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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 misappropriationsDistortionary allocations for clientelism can

evade scrutiny moving from:● Budgets – cash● Arrears (“accruals”)● State owned enterprises resources● Private money, through regulation (e.g.,

gas)

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2006 2007 2008 2009 2010 20112

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5

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Cash deficit SOE arrears

MeasurementTwo main ways to misappropriate funds from

SOEs:

1. Overstated public procurement

SOE concludes non-competitively purchase contracts at above market price with favorite partners

2. Understated sales

SOEs sells non-competitively at below market prices to favorite partners

Measurement: benchmark with market price, compare profitability rates of companies

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Corporate governance issuesDistance 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

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Overstated procurementIssue: SOEs contract non-competitively with

favorite partners at above market pricesE.g., Hidroelectrica divested maintenance to Hidroserv

subsidiaries; renegotiations reduced costs by 30%

Employment / “sinecures” (IMF report):

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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

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Understated sales

Foregone profits:

Profitability:

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Turnover/employees Profit/employees05

101520253035404550

Alpiq Romenergie (smart guy) Repower

Market Smart guys0

500

1000

1500

2000

2500

852

Value Loss

Benchmarking to private sector

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IMF monitoring

-5,123

-8,680

2,944

-9,483

-15,872

-1,100

-7,007

-22,240

370

State owned State owned - central level Private

Gross Rsults per Employee (RON) 2008 2009 2010

Source: MOPF, INS, Trade Registry, authors'

Data needs

1. Market prices across time (OPCOM; competitive markets; international benchmarks)

2. Information about contracts by company, quantities and prices

3. Political affiliation (if contracts not trans-party)

4. Data from Ministry of Finance – balance sheets of companies

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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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