A state-owned company can make a profit and still raise a difficult question for government: is it actually worth owning? That question is easy to overlook because profit often ends the discussion. A company reports a surplus, pays a dividend, and is described as performing well. But suppose the state has several billion dollars invested in that business, and the return, once government guarantees and cheaper borrowing are accounted for, is modest. Profit tells us how the company performed but it does not tell us whether the state should still own it.
Many state-owned enterprises were created when governments had fewer alternatives than they do today. In some industries there was little private capital available, and governments stepped in to build businesses and infrastructure that otherwise might not have existed. Airlines, banks and telecommunications companies grew out of that period. Mobile technology and private investment have since transformed telecoms in most countries, and many national carriers now compete with private or foreign airlines that already provide strong international connections. The industries around them have changed a great deal, but governments have often been much slower to rethink who owns what sits inside them.
Electricity is harder to read in the same way. Transmission networks are expensive to duplicate, so competition is limited by the structure of the system itself, yet that still does not settle who should own it. In some countries the network remains largely in public hands, while elsewhere significant parts are privately owned and regulated, as in the United States. What matters is less that electricity is essential than what state ownership adds beyond regulation or another arrangement.
An SOE may be worth keeping in public hands where the state would otherwise struggle to secure the same service on reasonable terms, but financial return is not always the right measure of what the public is getting. A railway that keeps remote communities connected, an electricity company extending service into areas where private returns are weak, or a development bank financing businesses commercial lenders avoid may all create value that will never appear fully in the income statement. What matters is whether the state actually needs to own the company to get that value. If it does not, calling something a public service is not enough to justify keeping it in public hands.
There are several questions buried in those decisions, and they do not always point the same way: whether the return on the state’s capital is adequate, whether the same service could be secured another way, whether control of the asset matters strategically, and how much risk sits behind the company in debt and guarantees. A company may look weak on one measure and still have a strong case on another, which is why a simple profit-or-loss test does not get very far.
Britain’s Railtrack and France’s EDF show how differently that reasoning can play out, and how little either had to do with return on capital. Railtrack collapsed into administration in 2001 after the Hatfield crash exposed years of deferred track maintenance; shareholders were compensated at a fraction of what the company had once traded for, and no private buyer was in a position to take over a safety-critical rail network on short notice, so the government created Network Rail the following year. EDF’s renationalization two decades later ran in the opposite direction: the company’s debt had climbed past €64 billion, up 50% in a single year, after a decade of government-imposed price caps had suppressed its own revenue, yet France spent roughly €10 billion buying out the remaining shareholders anyway, because it wanted direct control over the nuclear fleet once the war in Ukraine cut off Russian gas. One government took over a company because nobody else could run it; the other took over a company nobody would have bought on the numbers, because the numbers weren’t the point.
Singapore and Norway take a more deliberate approach to what the state continues to own. Temasek in Singapore operates as a long-term investor, reshapes its portfolio and measures performance through portfolio-wide returns and against its risk-adjusted cost of capital. Norway has retained substantial stakes in businesses connected to natural resources and other important sectors while continuing to track the returns from those holdings.
The case for state ownership can weaken over time. A company may have been created to solve a genuine shortage of capital or capability, then remain in state hands long after private firms have entered the market and the original problem has largely gone. Governments review strategies, budgets and management teams regularly, yet the ownership decision itself can survive for decades without the same scrutiny. There is no obvious reason why a state should be permanently committed to owning an asset simply because the decision made sense decades earlier.
The harder cases are companies in competitive sectors that continue to rely on government support long after the original reason for ownership has become difficult to explain. Capital injections and loan guarantees can continue for years and gradually become part of the normal relationship between the company and the state, one that rarely stays confined to the company’s own books. An SOE may borrow in its own name, but where government has guaranteed that borrowing, or where the company is simply too important to be allowed to default, part of the risk already sits with the public finances even before government formally takes on the debt.
Years of financial and operational problems at South Africa’s Eskom eventually pushed the government to approve R254 billion in debt relief in 2023, including servicing Eskom’s debt obligations over several years and taking part of the debt onto the state balance sheet. By then, the distinction between Eskom’s debt and the government’s own exposure had become increasingly difficult to maintain.
In Ghana, power purchase agreements with independent producers left substantial obligations sitting outside the central government’s own balance sheet, backed in part by a World Bank guarantee meant to reassure investors rather than commit public money directly. Persistent payment shortfalls drew the guarantee down until it was exhausted, and by mid-2025 the sector’s accumulated liabilities had passed $3 billion. Restoring the guarantee and clearing the arrears eventually cost the government roughly $1.47 billion. What began outside the state’s books ended up back on them regardless.
The opportunity cost is harder to see, but it is still real. Every large investment in a state-owned enterprise represents public capital that is unavailable for another purpose. That does not mean the alternative is always a school, hospital or road, but government should still be able to explain why keeping capital in a particular company produces enough value to justify the choice.
Profitable SOEs deserve more attention because they attract less scrutiny. A loss-making company quickly raises questions about bailouts and management, while a profitable one is often assumed to have justified its existence. But a business earning a modest return on a very large public investment may still be a weak use of capital, particularly where the state no longer needs to own the company to secure the service or strategic benefit it wants.
Governments already spend a great deal of time looking at whether their state-owned enterprises are performing, but the ownership question is wider than anything an annual report can settle. The circumstances that justified ownership can change, sometimes considerably, while the company remains in public hands. Governments should probably spend more time asking whether those circumstances still exist.