State Owned Companies: state capture, clientelism and corruption in Czech Republic

State-owned enterprises play a crucial role in the Czech Republic as their turnover exceeds EUR 25 billion, about two thirds of the annual Czech state budget, underlining their major influence in the Czech economy.

In the last years, the importance of SOE is also growing, as they have access and handle large financial resources.  Promoting a best practice environment for SOEs in the country is rather inadequate as the legislation regulates the issue of state-owned enterprises very briefly.  The scope of legislation does not reflect the fact that the volume of funds handled by the SOE is equivalent to about two-thirds of the state budget and should therefore be subject to greater public and state control.

The persistent problem is the lack of state ownership policy that causes chaotic leadership in the sectors’ enterprises. The government cannot assess the performance of the SOE management due to the absence of state ownership policy, public control fails because many SOE refuse to provide the information required by law, and the powers of the Supreme Audit Office (SAO) are too limited. The state is still reluctant to adopt rules that would address the SOE control better while pushing for more transparency.

The main problems underlined by the study refer to the excessive political influence on SOE management, inadequate public control as the SOE fail to respect the Free Access to Information Act or the lack of transparency of its decision-making.  Nominations of persons in the SOE are politically influenced and non-transparent, there are many publicly known cases of clientelism. Putting people into positions is often politically motivated, organs often lack the necessary expertise, integrity, and independence. One of the positive elements is that the Czech legislation insists on non-financial reporting as part of the company’s annual report, which usually contains sufficient information.

Czech Republic still lags behind in fulfilling OECD recommendations for state-owned enterprises, which are perceived as a standard for the good practice of SOE, as only 5 out of 20 recommendations can be considered partially achieved.

Full report is available here. 

About the authors:

Jan Ondřich is a partner leading the analytical work of the Candole Partners. Jan is responsible for quantitative analysis and advises both financial and strategic investors on regulatory and market risk to their returns on investment in the region. He is an expert in utilities, energy and the financial services sector, and is widely quoted in the local and international business media. Jan holds an MSc from the London School of Economics and Political Science.

Jana Šebestová is a senior consultant. Jana has been the project leader of the team, responsible for research and day-to-day progress of the project. Jana has 13-year experience in political and risk analysis and advice, having worked for a number of European and Global companies across the CEE region. Jana holds a master’s degree in International Relations from the Prague School of Economics.

This report is part of the “State-Owned Companies – Preventing Corruption and State Capture” project, implemented by the Romanian Center for European Policies, Expert Forum, Freedom House, Amapola Progetti (Italy), Risk Monitor (Bulgaria and Candole Partners (Czech Republic). The project is financed through Economic and Financial Crime, Corruption, Environmental Crime Programme,  DG Migration and Home Affairs, European Commission and co-financed by Open Society Foundation. 

The contents of this report does not necessarily reflect the official position of the DG Migration and Home Affairs or Open Society Foundation. Liability regarding the accuracy and coherence of the information within lies with the partners of the project  and with the author(s) of the report. 

For additional information, please go to www.statecapture.ro

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