Some resource-producing countries use public sector enterprises to develop their resource base, either in whole or in part.

State-owned companies might be used to develop domestic capacity and support development of domestic linkages between the resource and other sectors. These objectives might be beneficial at some point during an economy’s development, but the state enterprise should adapt to changes in the economy environment. Successful national resource companies have been characterized by their limited scope, professional management and a founding goal of becoming commercially viable.

National Resource Companies (NRCs) can provide a viable vehicle for a country to build its own expertise and professionalism in the resource sector. In addition, the government might be able to exert direct control over the pace of resource development, secure supply, or achieve other national objectives, including the development of ancillary and downstream industry. Historically, a key pre-requisite of success for NRCs has been a commitment to maintain the capability and professionalism of the national champion at international levels, either by continuous renewal of skills or by competition on the global stage. However, many national companies have performed poorly. Furthermore, investments in NRCs can limit diversification and increase a country’s reliance on the resource sector, making total government revenues more dependent on the resource sector and thus subject to changes in resource prices.

NRCs can be successful, efficient, revenue-generating operations. Efficiency is best attained through provisions protecting against the entrenchment of bad practice leading to poor outcomes. Ways to reduce the probability of entrenchment include, but are not limited to:

1. Structuring companies so that decisions are transparent and subject to market tests. Any protection of national companies should be clearly defined and limited in time so that the risk of abuses from the privileged position is reduced.
2. Managing ownership through a commercial relationship such as shareholdings. NRCs should be established under the relevant commercial code to distinguish them from other state agencies established to pursue non-financial objectives.

Transparency can be facilitated by having the national company organized as a separate legal entity with clearly established authorities and objectives, and by having governing and management boards separate from the government. Public oversight and control can be enhanced by:

1. having public accounts maintained in accordance with international standards and subject to independent audit,
2. clearly identifying any private ownership interests and transactions with such interest holders,
3. having the national company make the same disclosures required of publicly held companies, and,
4. conducting regular and systematic oversight through parliament or other entities.

The goal of establishing a company should be to achieve the best returns for a country resulting from being in open and genuine competition with other companies. Competition can act as a disciplining mechanism on the efficiency of the national company, and the government more generally, and provides a useful yardstick in measuring its performance. Open and effective competition may also be the best policing device for procurement. Competition is enhanced if the state enterprise is subject to the same fiscal regime—including royalties—as a private sector investor in this and other sectors.

The state enterprise should also compete for inputs as well as outputs. New investments and additional operating costs come either at the expense of other government programs or by increases to total public debt (SOE debt plus public debt). All investments should be judged relative to the cost of public funds.

NRCs should not be charged with conducting regulatory functions. Conflicts of interest between commercial and wider public interests can result when the same party is charged with delivering commercial viability and regulating.

When institutional capacity allows, government should separate the NRC from the licensing, technical and regulatory supervision of the resource sector, placing those functions instead in independent government entities. Where the functions are retained within the national company, conflicts of interest can be reduced and better monitored if non-commercial functions are segregated and subject to separate supervision and reporting.

NRCs should avoid engaging in governmental activities, including social functions such as distributing subsidized output. In the event that such programs are entrusted to the national resource company, government and legislative control and oversight can be improved by having the national company report separately and in detail the costs of the social programs, including the equivalent budgetary cost of such items. These costs should also be explicitly recognized in the budget and national accounts.