How Can Thailand Improve Governance of State-Owned Enterprises?

January 31, 2025

State-Owned Enterprises (SOEs) play a pivotal role in Thailand’s economy, contributing significantly to the nation’s GDP and employment. As of 2023, the central government holds full or majority ownership in 52 SOEs, which span critical sectors such as energy, telecommunications, transportation, and financial services. These enterprises, with total assets worth USD 448 billion and employing over 300,000 individuals, generate a total revenue of USD 161 billion, amounting to 32.7% of Thailand’s GDP. Despite their importance, there are several areas where the governance of these SOEs can be improved to enhance their efficiency, transparency, and contribution to the economy.

Enhancing the Effectiveness of the State Ownership Function

Strengthening SEPO’s Oversight and Enforcement Powers

The State Enterprise Policy Office (SEPO) operates under the Ministry of Finance and is responsible for overseeing and managing Thailand’s SOEs. To improve governance, it is crucial to enhance SEPO’s oversight and enforcement powers. This can be achieved by simplifying and standardizing the legal forms of SOEs to align with corporate norms applicable to private companies. Such measures would enhance transparency and ensure that SOEs operate on an equal playing field with their private sector counterparts. This alignment would not only increase operational efficiency but also instill a higher level of trust among international investors and local stakeholders.

Furthermore, an empowered SEPO could impose stricter compliance and monitoring mechanisms to ensure that state enterprises adhere to set regulations and performance benchmarks. This could involve regular performance reviews and tougher penalties for non-compliance, which would act as a deterrent against inefficiency and mismanagement. Strengthening SEPO’s capacity in this way would pave the way for a more accountable governance framework, ultimately leading to better outcomes for the overall economy.

Aligning SOE Operations with National Economic Goals

SEPO works in collaboration with various line ministries that formulate objectives and operational strategies for the SOEs under their portfolios. By ensuring that these strategies are closely aligned with national economic development goals, SEPO can better manage the performance and accountability of SOEs. The establishment of the State Enterprise Policy Committee (SEPC) in 2014, later formalized as a legal entity in 2019, has significantly improved the framework for SOE ownership and corporate governance. The SEPC provides a structured platform for overseeing SOE activities, ensuring that they contribute effectively to the country’s broader development targets.

To maintain alignment with national objectives, SEPO and the line ministries should regularly update the operational strategies of SOEs in response to changing economic conditions. This would involve a continuous feedback loop where both short-term and long-term goals are revisited and adjusted based on SOE performance and emerging trends. Regular consultations with stakeholders, including the private sector and civil society, could further enrich the strategic direction, providing a more holistic approach to national economic development.

Establishing a Policy Framework for Competitive Neutrality

Addressing Exemptions from the Trade Competition Act

Economically significant SOEs in Thailand are currently exempt from the Trade Competition Act through a public interest exemption. To maintain policy coherence and avoid competition distortions, it is essential to enhance collaboration between the competition authority and regulatory bodies. Granting the competition authority the powers to counter anti-competitive behaviors of SOEs is crucial for ensuring a level playing field. By addressing these exemptions, the government can foster a more competitive market environment which benefits consumers and drives innovation.

In order to implement such changes effectively, a comprehensive review of current competition laws and their applicability to SOEs should be carried out. This would help identify specific areas where SOEs enjoy undue advantages and devise regulatory adjustments accordingly. Such an approach would also involve capacity building for competition authorities, ensuring they are well-equipped to monitor and address anti-competitive practices within the SOEs.

Separating Regulatory Powers from Ownership Functions

Separating regulatory powers from ownership functions is necessary to alleviate conflicts of interest and improve accountability and transparency. This separation would ensure that regulatory bodies can operate independently and impartially, thereby fostering a more competitive and fair market environment. By delineating these roles, the government can better manage both the oversight and operational aspects of SOEs, ensuring that each function is carried out effectively without overlapping interests.

This separation can be facilitated by establishing distinct regulatory authorities for different sectors, each with a clear mandate and sufficient autonomy to execute its roles without political interference. Additionally, setting up oversight committees comprising industry experts and independent consultants could help ensure that the regulatory objectives are met. This structure would promote a more transparent and accountable governance framework, enabling SOEs to function efficiently while adhering to fair competitive practices.

