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Terms of Reference

eSelection No: 74826 - Slovenia: Strengthening the performance and governance of State Owned Enterprises (SOEs)

1. BACKGROUND AND CONTEXT OF THE PROJECT

Corporate governance involves balancing the interests of many stakeholders in a company, including its shareholders, management, customers, suppliers, financiers, government and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

State owned enterprises (“SOEs”) in particular often have limited incentives and access to resources and expertise to help them implement good governance practices. Specifically, SOEs play a significant role in the economy across countries, and are often unprepared to manage the challenges associated with implementation of corporate governance standards and business conduct. SOEs often require support to operate more efficiently, manage risk, develop board and management structures, increase accountability and transparency, access finance, and improve the overall sustainability of their operations.

Republic of Slovenia is the largest owner of companies in the country through direct or indirect holdings that are managed by the Slovenian Sovereign Holding (“SSH”)1 on behalf of the state. The total value of capital in ownership by the state and SSH combined amounted to around EUR 10.8 billion as of 31 December 2016, which is around 26% of Slovenia’s gross domestic product, and companies owned by Slovenia and SSH account for almost 11 per cent of total employment in the country. In addition to the law regulating its operations,2 SSH manages the state’s ownership interests on the basis of the State Assets Management Strategy (adopted in 2015 by the Slovenian Parliament)3, Criteria for Measuring Performance of SOEs (adopted in 2017 by the Government of Slovenia)4 and the Asset Management Annual Plan (the plan for 2018 was adopted in 2017 by the Government of Slovenia),5 which, inter alia, set out the aggregate profitability targets for the whole SOE portfolio, types of key performance indicators (“KPIs”) to be used for individual SOEs, as well as goals to be achieved by SSH when managing the assets.

The adoption of the Asset Management Strategy in 2015, signalled an important milestone in the reform process towards a more comprehensive system for management of SOEs and addressing the challenges such as non-selective ownership by the State and poor corporate governance (especially taking into account that in the years leading up to the adoption of the Strategy, SOEs have underperformed compared to their privately-owned peers in terms of productivity and

1 SSH is a holding company fully owned by the Slovenian state in 2014, tasked with managing the state’s ownership inter-

ests in 88 companies across a broad range of sectors including energy, financial services and infrastructure. More infor-mation on the SSH is available at: https://www.sdh.si/en-gb/. 2 Responsibilities and operations of the SSH are governed by the Slovenian Soveeign Holding Act (ZSDH - 1), available at:

http://www.zdruzenje-ns.si/db/doc/upl/ssha_1.pdf. 3 Available at: https://www.sdh.si/Data/Documents/asset-management/State%20Assets%20Management%20Strategy.pdf

4 Available in Slovenian at: https://www.sdh.si/Data/Documents/pravni-

akti/Merila%20KN%20%20dr%C5%BEave%202018_%C4%8Distopis.pdf 5 Available at: https://www.sdh.si/Data/Documents/asset-

management/Annual%20Asset%20Management%20Plan%20for%202018_general%20section_final_clean_22122017.pdf

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profitability)6. However, shortcomings in meeting the goals set in the Strategy have been identified and the actual rates of return are lower than the ROE targets determined in the Strategy. Notably, the Strategy sets profitability targets for the entire portfolio (8% by 2020, 5.9% in 2015, 6.3% in 2016 and 7.1% in 2017) and contains expected performance indicators for 2015 and 2016 for more than half of SOEs on an individual basis. The Strategy is adopted by the National Assembly upon the proposal by the Government, whereby the Ministry of Finance is responsible for preparing the draft of the Strategy (the Ministry can consult with SSH and BAMC7 - Bank Asset Management Company - in this process).

Based on the Asset Management Strategy, the SSH adopts each year an Asset Management Annual Plan (that needs to be approved by the Government, upon the proposal of the Ministry of Finance), which details goals to be achieved by in the management of individual assets and which includes concrete expectations from individual SOEs in the form of strategic, economic and financial performance indicators expected to be achieved in the coming year. As a complementary document, the SSH has also adopted the Criteria for Measuring the Performance of Companies, which sets out the categories and definitions of indicators SSH uses to monitor the performance of each SOE (those indicators are then quantified in the Asset Management Annual Plan for each year). Within this framework, SOEs are then expected to formulate their own business plans in order to achieve the expectations of the owner.8

The SSH is in principle independent from the State in its day-to-day activites and its operations are mostly governed by the Slovenian Sovereign Holding Act and to a certain extent the Companies Act. The Government acts as the shareholder of the SSH, with the exception of the appointment of the members of the SSH Supervisory Board who are appointed by the National Assembly upon a proposal by the Government.

