Brussels is sending a resounding message to the government and political parties on the way boards of semi-state organisations are appointed, and on the overall governance model as a whole. Cyprus is asked "to improve the governance of state enterprises through the merit-based appointment of boards of directors, ownership policy, and performance-based management."
EU recommendation
The European Union has asked the Republic of Cyprus to make changes to the way semi-state organisations and state enterprises are governed, with emphasis on ensuring that board of directors selection procedures are merit-based, within the framework of the current European Semester process.
This is the annual process for assessing economic policies and reforms, which concludes with the issuing of recommendations by the Council on each state's economic, social, structural and fiscal policy, and employment policy. In other words, EU member states agree among themselves on what needs to be done to improve their economic performance. In Cyprus's case, there is a specific reference to semi-state organisations.
The inclusion of this issue in the final package of recommendations means that the European Commission considers the governance of semi-state organisations to be a structural issue affecting competitiveness, the effectiveness of the state, and the economy's development prospects. A similar recommendation had been included in the recommendations for 2022.
The Council asks Cyprus "to improve the governance of state enterprises through the merit-based appointment of boards of directors, ownership policy, and performance-based management." The wording indicates that the current process, including the recommendation of the Advisory Council, is not the best one. Meritocracy remains an unmet goal.
Political controversy over appointments
The most recent round of appointments to the boards of semi-state organisations sparked intense political conflict, which failed to take into account the bigger picture: the need for semi-state organisations to acquire professional management, with the state and government having no influence over day-to-day management. Notably, the text prepared by the European Commission also references an action plan for the governance of state enterprises, which has not yet been presented. It is listed as a project in the Ministry of Finance's 2025 action report.
The recommendation document, in full
The recommendation document states, in detail, regarding semi-state organisations:
"Cyprus has room to improve the governance of state enterprises. These enterprises play a central role in key sectors of the economy, particularly in sectors characterised by natural monopolies (e.g. electricity, telecommunications, water supply, waste management and infrastructure). However, their governance continues to fall short of international standards, with persistent weaknesses observed in accountability, transparency, board appointment procedures, and the absence of a clear ownership policy. The effective implementation of the recently approved action plan for the governance of state enterprises could help address these challenges and improve the performance of state enterprises, support their modernisation, and strengthen their contribution to achieving strategic policy objectives, including the green and digital transitions."
In other words, for the EU, the functioning of semi-state organisations is not simply a matter of selecting individuals, but is placed within the broader issue of corporate governance of state enterprises.
What is required, therefore, is the implementation of changes that will convert existing procedures into a stable system of corporate governance.
What the IMF has found
In other words, the European assessment concludes that the current situation is not satisfactory. The technical assistanceprovided by the International Monetary Fund to Cyprus in 2023 was essentially pointing in the same direction. In its extensive study on strengthening the governance and oversight of state enterprises, the IMF found that the selection of board members was carried out by the Council of Ministers through procedures considered vulnerable to politicisation, while the general public perception was that appointments remained opaque and politically influenced.
The IMF team identified 17 state enterprises among a total of 58 public entities. These state enterprises collectively manage assets corresponding to approximately 22.3% of the country's GDP in 2021.
The IMF stated (the mission was completed in August 2023) that the creation of an independent Council could represent a positive development, but stressed at the same time that this alone would not be sufficient. It proposed the creation of a fully institutionalised structure for candidacies, with clear procedures, publicity, evaluation based on qualifications and the needs of each organisation, an open pool of candidates, and substantial depoliticisation of the process.
Notably, the IMF report notes that the establishment of the Advisory Council — a pre-election pledge of Nikos Christodoulides — represents a positive step, but insisted that the process must be made official, independent and fully transparent. Appointments, it states, must be guided by merit and the operational needs of the organisations, not by other considerations.
Equally revealing is the broader picture the IMF presents of how semi-state organisations function. The Fund's mission found that there is no central body exercising the responsibilities of ownership on behalf of the state, that the roles of boards of directors are not adequately defined, that ministries are often involved in day-to-day management decisions, and that political interference remains a factor affecting the operation of these organisations.
At the same time, the report states that management often focuses on compliance issues rather than strategic oversight, while the independence of judgement of board members appears limited. According to the Fund's findings, the prevailing perception is that the role of boards is mainly to implement government directives, rather than to function as independent corporate bodies.
The IMF goes even further, suggesting that Cyprus should develop a state ownership policy, establish a central oversight function for semi-state organisations, revise the Governance Code to align it with OECD guidelines, and introduce management systems based on performance and measurable indicators.
EU recommendation reflects IMF findings
These very directions are now reflected in the European Union's recommendation. Brussels is not limiting itself to the issue of appointments, but is simultaneously requesting a policy on ownership status and performance-based management — that is, a comprehensive corporate governance framework.
The existence of an informal or limited-scope mechanism for evaluating candidates is not considered an adequate response to the problems identified by European and international organisations.
