State bank, pharmacies, airlines: why the government is building its business at the end of the period Business

In the past three decades, the Lithuanian state has steadily reduced its influence on the economy by selling state companies and assets unrelated to the country’s strategic objectives, planning concession agreements, and increasing the number of independent members on the boards of directors of the state companies (SOE).

Recently, however, the country’s long-standing priorities seem to have been turned upside down. One by one, the “farmers” who have a majority in Seimas are attracting new ideas for new state companies: they want to establish a state bank, a network of state pharmacies and state virtual airlines.

Little of it, as you have already written 15 minutes, State-owned companies planned to be sold are “rescued” by listing them as strategically important companies. In this way, Problematika, Keliud draudimo, who were removed from the list of companies to be privatized, also requested the sale of Mezon, an online data transmission business operated by the Lithuanian Radio and Television Center, to Bitei Lietuva for stop it.

And the fact that the state is looking for a bigger role in the economy is reinforced by the facts about the drawer concession projects; For example, in 2019 the Ministry of Transport suspended the Lithuanian airport concession project, which was intended to expand and modernize the country’s airports and services.

Finally, the governors announced that they would try to reduce the number of independent members on the boards of state companies: amendments to the law are currently being discussed in the Seimas.

Klaudijus Maniokas, expert in public administration and chairman of the board of the consulting firm ESTEP, points out that the liberal attitudes of the state formed in Lithuania, which are supported by a large part of the elite, have survived since the beginning of independence. regardless of party rhetoric. Recently, however, as the economist points out, support for these liberal provisions has weakened.

“In the public sector, since the last crisis, there has been an increasing trend to change private businesses, for example in energy, in the consulting market. This is not very good due to the fact that the public sector in Lithuania, and especially public administration institutions, it is quite weak “, a changing trend 15 minutes K. Maniokas commented.

In the public sector, since the last crisis, there has been an increasing trend to change private companies, for example in the energy sector, in the consulting market, says K. Manokas.

So what does this sudden turnaround and the desire to regain control of various state-owned companies and enterprises mean? Economists note that with the coronavirus pandemic, countries around the world are stepping up their interventions in the economy. However, initiatives that are not based on serious market analysis pose a wide range of risks, from the budget burden to maintain inefficient and unprofitable companies to new sources of corruption.

The trend was accelerated by the coronavirus pandemic

When it seemed that the long speeches of the “peasants” about the state bank would continue to be, the rulers registered a resolution that took the first step towards the implementation of the State Development Bank. In addition, the leader of the “peasants” Ramūnas Karbauskis said last week that the idea of ​​state pharmacies is not being abandoned.

The two state business projects will be discussed by Seimas on Tuesday afternoon.

Economists point out that the state’s attempt to intervene more actively in the economy intensified especially during the coronavirus pandemic, and not just in Lithuania. States ask for more loans, spend more, support more businesses and the population.

How 15 minutes Ramūnas Vilpišauskas, a professor at the Institute of International Relations and Political Sciences of the Vilnius University, noted that as the state’s participation in the economy and people’s lives was strengthened, the COVID-19 crisis also provided a new and favorable basis for state business ideas. For example, states often obtain ownership by providing financial support to businesses during a crisis.

This was also noted by Gediminas Almantas, an independent Board member working for Lithuanian state companies, who gave the example of the German airline Lufthansa: the state takes over the minority stake in the company, providing 9 billion. Eur financial package.

“The state acquires companies that provide public services or that are of strategic importance to the country in order to protect these organizations from bankruptcy and use the situation to inject state capital. This is not easy to do under normal conditions in the context of EU state aid regulation, “said the growing role of states in the economy. 15 minutes emphasizes G. Almantas, who is the Chairman of the Board of the state-owned company Epso-G and a member of the Navigacija Gold Board.

He attributes business to profit only

The chairman of the Seimas Budget and Finance Committee (BFK), “peasant” Valius Ąžuolas, agrees with this, without hiding that the COVID-19 pandemic strengthened belief in the ideas of the new state-owned companies. She, according to the politician, highlighted the growing trend in recent years that private companies focus only on profits, without taking into account the country’s needs.