While the performance of the overall SOE portfolio has begun to improve with RoE of 6,1% (estimate for 2017) and 6% in 2016 compared to 4.7% in 2015 and 1.8% in 2014, it is still behind the target. This calls for the need for enhanced tools on strengthening the operational and financial performance of SOEs, in particular for setting the targets and providing tools for their monitoring on the side of SSH as the shareholder and for improved internal governance and better functioning on the side of SOEs.

Against this background, the Government of Slovenia (represented by the Ministry of Finance) and the SSH are requesting support under the Structural Reform Support Programme (the “SRSP”) to strengthen corporate governance and performance of SOEs, including the SSH. The review of governance arrangements and business planning processes both within SSH and selected SOEs will provide the ground to revise the Asset Management Strategy in 2018. Improvement of efficiencies, competitiveness and active management of SOEs are of high priority to the Government of Slovenia and SSH in order to reduce contingent liabilities to the budget as well as to improve SOEs’ contribution to GDP growth.

6 Rojec, M., (2014), “A Snapshot of the Main Ownership Features of the Slovenian Corporate Sector”, available at:

https://www.dlib.si/stream/URN:NBN:SI:DOC-NFIVQG59/048563fb-d531-44c0-9b0c-77e9df08a70c/PDF

7 Bank Asset Management Company is the State-owned Company which overtook the non-performing assets of restructured Slovenian banks. More information about BAMC is available at: http://www.dutb.eu/en/about_us.aspx

8 Further expectations on the time horizon and content of business plans and the reporting on their implemen-tation are presented in another SSH document - Recommendations and Expectations of Slovenian Sovereign Holding, available at: https://www.sdh.si/Data/Documents/asset-management/SSH%20RecommendationsExpectations%202017.pdf

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1.1. Objective

The general objective of the project is to strengthen corporate governance and performance of SOEs (public participation in enterprises), which will contribute to foster sustainable growth and support investment. In particular, the project will provide support to the SSH in its role of managing the Slovenian state’s ownership interests in SOEs with a view to improve effectiveness of SSH’s monitoring of SOE performance and enhance its decision-making, thereby contributing to more ambitious business plans which will help increase SOEs’ profitability and foster sustainable governance processes.

The specific objective of the project is to bolster the ownership function of SSH and contribute to clearer and more ambitious business planning and execution by SOEs. To this end, support will assist the authorities in reviewing the current processes and provide (i) recommendations on the improvement of SSH’s governance framework, (ii) guidance for target setting and monitoring of SOE performance and on reporting to SSH, and (iii) guidance on bolstering the effectiveness of supervisory boards of SOEs. The third part of the project will primarily target approximately 3 companies9 from the energy and/or infrastructure & transport sectors, which are fully owned by the Slovenian State; however, the envisaged guidelines will be fully or at least to a large extent applicable to any other SOE reporting to SSH.

The successful implementation of the project should lead to increased capacity of SSH to act as an informed and active owner of SOEs and to set its expectations from SOEs and monitor their performance. On the SOEs’ side, the implementation of the project should result in an unified framework for reporting to SSH and improvements in SOE corporate governance, which should lead to their better operational performance.

1.2. Relevance of the project

State ownership in RoS has been at the centre of the European Council recommendations since 2012, due to high state involvement in the economy, complex network of State-owned Enterprises (SOEs) and their weak financial performance.

According to the EU Country Report on Slovenia for 2017, remaining weaknesses of corporate governance in SOEs still have some negative impact on private investment and growth despite the privatisation of some important SOEs and a creation of a framework to manage ownership in SOEs. The Report recognises that “negative spill-overs from the high level of state involvement in the economy and inefficient corporate governance in state-owned firms distort resource allocation, harm the business environment and hamper overall investment”, while the European Council Country-Specific Recommendations recognise that “combined with weak corporate governance, high state ownership has had considerable fiscal and economic implications” Accordingly, the 2017 Country-Specific Recommendations for Slovenia call to ensure good governance of SOEs .10 The latest EU Country Report on Slovenia11 notes that some progress has been made in ensuring good corporate

9 To be determined in cooperation with SSH at project inception.

10 The text of the 2017 Country Specific Recommendations for Slovenia is available at: http://eur-

lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32017H0809(23)&from=EN). Similarly, the European Council 2016 Country Specific Recommendations include a recommendation to improve the governance and performance of SOEs (the full text of the Recommendations is available at: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32016H0818(22)&from=EN). 11 Available at: https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-slovenia-en.pdf

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governance of SOEs, whose performance in 2016 (on a portfolio level) reached the targets set in the management acts, with dividend payouts increase of 38 % compared with 2016.

