Define ownership to define debt: Hawkamah

The region should clearly and consistently establish who owns a state-owned establishment (SOE), who is to be held accountable for any of its actions and to whom it should it be accountable.

These recommendations were presented yesterday by Hawkamah, the institute of corporate governance, to a workshop attended by high-level officials in government-owned entities (GOEs).

"There should be a clear ownership policy of GOEs, put in a legal context," said Nasser Saidi, Hawkamah executive director and DIFC chief economist, adding that this problem has been highlighted in the Dubai World restructuring case.

He told Emirates Business there are currently no corporate governance standards for GOEs and that the perception of accountability in the region remains blurred.

"Who is it (GOE) accountable to – the ministry, the agency or the council of ministers? The question of ownership has posed questions to the markets. They are, for example, asking who is responsible for the debt – is it the government or the state owned entity?" he said.

Hawkamah has suggested that the mandate of state audit should be expanded from purely financial audit to include the corporate governance structure of a GOE.

Another issue has, however, risen from this because state audits have not been able to keep up with the changes in the economic world. Humaid Al Qutami, UAE Minister of Education and Chairman of the Federal Authority for Government Human Resources, admitted the government needs to put some amendments in the state audit agency.

"We are co-operating with some expert houses and other ministries to create a common understanding… we may put in place a specialised team," he said. "In recent months, we have [had] lots of dialogue to establish a strengthened system. The government is willing to develop the State Audit Institution... [and] is keen to make more disclosures available."

Dr Maitha Al Shamsi, Minister of State and Chairperson of the Board of Directors of Marriage Fund, said that an amendment is a requirement to improve the performance of the state-owned companies.

"We must go ahead with this," she said, noting that the systems have not evolved to keep pace with changes.

Khalid Hamid, acting director at SAI, told this newspaper that it is upgrading its standards to international level, and is looking at completing the upgrade by 2012.

Hawkamah has also recommended that an independent government accountability office and another independent budgetary office be set up. In addition, the governance watchdog suggests the separation of ownership from regulation be defined to ensure a level playing field between the public and private sector.

Qutami said GOEs would always be present in many sectors, thus corporate governance should be heightened to avoid uneven competition. In the GCC, GOEs control 40-50 per cent of the total production, and in Mena, SOEs form 32 per cent of the total employment, said a study by Hawkamah.

In terms of board nomination, "there is still a level of opaqueness", Saidi said. As per the Hawkamah-IFC report, 62 per cent believe being a high-profile public officer is still the primary criterion to be nominated to an SOE board while skills are only secondary.

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