Economic Sector

Last updated: Wednesday, May 15, 2019


Mapping out Solution to Revive SOEs

Posted: Wednesday, November 14, 2018

The forum on promoting innovation and improving the efficiency of State Owned Enterprises (SOEs) recently organised by the Economy and Forecast Review (Ministry of Planning and Investment) suggests solutions to overcome difficulties and accelerate the process of restructuring SOEs to achieve the set objectives.

Hard mission
Speaking at the Forum, Deputy Minister of Planning and Investment Nguyen Van Hieu said that over the past 20 years of continuous reform, the number of SOEs has dropped dramatically from more than 12,000 enterprises in the early 1990s to 5,600 enterprises in 2001, and now to just over 500 enterprises with 100 per cent state capital in 11 sectors. It is expected that by 2020, there will be only about 100 SOEs. From 2016 to the end of October 2018, the country has approved the equitisation plan of 136 SOEs. In that, many companies have been equitised, such as Vietnam Rubber Group, Electricity Generating Company 3, PetroVietnam Oil Corporation, PetroVietnam Electricity, Binh Son Petrochemical Joint Stock Company. Regarding the state divestment in the period from 2016 to September 2018, the country has withdrawn VND16,463 billion (US$707 million). In the first nine months of 2018, the divestment was more than VND3,770 billion (US$162 million). There have been big deals such as divestment at Sai Gon Beer - Alcohol - Beverage Corporation and Vietnam Dairy Products Joint Stock Company (Vinamilk) with earnings 9 times the book value.

"In the coming time, equitisation and divestment is considered a key task to restructure SOEs. In which the equitisation of big corporations in such sectors as coal, minerals, chemicals, post and telecommunications. Given the context of Industry 4.0, the Committee for Management of State Capital at Enterprises was tasked with a hard mission of making SOEs more innovative and efficient," Deputy Minister Hieu emphasised.

Many barriers remain
Mr Dang Quyet Tien, Director of the Ministry of Finance’s Department of Corporate Finance, said that the purpose of the divestment is to focus on the core business to become the real pillar of the economy. However, the performance of SOEs is still limited, such as low business efficiency and inadequate resources. The management mechanism is slow to reform, not in line with international standards. Transparency is limited. Managerial responsibility is unclear.

According to Mr Tien, one of the bottlenecks in SOE equitisation put forth at the forum is land policy within equitisation. In fact, many SOEs, after separating their land from their assets, no longer have business activity, thus becoming ineffective.

According to Mr Hoang Truong Giang, Deputy Director of General Economics Department, the Central Economic Committee, the issue of wages and labour in SOEs is also a great barrier to effective operations of SOEs.

Mr Le Song Lai, Deputy General Director of State Capital and Investment Corporation (SCIC), said that divestment has encountered barriers due to the overlap in many legal documents, making the reference, application and explanation of the document difficult. In fact, there have been cases where, in the course of adjudicating civil cases, the court has applied regulations on auctioning assets into disputes arising during the process of auctioning state shares.

Mr Pham Duc Trung from the Central Institute for Economic Management (CIEM) said that to operate effectively, SOEs should exercise international practices in management. It is necessary to increase the efficiency of state-owned asset management in business with representative offices and enterprises. In the period 2020-2025, SOEs must set profitability targets of at least 15 per cent per annum; profitability of assets from 7-9 per cent per year with production and business. In valuation, it is necessary to restructure the capital of the equitised SOEs in the direction of separating the land, clearly defining the value to build the selling price; early implementation of the annual land lease regime for SOEs to create a revolution in the allocation of resources.

Based on the experience of SCIC, Mr Le Song Lai proposed specific solutions such as supplementing the regulations on the initial price reduction mechanism in cases where the method of auctioning/competitive offer/agreement is implemented but not successful; and adding provisions on reducing starting price lower than the par value in case the business enterprise has suffered losses and has made a public auction but there is no buyer agreeing with the par value. The SCIC also proposes that the authorities should continue to separate the process of selling capital and debt collection, which must be monitored and recovered regularly, both before, during and after the sale of shares of enterprises.

Nguyen Thanh

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