This project underpins the objectives defined in the 2018 Annual Asset Management Plan of the SSH, which emphasises increasing the quality of corporate governance and improvements of SOE reporting as its main objectives, in addition to increased profitability and efficiency.

1.3. EBRD expertise and experience

The EBRD has over 20 years of experience in supporting policy and regulatory reform in its countries of operation in their transition to market economies. In that context, promoting good corporate governance practices has long been a priority of the EBRD as it is directly related to the sound banking principles of its investment operations.

The EBRD takes a two-folded approach to promoting better corporate governance in its countries of operations. Firstly, the EBRD works with potential clients to assess the basic corporate governance structure and practices and help addressing areas for improvement. Secondly, the EBRD provides technical assistance to the legislators and regulators of its countries of operation with the creation and enhancement of legal and regulatory frameworks which support sound corporate governance principles and practices, and their implementation.

Working with SOEs has been the cornerstone of the EBRD activities, as the EBRD has participated in a significant number of transactions aimed at pre-privatisation support, pre-listing support, SOE restructuring or expansion/capital investmentment projects. These include, in recent years, Slovenske Elektrarne, Albanian KESH, Croatia’s HEP and HAC, Serbian EPS, Romania’s Electrica and Romgaz, MEPSO of FYR Macedonia, Kazakhstan’s KTZ, Moldova Railways and CEDIS of Montenegro among others. EBRD’s investment is normally complemented by support to help the relevant SOEs to undertake the required changes either with in-house expertise or attracting external experts through technical assistance.

The EBRD has also worked extensively to support the Governments of its countries of operation, both in their capacity as the shareholder and the regulator, with SOEs reforms. For instance, the EBRD has been assisting the Government of Ukraine with the development of State Ownership Policy, a comprehensive document governing the state’s involvement in the SOEs. Most relevantly the EBRD has been assisting the Croatian Authorities on improving SOE governance in the context of technical support provided by the Structural Reform Support Service.

2. BENEFICIARY INSTITUTIONS AND OTHER PARTIES INVOLVED

2.1 Technical Support Recipients

(1) Slovenian Sovereign Holding, Mala Ulica 5, 1000 Ljubljana

web page: www.sdh.si

(2) Ministry of Finance, Župančičeva 3, 1000 Ljubljana

web page : http://www.mf.gov.si

2.2 Sustainability of the project

The project is about enhancements to the framework (including outputs such as guidelines, methodologies and reporting templates) for corporate governance, target setting and performance monitoring of SOEs that will provide guidance for the SSH, Ministry of Finance, line ministries and SOEs in accordance with best international practices. The project includes capacity-building activities (workshops) for the SSH in order to transfer knowledge and to enable them to support, guide and supervise the SOEs in accordance with their respective roles. The capacity building activities

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(workshops) will also transfer knowledge to SOEs with regards to business planning and reporting as well as increasing the supervisory boards’ effectiveness.

3. DESCRIPTION OF THE SUPPORT TO BE PROVIDED

The specific objective of the proposed technical support is to improve effectiveness of SSH’s monitor-ing of SOE performance and enhance its decision-making, thereby contributing to more ambitious Business Plans, which will help close the gap in meeting the 2020 profitability target. Ultimately the measures will lead to more sustainable SOE governance processes.

Strengthening the performance and governance of SOEs in Slovenia

Task 1.

Output: Recommendation document on improvements to the SSH’s governance

Activities 1.1. Map the key governing bodies as well as functions in SSH and indicate their responsibilities and reporting lines in relation to performing the ownership function in SOEs.

1.2. Undertake a Review of the corporate structure and corportate governance practices of SSH, which shall at minimum include:

the role of the Government (with identification of the main players and decision makers within the Government) as the shareholder of SSH and how the administration and management of SSH is influenced by third parties (i.e., parties not being members of SSH governing bodies);

The adequacy of the SSH’s corporate structure for effective control systems, operational autonomy and efficient decision-making;

The composition and mix of skills of the members of supervisory board (and committees) and the management of SSH and whether they have the necessary qualifications, reporting, induction, training and access to information needed for efficient decision making;

The processes, practices and policies according to which the Asset Management Strategy, the Asset Management Annual Plan, the budget and the risks analysis and appetite of SSH are developed, approved, implemented and monitored (including the frequency and quality of their updating and reporting on their implementation);

