Economic Sector

Last updated: Thursday, February 21, 2019


Searching for Better SOE Monitoring Tools

Posted: Monday, August 06, 2018

Establishing the State Capital Management Committee at enterprises is considered a turning point in reforming methods and tools of supervising State-owned enterprises (SOEs). However, the outcome has not come as expected. Vietnam is seeking an instrument to monitor SOEs in the way that the Organisation for Economic Cooperation and Development (OECD) advocates, with regular, continuous and consistent criteria.

Administratively-styled enterprise management and supervision
Speaking at the Workshop on “Renewing the monitoring mechanism of the owner's representative agency in SOE restructuring” held in Hanoi on July 19, Mr Nguyen Dinh Cung, President of the Central Institute for Economic Management (CIEM), said, SOE monitoring has long been very passive, largely administrative. Specifically, the starting period is approving business criteria developed by SOEs and the ending period is assessing and classifying SOEs based on self-assessment and self-classification reports filed by them. This fails to show State ownership requirements at enterprises, while the effective way of overseeing SOEs in many market economies is sometimes “like an investor”.

The 2018 report on supervisory results of implementing policies and laws on management and use of State capital and assets in SOEs and equitised enterprises in the 2011-2016 period made by the National Assembly's Supervisory Delegation showed that the profit margin of SOEs fell sharply, with return on equity (ROE) sliding to 39 per cent and return on assets (ROA) also slumping to 30 per cent. Not only that, the share of loss-making SOEs did not decrease. The report in 2016 found that 23 out of 91 SOEs suffered accumulated losses of over VND17 trillion (US$740 million).

According to the report by the Supervisory Delegation, another reason for the low effectiveness of SOE monitoring is ineffective inspection and supervision and internal audit of the owner's representative agency, resulting in violations in management and use of State capital and assets at enterprises.

The report also showed that the formation and management of SOE database and information system for monitoring and evaluation purposes is still limited. In some cases, it lacks independence of the Board of Members, the Board of Directors and the Board of Management, thus failing to function as an early warning and preventive tool for abused management and use of State capital and assets at SOEs.

Four groups of solutions suggested
The State Capital Management Committee at enterprises, established in February 2018, is expected to manage a huge resource, including VND820 billion (US$35.6 million) of capital and VND1,500 trillion (US$65 billion) of state assets. However, Mr Nguyen Dinh Cung pointed out that imposing the mechanism that applies to a State management agency to the State Capital Management Committee at enterprises may lead to a failure in functioning its tasks and achieving its working objectives, while its current monitoring mechanism is ineffective.

In order to increase SOE performance, it is necessary to renew the supervisory mechanism of the owner's representative agency in SOE restructuring. CIEM proposed four groups of solutions to this effect. The first is building an information system, an information technology infrastructure system to operate the owner's representative functions. Information data must become the most important source for SOE governance, enabling better decision-making by the State Capital Management Committee and other agencies.

The second is applying good governance practices and procedures to SOE governance, thereby assigning tasks to SOEs and monitoring, inspecting and assessing them. Monitoring tools will enhance supervisory risk management by giving early warnings and indicators.

The third is assigning ownership rights to responsibility.

Finally, the monitoring mechanism of the State Capital Management Committee is public and transparent.

An official from the Enterprise Development Agency under the Ministry of Planning and Investment said, authorities are preparing to pilot an online management system for the State Capital Management Committee to operate its owner’s representative functions. Information on the system is updated regularly and archived for 3-5 years to illustrate business operation trends. This system is compatible, linked to the e-government system to monitor, supervise and connect directly with enterprises.

Nguyen Thanh

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