“When a country is in an emergency situation where quick solutions and measures are needed, such as trade finance, state orders, these functions can be better provided by the state.” 15 minutes V.Ąžuolas shared their beliefs.

He cites state support for companies as an argument: Although the state provided loan funds and guarantees to help the affected companies urgently, these measures stalled.

When a country is in an emergency situation, when quick solutions and measures are needed, these functions can be better guaranteed by the state, V.Ąžuolas is convinced.

And when the Seimas BFK convened all parties to explain why, it became clear that the funds did not reach the companies due to various disputes, for example, Lithuanian commercial banks did not agree to 2 percent. administrative fee for distribution of support and demanded five times the remuneration.

“Is your goal to win the maximum or be in solidarity with the situation in the country when you need not only to win, but also to help companies? And we got caught up in it, “lamented V.Ąžuolas.

He emphasized that the launch of other countries’ economic stimulus plans had shown that it was better to distribute support to countries like Germany or Sweden, which distributed funds through state financial institutions: development banks, ministries of finance, and tax inspections.

V.Ąžuolas emphasized that the same trend is observed in Lithuania, although Invega’s measures, which are shared by financial intermediaries, stagnate, subsidies to micro-enterprises, which are distributed only by state institutions, are moving very rapidly.

“These subsidies are paid in three days, and with financial intermediaries it takes two, three weeks, even up to a month. In critical situations, unfortunately, state institutions can probably do that,” says V.Ąžuolas.

Governors are also outraged because, in their opinion, there is very little competition in some sectors and a lack of solidarity among companies, so the more they advance, the more they focus on making profits, without taking into account the needs of the state. This trend was exacerbated by the coronavirus pandemic.

All areas where business will begin must come from the state, V. comežuolas emphasized.

V.Ąžuolas gives an example: in the past, banks, pharmacies and long-distance transporters worked throughout Lithuania, realizing that although profits are lower in the regions, they earn more in the cities, so the balance will remain positive. However, it has now focused only on areas where it is profitable to work, for example, banks in the regions have closed many customer service departments, despite public criticism and dissatisfaction.

“If business had not followed that path, it would not have been a problem. The state has to come from where private businesses come from, we have no other way. All areas where business will start must come from the state,” emphasized the interlocutor.

When asked if more state business ideas could be born, V.Ąžuolas said the published ideas are key, but all areas need to be reviewed. For the same reason, in the opinion of the politician, the state should not abandon profitable state-owned companies, since they contribute income to the budget.

“And this is not a return to communism, it is the provision of the necessary services in the state,” added V.Ąžuolas.

See contradictions with the Constitution

Economists are skeptical of such languages ​​of government and lack the evidence and in-depth analysis that there is a lack of competition in different sectors and that the state will benefit from the implementation of these ideas.

Experts see various threats and risks, both possible corruption, reduced competition, or a burden on the budget, in the creation of new state-owned companies and in the state’s attempts to participate more actively in the economy.

Gintarė Deržanauskienė, analyst at the Lithuanian Free Market Institute (LFMI) 15 minutes He argued that even the Constitution states that the Lithuanian economy is based on the right of private property, and that the state can directly participate in business only after demonstrating the need for it.

“However, state business development initiatives are emerging one after another like mushrooms after the rain: state pharmacies, state bank. What’s next? The proposals are based on the goal of increasing competition. Not to violate the provisions of the Constitution, the need for such a proposal must be demonstrated. However, there is little work on this topic: no one has seen what competition is like and if it lacks it, “the LFMI analyst is surprised.

State-owned business development initiatives are emerging one after another like mushrooms after the rain: state pharmacies, state bank. What’s next? G.Deržanauskienė wondered.

G. Deržanauskienė, who carried out the evaluation of the amendments to the Pharmacy Law, stated that he did not even see the problem that state pharmacies should solve. According to her, the maximum margin that can be applied to all pharmacies is regulated, and that pharmacy does not have much leeway. Furthermore, more than half of the drugs consumed in Lithuania are reimbursable drugs, and the part of the price paid by their patients is reduced every year.

„2019 Prescription drugs cost an average of 2.3 Eur per patient, compared to 3.9 Eur a year ago and 5 Eur two years ago. And not only are reimbursable drug prices regulated, there are also maximum retail premiums for all other drugs. Therefore, it is strange to hear the arguments that after the creation of the network of state pharmacies, medicines will become cheaper ”, G. Deržanauskienė was surprised.