The processes, practices and policies through which the supervisory board (and committees), management and key function holders of SSH are identified, nominated, appointed, evaluated, supervised, dismissed and made accountable for their actions;

The internal regulations, practices, policies and processes governing the work of the supervisory board (and committees) and the management board of SSH and the effectiveness of the support provided to them (e.g., role, functions and responsibilities of the corporate secretary, quality and frequency of reporting by management etc.). This shall include a review of how board and committee meetings are planned and organised (including the development of the agenda, organisation of discussions, role of the chairman, terms of appointment of director, etc.);

The undertaking of evaluations (if any) by the supervisory board (and

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committees), including the quality of these evaluations and how the findings are implemented in practice;

The quantity and quality of information and documentation prepared and submitted to management and to the supervisory board as well as how timely it is being sent and the time available for its analysis.

The interactions between the management bodies, supervisory board (and committees) and other key functions/bodies of SSH;

The principles and rules underlying the remuneration of SSH’s governing bodies and staff and their link and alignment with SSH’s objectives and prudent risk management;

The process regarding identification and reporting of conflicts of interests and related parties and identification, disclosure, approval and reporting of related party transactions (as defined under IFRS), as well as an assessment of the policy of conflict of interest/Ethics Code and Code of Conduct/Corporate Governance exist and the effectiveness of their monitoring;

The system of internal control in place, its accountability to the management, supervisory board (and committees), and its integration with the activities of the compliance officer and the external auditors;

The structure, working processes, independence, reporting of the risk management, compliance and internal audit functions, and their compliance with best practices;

The reporting and communication channels within SSH and between shareholders, stakeholders, regulator(s) and the market; The Corporate Governance Review might include other issues and areas that are identified by the Consultants or the EBRD as being essential, during the undertaking of the Corporate Governance Review.

1.3. Benchmark the corporate structure and corporate governance practices identified in 1.1. and 1.2. above against international standards (in particular the OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance for State-Owned Enterprises) and against similar institutions responsible for exercising the ownership function of the state, with particular emphasis on EU Member States (e.g Agence des Participations de l’Etat in France). To the extent possible, this benchmarking shall not be limited to publicly available information, but shall also include information provided by benchmark institutions upon request by EBRD (or its consultants) or the SSH;

1.4. Undertake a review of current Asset Management Strategy, focusing in particular on the objectives for asset management and the current metrics for measuring performance of the SSH. The review shall include, without limitation:

an evaluation of the current system for classification of SOEs (“strategic, important and portfolio” assets);

an evaluation of SOE portfolio performance indicators, analysis of whether other financial and non-financial indicators could be used to measure performance while taking into account the different nature and classification of SOEs in the portfolio, and recommendations on potential additional indicators for the “strategic” and “important” assets;

analysis of any limitations in the Asset Management Strategy that might impede the SSH in the process of managing the SOE portfolio and the likely influence of those limitations on the performance of the overall portfolio.

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principles behind the system of financing SSH and its impact on SSH activities, its independence, effectiveness and SOE portfolio performance.

1.5. Review the 2018 Asset Management Annual Plan of the SSH and compare them to plans of benchmark institutions from 1.3. above (if available).

1.6. Review the draft compensation policy for SOEs prepared by SSH and gauge whether it is aligned with the expectations set out in the Asset Management Annual Plan and whether it fosters a strong corporate culture and prudent risk taking in SOEs;

1.7. Issue a Report containing recommendations on how to address the gaps identified in the reviews and benchmarking referred to in 1.1. to 1.6. above (the “Report”), including recommendations for the most suitable model for the centralised management of the state ownership function in Slovenia.

1.8. Organise and deliver up to two one-day workshops for the supervisory board, management and key function holders of SSH as well as the Ministry of Finance staff (for approx. up to 40 participants in total) on how to effectively implement the proposed changes to SSH’s governance. Where relevant, the workshop materials may highlight specific sector examples and case studies, but in general they should be tailored to all SOEs. The materials shall be shared with the workshop participants in advance of the workshop.

Reviews and benchmarking described in 1.1. to 1.6. above will be undertaken by: (i) the review of the current legal, regulatory and SSH’s internal frameworks governing status, processes and functions of SSH and its relations/communications with key stakeholders, (ii) desktop work and (iii) interviews and other communications with relevant governing bodies/staff members of SSH/Ministry and key stakeholders.

Task 2.