Enhancing Transparency and Disclosure Measures

Full Disclosure of State Support and Financial Assistance

Full disclosure of any state support, financial assistance, or subsidies received by SOEs is essential to prevent potential market distortions. Consistently separating accounts between public service obligations (PSOs) and other activities in SOE reporting is recommended. This transparency would allow for better monitoring and evaluation of SOE performance. Transparent accounting practices would reveal the actual cost and efficiency of service provisions, facilitating more accurate market comparisons.

To further enhance transparency, SOEs should be required to publish detailed annual reports outlining the financial support they receive and how it is utilized. These reports should be easily accessible to the public and stakeholders, enabling a culture of openness and accountability. Utilizing advanced accounting software and digital platforms for reporting can streamline this process, making it less cumbersome and more efficient for the SOEs.

Mandatory External Independent Audits

Making external independent audits mandatory for all SOEs is another critical step towards enhancing transparency. Improving the monitoring and implementation of internal control and risk management measures would further ensure that SOEs operate efficiently and responsibly. Independent audits provide an unbiased assessment of the financial health and compliance status of SOEs, which is crucial for maintaining stakeholder confidence.

To ensure the effectiveness of these audits, guidelines and standards should be established that dictate the scope and frequency of audits. Engaging reputable audit firms with a proven track record can also enhance the credibility of these audits. Moreover, the findings from these audits should be made publicly available, and follow-up mechanisms should be in place to address any issues identified. This would create a robust governance framework that prioritizes accountability and continuous improvement.

Improving Board Autonomy and Independence

Standardizing Criteria for Independent Directors

To enhance board autonomy, it is important to standardize criteria for independent directors and increase their proportion on SOE boards. This would ensure that boards can make decisions independently and in the best interest of the SOEs. Clearly defined qualifications and roles for independent directors would attract experienced professionals who can offer valuable insights and strategic direction.

Additionally, independent directors should undergo regular training to keep abreast of the latest governance practices and industry trends. This continuous education would enable them to perform their duties more effectively, championing the interests of the SOEs while maintaining high standards of governance. Establishing a transparent and merit-based selection process for independent directors would further enhance the integrity and functionality of SOE boards.

Reducing the Number of Directors

Reducing the overall number of directors on SOE boards can also contribute to greater board autonomy. The results of SOE board performance evaluations should inform future board nominations, ensuring alignment with the state’s role as a shareholder and improving overall governance. Smaller boards tend to be more agile and effective in decision-making, fostering a dynamic governance environment.

In conjunction with reducing board size, it is essential to ensure a diverse mix of skills and expertise among the remaining directors. This diversity can be achieved by periodically reviewing the board composition and making adjustments as necessary to address any skill gaps. By focusing on quality over quantity, SOE boards can enhance their strategic oversight capabilities, ultimately leading to better-managed enterprises.

Incorporating Sustainability Considerations into Ownership Policy

Integrating Ambitious Sustainability Goals

Given the critical sectors in which many Thai SOEs operate, integrating ambitious sustainability goals into the state’s ownership policy is necessary for the climate transition and reducing greenhouse gas emissions. This would not only contribute to global environmental efforts but also enhance the long-term viability and competitiveness of SOEs. Incorporating sustainability into business models would help SOEs align with international standards and investor expectations.

To achieve this integration, SOEs should establish clear sustainability targets and track their progress through regular reporting. Collaborating with environmental experts and adopting best practices in sustainability can further strengthen these efforts. Moreover, linking executive compensation to the achievement of sustainability goals would incentivize SOE leaders to prioritize environmental initiatives, driving meaningful progress.

Aligning with International Best Practices

State-Owned Enterprises (SOEs) are crucial to Thailand’s economy, making a significant contribution to the nation’s GDP and providing substantial employment. As of 2023, the Thai government retains full or majority ownership in 52 SOEs, which operate in essential sectors such as energy, telecommunications, transportation, and financial services. These entities possess total assets valued at USD 448 billion and employ over 300,000 people. They collectively generate a revenue of USD 161 billion, accounting for 32.7% of Thailand’s GDP. Despite their critical role, there are numerous opportunities to enhance the governance of these SOEs. Improvement in their efficiency, transparency, and economic contribution is possible and necessary. Addressing these governance issues can ensure that SOEs more effectively support Thailand’s economic growth and development, fostering a more sustainable and prosperous future. Attention to these areas is crucial for leveraging the full potential of SOEs in driving the nation’s economic progress.

Subscribe to our weekly news digest.

Join now and become a part of our fast-growing community.

Invalid Email Address
Thanks for Subscribing!
We'll be sending you our best soon!
Something went wrong, please try again later