It is Day 3 of 2023, still the beginning of the New Year, a good time to make resolutions for the rest of the year. So, one resolution should be to have less state interference in state-owned enterprises like PNCC, PPUC, BSCC, PNDB, ROPSS, and CSPP.
The resolution should also be to make the selection process for the directors of these government-owned agencies more technical based on the needs of the agencies rather than political ones.
The Pacific Private Sector Development Initiative (PSDI), an ADB technical assistance program, policy brief, State-owned Enterprises: Board Nomination Practices in the Pacific, notes the importance of the state-owned enterprises in the lives of the Pacific people, saying, “their performance has a significant impact on economic outcomes, poverty alleviation and the quality of life experienced by residents. ..Given the extent to which board composition can influence performance, securing a diverse mix of most qualified candidates on boards is the most important outcome of SOE director selection processes across the region.”
Establishing a more transparent and professional process for selecting directors of a board of an SOE is not an unknown process for Palau. We have done it before, and it has been successful.
One such example of a professional and technical selection process that we have here is the selection of the Board members of the Protected Areas Network. The law spelled out the initial selection, set criteria for board members, and after the terms expire, the sitting board selects the next replacement based on strict guidelines and qualifications. This process should be extended to all other state-owned enterprises.
This process will ensure the qualifications of directors but also assures their independence in their decision-making.
The need for these “independent” agencies to be more self-sustaining, not dependent on government subsidies, has been sung over and over, but they have been prevented from being truly “independent” based on a flawed selection process that allows for constant political interference resulting in poor decisions that lead to failures of most of these state-owned enterprises.
We can see examples of failures due to political interference and poor selection process. The Civil Service Pension Plan is five years away from collapsing or having the benefits cut in half for recipients.
Social Security Administration is traveling down the same path, the same trajectory of failure. Palau Public Utilities Corporation (PPUC), an entity established to operate as a corporate business, was hamstringed by laws restricting its ability to charge rates to cover its operating costs and have to be subsidized by the government and take out more debt to get back on its feet.
The PSDI report recommends that governments establish by law “processes that maximize the probability of selecting the best qualified SOE director candidates.”
“The government, as SOE shareholder, can play a role in confirming and appointing the candidate via a responsible minister or cabinet,” says one of the brief’s authors, SDI’s SOE Reform Expert, Laure Darcy. “But the assessment of candidates should be left to non-political agencies such as SOE ownership monitor, an independent selection committee, or a professional search firm reporting to the ownership monitor.”
The economic crisis Palau is in today is showing us the limitations and weaknesses of the system that we have seen as ineffective yet have been tolerant of for such a long time. The crisis shows us that this is not acceptable or affordable and that we are vulnerable to external financial shocks therefore, our state-owned enterprises must be strong on their own.
Political interference for individual political gains takes full advantage of the system, which is now affecting all of us. As state-owned enterprises, they belong to the public, and at the end of the day, the public will pay the cost of failure, be it more taxes, higher fees, or more debt expenses. We, the people, will pay for the cost of the failure of the state-owned enterprises if we let them continue to be used as political weapons by politicians. (By: L.N. Reklai)