Output: Draft guidelines on target setting, monitoring and reporting as well as assessing for SSH and SOEs

Activities 2.1 Review the SSH’s approach to setting performance targets and (financial, technical and non-commercial) Key Performance Indicators (“KPIs”) for up to three selected SOEs (in 100% state ownership) in energy and/or infrastructure & transport sectors, with a view to identifying weaknesses in target-setting processes, assumptions and outcomes;

2.2 Review the current medium-term business planning processes of SOEs selected in line with 2.1 above, with a view to identifying weaknesses in the preparation of the SOEs’ medium-term business plans and in delivering on the targets;

2.3 Review the current process for monitoring performance of SOEs, methodology and communication of that process (with a particular focus on financial performance), and identify gaps compared to best practices. This shall also include the review of the frequency and quality of reporting templates (dashboards) prepared for supervisory boards (and committees) of SOEs selected in line with 2.1 above;

2.4 Based on the reviews from 2.1. to 2.3. above, issue a Report with recommendations for improving target-setting, strategic and business planning and performance monitoring of SOEs selected in line with 2.1 above. The Report shall among others include:

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an analysis of the current target setting and performance monitoring process, with identified gaps compared to best performance management practices and with recommendations aimed at addressing those gaps,

an assessment of the medium-term business planning processes and reporting on performance by SOEs selected in line with 2.1 above with recommendations on how to improve processes and reports;

an assessment of type, quality and frequency of communication between SSH representatives, SOEs key governing bodies and regulatory agencies and recommendation aimed at improving effectiveness of mutual electronic/verbal communication.

2.5 Based on recommendations provided in line with 2.4. above and develop:

Guidance for setting targets and performance monitoring by SSH. The guidance shall include, without limitation:

guidance on evaluating SOEs’ strategic options and challenges as well as their key strategic financial, operational and compliance risks,

approach to selecting essential sets of KPIs, which would include standard financial indicators, sector specific targets and essential non-financial (including environmental, social and governance) KPIs,

methodology for measuring the cost of “special public service obligations” that may affect the financial performance of SOEs selected in line with 2.1 above in the target-setting processes,

approach to evaluating and challenging medium-term business plans, including sales, profitability, working capital, CAPEX and capital structure assumptions used in those plans;

Where appropriate, the guidance shall be accompanied by examples and illustrative templates and best practices of selected international benchmark companies.

Guidance for medium-term business planning and reporting by all SOEs (100% owned by the State). The guidance shall include, without limitation:

information on the necessary content of financial models, KPIs and narrative business plan based on and with reference to different methodologies, e.g. balanced scorecard method,

guidance on the identification and analysis of key external and internal factors affecting the business and on the review of assumptions related to SOEs’ markets and competitors,

guidance on the frequency and comprehensiveness of the dashboards and other reports sent to SOEs’ governing bodies and SSH directly;

Where appropriate, the guidance shall be accompanied by examples and illustrative templates and best practices of selected international benchmark companies.

2.6 Organise and deliver up to three one-day workshops for SOEs, SSH and the Ministry of Finance on how to effectively implement sets of guidance mentioned under 2.5. above (at least one workshop for the SSH and the Ministry of Finance

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and at least one workshop for SOEs, for approx. up to 100 participants in total). Where relevant, the workshop materials may highlight specific sector examples and case studies, but in general they should be tailored to all SOEs. The materials shall be shared with the workshop participants in advance of the workshop.

Reviews described in 2.1. to 2.3. above will be undertaken by: (i) the review of the current legal, regulatory and SSH’s internal frameworks governing status, processes and functions of SSH and its relations / communications with key stakeholders as well as internal frameworks of SOEs selected in line with 2.1 above, (ii) desktop work and (iii) interviews and other communications with relevant governing bodies/staff members of SSH/Ministry, SOEs selected in line with 2.1 above and other key stakeholders.

Task 3.

Output: Draft guidelines for supervisory boards of selected SOEs

Activities 3.1 As Pilot cases with a focus on SOEs from the energy and/or infrastructure & transport sectors, undertake a review of SOEs selected in line with 2.1 above in the following areas:

processes that deal with nomination and appointment of supervisory board members (including the assessment of proposed supervisory board members’ independence);

composition and mix of skills of the members of supervisory boards (and committees) and assess whether they have the necessary qualifications, reporting, induction, training and access to information needed for efficient decision making;

internal regulations, practices, policies and processes governing the work of the supervisory boards (and committees) and the effectiveness of the support provided to them (e.g., role, functions and responsibilities of the corporate secretary, quality and frequency of reporting by management etc.). This shall include a review of how board and committee meetings are planned and organised (including the development of the agenda, organisation of discussions, role of the chairman, terms of appointment of director, etc.);

the undertaking of evaluations (if any) by the supervisory board (and committees), including the quality of these evaluations and how the findings are implemented in practice;

the quantity and quality of information and documentation prepared and submitted to management and to the supervisory board as well as how timely it is being sent and the time available for its analysis;

the interaction between the supervisory boards and other key functions/bodies of SOEs;

the SOEs’ compensation policy and practices and their alignment with prudent risk management;

compliance with the Corporate Governance Code for SOEs.

