SOEs

EXECUTIVE SUMMARY

This memo discusses: (1) the role of MoMP in managing the SOEs including the North coal (NCE), Afghan gas (AGE), Kod-e-Barq and Jabal Saraj Cement, (2) an overview of each enterprise, and (3) the Details regarding the EITI recommendation. The MoMP SOEs located in four provinces. On behalf the MoMP, the SOEs directorate has the responsibility to coordinate, facilitate and monitor affairs of these SOEs. The highest decision making body in SOEs is the High Board of SOEs which approves their annual financial and operational documents. At the executive level, the Board of Management of each SOE is responsible to manage the operation and management of the SOEs. The decision role of the High Board and the Senior Management is explained in the SOEs law and each SOE articles of associations. 

North Coal Enterprise (NCE)

The largest of the SOE is the North Coal Enterprise, which is headquartered in Baghlan province and managed by CEO, two deputies (admin and technical), and CFO. The NCE has 287 permanent employees and 381 contract based workers. The NCE is overseeing three active and one inactive coal mines. One mine (Tala O Barfak) is located in Baghlan province and the two others (Shabashak and Dan e Tor) are located in Samangan. Abkhorak coal mine is inactive and it is located in Samangan. Based on article 33 of the SOEs law, the high board of Tasadee (chaired by MoMP and members from MoF, MoE and MoCI) is involved in all decision related to the NCE financial plan and it strategic decision. The senior management of the NCE provide its financial and operation report to the High Board. In addition, the MoMP is responsible to monitor its operation and financial activity. Thus, in 2018, the MoMP deployed a financial system in the NCE for computerization of its financial transactions and ensuring transparency in its financial activities. 

Afghan Gas enterprise (AGE)
 
The second SOE is the Afghan Gas Enterprise (AGE) which is responsible for extraction and supply of natural gas. The AGE currently provides 95% of natural gas to the Kod-e-Barq enterprise and the remaining 5% to other customer and it’s expect to supply gas to the new projects such as Bayat and Ghazanfar IPP in near future. Based on article 33 of the SOEs law, the high board of Tasadee (chaired by MoMP and members from MoF, MoE and MoCI, MoWE) is involved in all decision related to the AGE financial plan and its strategic decision. The senior management of the AGE provide its financial and operation report to the High Board and also the MoMP is responsible to monitor its operation and financial activity. Therefore, in 2018, the MoMP deployed a financial system in the AGE for computerization of its financial transactions and ensuring transparency in its financial activities.  
 
Kod-e-Barq enterprise
 
The third SOE is the Kod-e-Barq (fertilizer and electricity) enterprise is one of the oldest factories in Afghanistan. The company is located 18 km west of Mazar-e-Shareef. The primary products of the Kod-eBarq are fertilizer and electricity. The planned production of Kod is 44k MT of fertilizer for 1397. The Kod e Barq Enterprise has a total of 1,715 employees of which 725 are permanent and 989 are contract based. Management board of Tassadees includes CEO, Technical deputy, admin deputy, CFO & Planning manager. Based on article 33 of the SOEs law, the high board of Tasadee (chaired by MoMP and members from MoF, MoE, MoCI and MAIL) is involved in all decision related to Kod-e-Barq financial plan and its strategic decision. The senior management of the Kod-e-Barq provides its financial and operation report to the High Board and the MoMP is responsible to monitor its operation and financial activity. 
 
Jabal Saraj cement enterprise
 
The Jabal Saraj cement enterprise is a small cement producing company. The enterprise is located in 80 kilometers north of Kabul. The Jabal Saraj cement enterprise has 213 employees of which has 42 
permanent and 171 contractual based employees. Due to civil war the operations of the industry got stopped. Whereas, the JCE plant in Parwan has reopened after 20 years in 2016. The plant currently has the capacity to produce on average 60 t/day. Based on article 33 of the SOEs law, the high board of Tasadee (chaired by MoMP and members from MoF, MoE, MoCI and MUDH) is involved in all decision related to JCE financial plan and its strategic decision. The senior management of the JCE provide its financial and operation report to the High Board. In addition, the MoMP is responsible to monitor its operation and financial activity.
 
Profit sharing structure and retained earnings
 
In regard of the profit sharing structure and retained earnings of the SOEs,  an SOEs cannot retained more than a total of 25% of their annual profit and calculation of 25% funds at the end of financial year after approval of financial statement (statement of profit & loss and Balance sheet) is based on Article# 23 of the SOEs law, SOEs shall make total 25% annual allocations to the following funds from its overall annual net profits for the purpose of growth, payment of bonuses to employees, and compensation of unexpected losses. To spend these fund, the SOEs obliged to have the approval of the MoF
  1. Bonus funds - up to 15% 
  2. Development funds - 5% 
  3. Social and cultural funds - 3%
  4. Reserve funds - 2% 
 
By end of each financial year the SOEs must transfer the remaining (75%) of the net profit to the Ministry of Finance by the enterprise. 
 
Reinvestment
 
In regard to reinvestment SOEs are not permitted to invest in any other companies or corporation except a joint venture of public and private sector. Based on Article 16 of the SOEs law, an enterprise may not invest in other enterprises. Based on Article 17 of the SOEs law, an enterprise may invest in a joint venture (combined public and private) or private undertaking upon the agreement of the Ministry of Finance. And yet the MoMP SOEs have not reinvested in any other organization.  
 
Third party financing
 
About third party financing, SOEs have not sought financing from third party yet but they are allowed to do so with strict condition. Based on Article 26 of the SOEs law, an enterprise shall finance its investments in accordance with the approved plan, from the internal resources of the enterprise, development budget of the government, and loans from banks. According to Article 27 of the same law, an enterprise can obtain loan from banks in exceptional circumstances and that be approved by the Supreme Court of Afghanistan. However, MoMP SOEs have not been financed by the mentioned parties. 
 
Government ownership in SOEs
 
Under the State Owned Enterprises Law, 2005, the Ministry of Finance (MOF) is the holder of all state assets. This includes the Northern Coal Enterprise, Kod-e-Barq enterprise, Jabal Saraj cement enterprise and Afghan gas enterprise. Because all these four enterprises are State owned enterprises. MoMP manage and monitor the operations of these SOEs.
 
Account of loan or loan guarantees
 
SOEs has not grant any loan to any extractive company yet. 
 
 
Quasi-fiscal expenditure
 
All four SOEs prepare an annual financial plan for expenditure and revenue at the beginning of the year and get approval of the MoMP and the MoF. We will identify the quasi-fiscal expenditure of each SOE and share with public soon.