drawing on international trends and Pacific case studies, the paper highlights a global shift towards a more centralized SOE ownership model. These centralized models can take different forms, but all aim to provide clearer accountability and stronger commercial focus.

“As SOEs become more commercialized, they require more clarity and specificity in their governance arrangements to achieve their goals” says policy brief co-author and PSDI SOE Reform Expert, Laure Darcy. “Well-defined and centralized ownership models allow SOEs to focus on operating as successful, sustainable businesses.”

The policy brief examined the evolution and impact of various SOE governance models in Fiji, Palau, Solomon Islands, Samoa, Tonga, Vanuatu, and New Zealand and found that more robust ownership monitoring practices are linked to stronger SOE performance.

“SOE performance improves when there is the right balance between commercial independence and effective government oversight,” says Ms. Darcy. “Strong governance structures allow SOE boards to make commercially driven decisions while also ensuring governments hold them to account as questioning shareholders.”

Tonga

In Tonga SOE are known as Public Enterprises, operated under a centralized model.

Under a centralized model, the responsible minister is responsible to Parliament for the performance of the SOEs, and SOE annual reports are tabled through the minister’s office.  The responsible minister is supported and advised by a central SOE ownership monitoring agency. This is the model adopted in Marshall Islands, Papua New Guinea (PNG), Tonga, and (to some extent) Fiji.

PSDI is an ADB technical assistance program undertaken in partnership with the governments of Australia and New Zealand. It supports ADB’s 14 Pacific DMCs to improve the enabling environment for business and achieve inclusive, private sector-led economic growth, including through reforms designed to improve the performance of state-owned enterprises.