3.2 Based on the reviews from 3.1. above and issues identified therein, prepare guidance on the effectiveness of SOEs supervisory boards in line with best international practices. The guidance shall be provided in the form of easily actionnable principles and should be applicable to all SOEs (taking into account that stricter requirements might apply for some sectors, e.g. financial institutions).

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If specific issues are identified with regards to the energy / transport & infrastructure sectors, the guidance shall also address these issues in a separate section. Where appropriate, the guidance shall be accompanied by examples and illustrative templates.

3.3 Organise and deliver workshops for selected SOEs, SSH and the Ministry of Finance on how to effectively implement guidance mentioned under 3.2. above. (at least one workshop for the SSH and the Ministry of Finance and at least one workshop for SOEs, for approx. up to 100 participants in total). Where relevant, the workshop materials may highlight specific sector examples and case studies, but in general they should be tailored to all SOEs. The materials shall be shared with the work-shop participants in advance of the workshop.

Review described in 3.1. above will be undertaken by: (i) the review of the current le-gal, regulatory and SSH’s internal frameworks governing status, processes and func-tions of SSH and its relations / communications with key stakeholders as well as inter-nal frameworks of SOEs selected in line with 2.1 above, (ii) desktop work and (iii) inter-views and other communications with relevant governing bodies/staff members of SSH/Ministry, SOEs selected in line with 2.1 above and other key stakeholders.

All outputs (deliverables) will be provided first in the draft form and will be updated based on comments from the SSH, the European Commission and the EBRD. In addition, based on the previous tasks EBRD will present the final report. For the latter, EBRD will prepare a short separate presentation, using simple and illustrative text (i.e. PowerPoint) with the takeaways from the project that could be useful and relevant for implementing similar initiatives in other EU Member States.

The workshops shall be organised for staff members of the SSH, the Ministry of Finance as well as SOEs and other key stakeholders - to be identified in the consultation with the SSH. All expenses related to the organisation of workshops shall be covered from the budget for consultancy services to be provided in line with Section 3.2. below.

4. PROJECT RESOURCES

4.1 Resources to be made available by EBRD

The EBRD will provide an Operation Leader (“OL”) or two co-OLs to oversee the project, to coordinate the technical support to be provided, to ensure high-level supervision over the work of the experts to be hired by the EBRD, to perform the tasks defined by this Agreement in coordination with the SRSS, to manage the budget allocated under this agreement, and to ensure relevant reporting and communication with the SRSS as defined in this Agreement.

The EBRD will further provide staff members, based in London and/or Ljubljana, to assist the OLs in performing day-to-day management of the tasks and assignment under this Agreement, overseeing selection and contracting of the Consultants and interacting with them, as well as with the rest of the EBRD teams/departments whose assistance might be needed for undertaking the assignments envisaged by this Agreement.

The Project shall be managed by the Operation Leader(s) of the EBRD in consultation with the SSH and the SRSS.

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4.2 Resources to be outsourced

The EBRD will procure a firm or a consortium of firms (the “Consultants”) to perform activities under this Agreement. The Consultant should be an international advisory firm or group of firms (indicatively, 4 experts) with previous project experience and proven competencies in:

• developing, managing and implementing complex projects related to corporate governance improvements, preferably of SOEs;

• analysing corporate governance frameworks and practices and benchmarking them to international standards and best practices;

• finance and reporting processes improvements including preparation of related guidelines, procedures or standard operating procedures;

• preparation and delivery of workshops relating to corporate governance improvements, business planning and performance, preferably for SOEs, and

• knowledge of the legal, regulatory and institutional framework governing the SOEs in Slovenia.

The Consultants shall report to and work under the guidance of, and according to the comments made by SSH and the Operation Leader(s) as well as SRSS.

4.3 Resources to be made available by the SSH

The SSH shall provide their experts and any documents, data and information necessary for the implementation of this project. It is expected that the SSH will be the national contact point for the activities, and will coordinate with the Ministry of Finance, other Ministries and other national stakeholders. The SSH will also provide full support of technical equipment to consultants, including available rooms for meetings in its premises, the internet access, teleconference facilities, organisation of the meetings and other support of its help desk on potential IT issues.