Consider that it has become a hotbed of corruption

R. Vilpišauskas also agrees with this opinion, believing that the state should intervene only when there is no competition in the market or other problems arise. For this reason, the VU TSPMI professor requested an appropriate impact assessment of the proposed decisions in the state bank or in state pharmacies, which would reveal whether such changes are in accordance with the Constitution, do not distort competition and do not represent a risk. of corruption.

“First, it must be proven that there are serious flaws in the banking or pharmaceutical market.” The second step, no less important, is to corroborate that the state intervention, not in the form of rules or regulatory taxes, but through the entry of a participant of the state-owned market, would bring more benefits to society than damages, “he adds. R. Vilpišauskas.

R. Vilpišauskas believes that these indicators provide preconditions for believing that the establishment of a state bank would pose a risk of it becoming the most important center of corruption in Lithuania.

According to him, this should be evaluated in the general context of the functioning of Lithuanian institutions, the quality of governance and corruption.

“These indicators provide preconditions for believing that the establishment of a state bank would pose a risk of it becoming the most important center of corruption in Lithuania,” predicts the professor.

Politicians have long seen various state-owned companies as a warm place to keep family and friends close during their tenure, so it is only natural that the desire to increase their numbers raises questions about the increasing risk of corruption.

Meanwhile, V.Ąžuolas does not see a big problem because of that, according to him, so that this does not happen, FNTT, STT and other services must guarantee.

Doubts to work profitably

Another problem that G. Deržanauskienė sees is that new state companies that do not count too much money and demonstrate their power to change the rules of the game, instead of increasing competition in the market, may even reduce it.

“For example, in Lithuania, 10,000. There are 47 pharmacies per capita, mainly among all European countries. There is definitely no shortage of them, and artificial competition will increase the withdrawal of existing pharmacies, and probably not the strongest, smallest or that they operate closer to polyclinics or hospitals, ”warns the LFMI analyst.

Artificial competition will increase the pullout of existing pharmacies, and probably not the strongest, smallest, or closest pharmacies to polyclinics or hospitals, G.Deržanauskien ad warns.

Incidentally, R.Karbauskis criticized the LFMI’s conclusions regarding the state pharmacy network, because among the LFMI’s financial supporters are also the pharmacy networks.

Whether new state-owned companies will not become a burden on the budget is another important question for economists. The Ministry of Finance estimates that the establishment of a state bank would only cost around a billion euros.

V.Ąžuolas contradicts that the objective of the state is not to create as many state companies as possible, which should be subsidized: the objective is that state companies operate in those niches where there is a lack of services for society, and one of its main goals is to support themselves.

However, economists wonder if it is possible to reconcile these two objectives, both to work profitably and to guarantee social functions, such as regional development, loans to companies that are not provided by commercial banks. If SOEs operate primarily in areas from which private companies withdraw as unprofitable, they risk operating at a loss and becoming a burden on the budget and on all taxpayers.

Meanwhile, Daiva Rakauskaitė, a financial analyst, co-owner of business consulting firm Strata, and manager of the Business Angels Fund I, adds that she can understand the logic of management’s intentions to establish state-owned companies for greater state security, but in this case I would suggest defining new state companies. The next step is when those companies could be privatized.

“When the situation, which is now being prevented, changes, it may turn out that the state bank is no longer necessary and it would be possible to transfer that bank to the companies.” Therefore, an exit plan should be foreseen during the establishment, when the bank will be sold ”, thinks D. Rakauskaitė.

Before creating new ones, you must learn to manage the existing ones.

G. Almantas suggests to managers before creating state companies, first of all, to fully create a system on how to manage them effectively in accordance with the principles of corporate governance and depoliticize them.

He regretted that the trend is reversing today: compared to the situation of a few years ago, good governance practices of a large number of state-owned companies have been dramatically weakened and continue to fail, and corporate processes have stagnated.

Until recently, positive changes have been seen. Vytautas Plunksnis, chairman of the Board of the Investors Association, recalled that current managers could implement reforms in companies or organizations that were previously “immovable”, regardless of whether the left or the right were in power, in Lithuania Railways, General Forest Enterprise, Register Center.

