Cross-Subsidizing in State-Owned Enterprises

In Lithuania, state-owned enterprises (SOEs) may operate in any economic sector. The activities of SOEs are not limited by law; therefore, there is no formal market assessment criteria when it comes to the establishment, operation and expansion of SOEs. In addition of being the monopoly suppliers of some state-sponsored activities (either fully or partially funded by the state), many SOEs also engage in traditional businesses and compete with private market players, undermining competition and posing the threat of market distortions due to the ability to use public funds to cross-subsidize their business practices.

Indirect cross-subsidizing may be difficult distinguish from traditional business practices, economies of scale and other cost-effective solutions. When the same SOEs engage in both state-sponsored and traditional business,  their activities have the potential to undermine fair competition. Therefore, SOEs should only perform state-sponsored activities and either transfer or drop their market operations. In any case, a single entity may not engage in both state-supported and traditional business practices at the same time.

Read the full study Cross-Subsidization in State-Owned Enterprises (in Lithuanian)