5. SPECIFC PROJECT ORGANISATION

There will be no additional specific project organisation requirements compared to the provisions of the Delegation Agreement.

6. PROJECT SCHEDULE AND CONFIDENTIALITY OF INFORMATION

6.1 Project schedule

The schedule of activities and deliverables is set out below (indicative timeline). The activities are expected to start in Q3 2018 and it is anticipated that the Project will be delivered by the end of Q1 2019 (indicative timeline), assuming that there is continuing support and commitment by the authorities and there are no delays in establishing meetings with stakeholders, selection of the Pilot Project, access to relevant policy, legal and regulatory documentation and organisation of relevant workshops and availability of participants for the workshops. The timetable also depends on all contractual and administrative procedures, including selection of the Consultants. The total duration of this project is expected to be ten months from the kick-off meeting (and twelve months from the signing of the Delegation Agreement by SRSS and EBRD), provided no delays in provision of information and other support from the Slovenian authorities.

The Project shall start with a kick-off meeting in which all key parties will participate. In order to provide direction and consistency to the Project, a Steering Committee (consisting at least of the

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representatives of SSH, Ministry of Finance, SRSS and EBRD) shall be established which will provide the authorizing environment for the activities undertaken by the project. The Steering Committee will oversee, monitor and guide the technical aspects of the project, follow up activities and discuss and approve the reports, work plans and deliverables. The Steering Committee will also discuss the draft of quarterly and half yearly reports submitted to it beforehand and recommend corrections and shall meet not less than once every three months. The responsibility for the organisation of the meetings of the Steering Committee lies with the project manager of the EBRD.

6.2 Language

Draft reports, guidance and other written outputswill be provided in English, while the final versions shall also be translated to Slovene at the expense of the consultancy budget. Meetings and workshops will be conducted in English. Depending on the needs of the participants of the workshops and the meetings of SSH and other local stakeholders, interpretation from/to Slovenian will be provided and will be covered by the consultancy budget.

6.3 Confidentiality

All financial and other information in connection with this Project regarding the policies and plans of the the Ministry of Finance, SSH and its affiliates that is and has been designated as confidential and proprietary, shall remain confidential. The same shall apply to information provided by benchmark institutions mentioned in section 2 task 1 activity 1.3. above.

The Consultant will be required to maintain the above mentioned confidentiality restrictions and sign a confidentiality agreement with the SSH and selected SOEs for the information obtained during the Project. This shall not prevent the SSH in any way from disclosing and citing the outputs prepared within the Project. SSH has the right, at its sole discretion, to provide the individual SOE with specific parts of the Report, related to that SOE.

This clause shall also be depicted in the contract between EBRD and the selected consultant.

7. PROJECT RISKS

Risks Risk management

Lack of commitment/support from the Slovenian authorities in

The project has been structured in response to request from the authorities and closely matching their needs and the

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undertaking the project. country’s priorities. The scope of work has been discussed and agreed with the authorities. The SRSS and the EBRD teams will maintain close contact with the authorities throughout the project timeline to ensure close coordination.

Lack of cooperation from the SOEs (in particular pilot SOEs) and the SSH in provision of information and participating in the workshops.

The SSH will take the lead in providing the information and proposing and selecting the SOEs and the SSH’s staff for participating in the workshop, for discussion with the project team at the EBRD.

Delays in selection and procuring the Consultants.

The EBRD team will closely oversee the process of selection and contracting the Consultants.

Delays and low quality of the Consultant’s work.

The EBRD team will undertake the selection of the Consultant and will also closely monitor the Consultants’ work, including by reviewing the inputs as needed.

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8. INDICATIVE LOGICAL FRAMEWORK

Expected Results (logic of interven-

tion)

Indicators Baselines Means Result goals Sources of verificat ion

Assumptions/Risks

Impact Improved capacity of the SSH to per-form its role on managing state’s ownership interests in SOEs, im-proved effectiveness of SSH’s moni-toring of SOE performance and en-hanced SOEs’ governance frame-work and business planning pro-cesses

N/A

COMPONENT Outcome 1 The framework for SSH’s monitoring of SOE performance and SOEs’ gov-ernance framework and business planning processes have been im-proved

Improvements to the existing frame-work based on the implementation of recommendations provided

Current framework

Improved framework is in use

Assuming: 1) commitment and sup-

port from SSH and the Slovenian authorities, including in providing relevant information;

2) cooperation from the

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Output 1.1 Recommendation document on improvements to the SSH’s govern-ance

Review and recommendations cover: current corporate structure and cor-portate governance practices of SSH, current processes and activities, roles and responsibilities of key stakehold-ers (including SSH and the Ministry of Finance) in exercising the ownership function in SOEs, review of current Asset Management Strategy, Asset Management Annual Plan and draft compensation policy for SOEs pre-pared by SSH. Benchmarking for the above listed topics shall be done tak-ing into account international best practices. Relevant staff group from SSH and the Ministry of Finance is chosen for the workshop to cover analysis and recommendations.