R. Vilpišauskas agrees: Over the past decade, it seemed that politicians understood that they had to refrain from exerting unauthorized influence on state-owned companies.

It was important for Lithuania to show this when it joined the Organization for European Cooperation and Development (OECD). However, according to the expert, recent initiatives, such as the proposal to reduce the number of independent board members in state-owned companies, only confirm the assumption that politicians are once again actively trying to improperly influence these Business.

“Valstiečiai” seeks to keep fewer independent members on the boards of state-owned companies by replacing them with public officials. The amendments to the law, which are currently being debated in the Seimas, stipulate that independent members must constitute at least a fifth of all members; Currently, the law stipulates that there must be at least half of them.

Governors argue that the state should have more influence in making important decisions for the state and guarantee greater institutional responsibility for important decisions.

Almantas argues that this amendment is incompatible with the guidelines of the Organization for European Cooperation and Development (OECD) on good governance. Furthermore, according to the interlocutor, the ministries do not have enough specialists to be appointed to such positions; some of these representatives have not been named at all.

R. Vilpišauskas also criticizes this proposal.

“Perhaps after joining the OECD and the change of head of state after the presidential elections, the current rulers decided that the conditions were right to return to more active interference in the economy, or at least to demonstrate it, to show potential voters that their interests were being served. “

And this proposal is another sign that the activities of the state bank or the state pharmacy will be directed to the electoral needs of the ruling politicians, and not to the interests of consumers, which may eventually become political corruption, “predicts R. Vilpišauskas .

This proposal is another sign that the activities of the state bank or the state pharmacy will be directed to the electoral needs of the ruling politicians and not to the interests of consumers, which may eventually become political corruption, predicts R. Vilpišauskas.

Although many interlocutors mentioned that they invite independent members to be invited to the boards of state companies by the OECD, V.Ąžuolas reiterates that after examining the examples from other countries, he saw that in the vast majority of OECD countries about 30% of independent members. – Therefore less than what is currently required in Lithuania.

As the greatest threat to the reduction in the number of independent board members in public companies, 15 minutes Interlocutors mentioned the influence of politicians.

“If the majority of SOE members were representatives of the Ministry, governance would really deteriorate and the scales of politicization of the corporation and management would be clearly affected by politicization,” is convinced G. Almantas, independent member of the SEA Board.

V. Plunksnis also agrees with him, 15 minutes Stressing that in independent companies, the administration often refuses to follow instructions that are not based on economic logic but on the desire to please voters.

“Therefore, the awkward board members or managers are being replaced, we could see that in Lietuvos Paštas and elsewhere,” emphasizes V. Plunksnis.

And Maniokas concludes that state-owned companies are not a bad thing in general, but they must be well managed, which is why independent board members and principles of good governance in general must be protected.

The desire to appear before the electorate.

However, in discussing the rulers’ ambitions to establish state-owned companies, economists questioned their reality.

These promises are recorded in the electoral program of the Green and Peasant Party of Lithuania (LVŽS), but the fact that they were remembered only at the end of the period simply reminds experts of pre-election games.

“These proposals are not very unexpected, because the LV®S offered similar things on the electoral program. However, for several years, they have been pushed to the fringes of politics, probably by understanding the risks associated with implementing these proposals.

But it seems that as the Seimas elections approach, the desire to appear before voters becomes more important than the consequences of the proposed solutions, so it was decided to return to these ideas. It is probably believed that the current crisis can adjust public attitudes towards the issue of active state participation in the economy, “says R. Vilpišauskas, professor at VU TSPMI.

And we have many examples of different attempts by different authorities to turn state or municipal priorities in the exact opposite direction.

Let us suppose that a coincidence arose from the idea of ​​the then mayor of Vilnius, Artūras Zuokas, to establish a national airline Air Lituanica; After that, Vilnius Mayor Remigijus Šimašius no longer intended to continue financing the company’s loss activities, so the company went bankrupt in 2015 and was unable to buy back millions of investments. and it crossed the country’s reputation as Lithuania lost its national airline a second time and ran out of direct flights.