State Administration Structure Law and the Road to Stock Exchange for State-Owned Enterprises

These statistics not only show the passivity in the use of financing opportunities offered by the capital market but also the vast differences between the supervisory models adopted by neighbouring countries for state-owned enterprises. Since state-owned enterprises make up an extremely significant share of potential capital market candidates, it is important to understand what hinders their participation in the capital markets, and how to get rid of these unfavourable factors?

Article 88 of the State Administration Structure Law

The first part of the widely debated Article 88 of the State Administration Structure Law (SASL) still provides that public persons may acquire a stake in capital companies only to (1) eliminate a market failure, (2) provide strategically important goods or services or (3) manage strategically important properties. These restrictions have long been based on an outdated concept of the need to restrict state commercial activity because it allegedly distorts the market economy. As a result, the commercial frontiers of public corporations have been fundamentally restricted for a long time, with adverse effects on both the financial situation of Latvia and society as a whole.

At the same time, other major European economies, which are bound by equivalent obligations of competitive neutrality, allow state commercial activities justified by objectives such as generating additional revenue (Finland), creating increased value, promoting the development of energy and natural resource industries (Norway), promoting sustainability, science, medicine, national employment (Sweden) and protecting essential national interests (Germany).

The above-mentioned countries also do not restrict their strategy for state-owned enterprise establishment within a legal act, which is subject to the problem of legal staticity. The core of state’s participation strategy in corporate companies is laid down in internal policy planning documents, which can be regularly updated to adapt to unpredictable changes in the global market economy.

Read the full publication here: State Administration Structure Law and the Road to Stock Exchange for State-Owned Enterprises