0 (no review has been done)

Person-nel: 4-5 ex-perts/month Travel: the team of experts to be hired will likely be a mix of lo-cal and in-terna-tional ex-perts. Missions to the country (likely one 3 days every two months) are envis-aged

Review and recom-mendations cover at least the indicated top-ics and take into ac-count best practices / relevant experiences from other countries and are country-specific, i.e. adjusted for the context of SSH and Slovenia. Targeted selection of group for the workshop and positive feedback from SSH/Ministry of Finance on the useful-ness of the workshop.

SSH, Min-istry of Finance, EBRD/Consultant’s reports.

SOEs in providing infor-mation and implementa-tion of the assignment and participating in the workshops;

3) political stability/no changes in government;

4) no delays in selection and procuring the con-sultant;

5) high quality perfor-mance by the Consultant (Recommendations and guidance prepared based on international standards and best prac-tices).

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Output 1.2 Draft guidelines on target setting, monitoring and reporting as well as assessing for SSH and SOEs

Draft guidelines for SSH shall at least include guidance on: (i) evaluating SOEs’ strategic options, challenges and risks; (ii) selecting essential sets of KPIs for SOEs; (iii) methodology for measuring the cost of special public service obligations that may affect the financial performance of SOEs; and (iv) evaluating and challenging medium-term business plans of SOEs.

Draft guidelines for SOEs shall at least include guidance on: (i) information on the necessary content of financial models, KPIs and narrative business plans; (ii) identification and analysis of key external and internal factors affecting the business; and (iii) the frequency and comprehensiveness of the dashboards and other reports sent to SOEs’ governing bodies and SSH.

Relevant staff group from the SSH, Ministry of Finance and selected SOEs is chosen for the workshop to cover analysis and recommendations.

0 (no guidelines currently exist).

Person-nel: 4-5 ex-perts/month Travel: the team of experts to be hired will likely be a mix of lo-cal and in-terna-tional ex-perts. Missions to the country (likely one 3 days every two months) are envis-aged.

Draft guidelines cover at least the indicated topics and take into ac-count best practices / relevant experiences from other countries and are country-specific, i.e. adjusted for the Slovenian con-text. Targeted selection of group for the workshop and positive feedback from the SSH, Ministry of Finance and selected SOEs on the usefulness of the workshop.

SSH, se-lected SOEs, EBRD/Consultant’s reports

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Output 1.3 Draft guidelines for supervisory boards of selected SOEs

Draft guidelines on effectiveness of supervisory boards of SOEs shall at least include guidance on: (i) composition and mix of skills of supervisory board members; (ii) functioning of the supervisory boards (including the development of the agenda, organisation of discussions, role of the chairman and individual members) and the support provided to the board; (iii) evaluation of the effectiveness of the supervisory board (and its committees); (iv) the timeliness, quantity and quality of information and documentation for the supervisory board; and (v) the interaction between the supervisory boards and other key functions/bodies of SOEs. Relevant staff group from the SSH, Ministry of Finance and selected SOEs is chosen for the workshop to cover analysis and recommendations.

0 (no guidelines currently exist).

Person-nel: 4-5 ex-perts/month Travel: the team of experts to be hired will likely be a mix of lo-cal and in-terna-tional ex-perts. Missions to the country (likely one 3 days every two months) are envis-aged

Draft guidelines cover at least the indicated topics and take into ac-count best practices / relevant experiences from other countries and are country-specific, i.e., adjusted for the Slovenian con-text. Targeted selection of group for the workshop and positive feedback from the SSH, Ministry of Finance and selected SOEs on the usefulness of the workshop.

SSH, se-lected SOEs, EBRD/Consultant’s reports

Assuming: 1) commitment and sup-

port from SSH and the Slovenian authorities, including in providing relevant information;

2) cooperation from the SOEs in providing infor-mation and implementa-tion of the assignment and participating in the workshops;

3) political stability/no changes in government;

4) no delays in selection and procuring the con-sultant;

5) high quality perfor-mance by the Consultant (Recommendations and guidance prepared based on international standards and best prac-tices).