Current operations of State-owned enterprises (SOEs) are posing a lot of problems concerning capital efficiency, governance and development strategy orientation among others. For this reason, the Vietnamese Prime Minister chaired many meetings on SOE restructuring and reform, reviewing the economic group model to seek a right way for the backbone of the economy and reorganise their resources in proportion to their potential and position.
More objective views needed
We needed more objective views on SOEs, said the Prime Minister at a conference to review the outcomes of the 10-year SOE reform from 2011 to 2010, which was held in Hanoi. A majority of SOEs made a profit in business, stressed the Prime Minister. Assessing the efficiency of SOEs must be unprejudiced and it is impossible to say that SOEs are “sycophants.” Results that SOEs have contributed are undeniable. Without SOEs, the State cannot regulate and stabilise macroeconomic issues, especially social security.
According to a report submitted by the Steering Committee for Enterprise Renovation and Development, Vietnam had restructured nearly 4,000 SOEs, basically completing the objective. Among them, 14 were reshuffled in the form of dissolution of administrative division, merger, amalgamation, and split-off. Eight 91 Corporations (SOEs set up under Decree 91 of the Government) and twelve 90 Corporations (SOEs set up under Decree 90 of the Government) were transformed into 11 economic groups. Basically, the State capital invested into SOEs is preserved and developed; debt-to-equity ratios in most SOEs are within the limit. The report said "Most SOEs are profitable. The number of loss-making SOEs decreased considerably. Some enterprises were unprofitable but now are profitable. In 2001, the number of loss-making and breakeven enterprises made up about 60 percent. In 2010, this ratio was approximately 20 percent.”
According to the latest data, as of October 2011, Vietnam had 1,309 SOEs, including 452 security and defence enterprises, 857 business enterprises. These enterprises are involved in key areas that the State must hold or areas that enterprises of other economic sectors are not or rarely involved. “The scale of SOEs has been expanded and restructured more logically," said Mr Pham Viet Muon, Vice Chairman of the Office of Government on the behalf of the Steering Committee for Enterprise Renovation and Reform.
The report also said Vietnam now has 101 State-owned economic groups and corporations and two wholly State-owned commercial banks. Reorganised enterprises are operated in the form of parent - subsidiary company - a reform of the relationship between parent companies - corporations with affiliated subsidiaries. In addition, the operating efficiency and competitiveness of SOEs have been raised. They basically meet essential defence and security demand, becoming an important tool for the State to regulate macro issues. As regards the loss of some SOEs, the conference called attention to convincing reasons and solutions to develop this group of businesses.
Time limit for SOEs to reorganise
Noncore investment and poor governance resulted in loss of capital and operating inefficiency. This is a ‘burning problem’ for this group of business. Typically, the Electricity of Vietnam (EVN) invested in the telecom industry or shipbuilder Vinashin invested in finance and real estate. So, the Prime Minister extended the deadline for SOEs to submit restructuring plans to the Government and other relevant bodies at the earliest.
Specifically, SOEs must complete divestments before 2015. Specific tasks are to classify and implement restructuring of the existing 1,309 wholly State-owned enterprises. Accordingly, the State will keep entire ownership in 692 enterprises involved in public utility, security, defence and monopoly. The rest will go public. The State will keep controlling shares in 392 enterprises which provide important products and services, and it will not be a dominant shareholder in 181 enterprises.
The overarching goal is that SOEs will still play a core force and leading role, functioning as an instrument for the State to orientate, regulate and stabilize the economy. SOEs must have large scale, strong competitiveness, mostly have multi-ownership, and focus on key industries and fields related to national security, defence, public services, and socioeconomic infrastructure. SOEs will stop investing in noncore fields. In addition, by 2020, the State will divest stakes in enterprises where it does not need to hold controlling shares. The State will try not to keep controlling shares in as many enterprises as possible. The divestiture will be carried out publicly and transparently in accordance to market principles.
From 2015 to 2020, the State will keep controlling stakes of 65 percent in 27 SOEs or 75 percent of stakes in 11 economic groups: Vietnam National Oil and Gas Group (PetroVietnam), Electricity of Vietnam (EVN), Vietnam National Coal, Mineral Industries Holding Corporation Limited (Vinacomin), Vietnam National Rubber Group (VRG), Vietnam Posts and Telecommunications Group (VNPT), the Vietnam National Chemical Group (Vinachem), Vietnam Shipbuilding Industry Group (Vinashin), Vietnam Construction Industry Group, Vietnam Housing and Urban Investment and Development Group, Vietnam National Coffee Corporation (Vinacafe), and Vietnam National Shipping Lines (Vinalines).
With respect to State economic groups, the conference reviewed this model and many delegates proposed stopping the formation of economic groups. The report of the Ministry of Planning and Investment showed that Vietnam now has 12 State-owned economic groups. These business entities keep up to 10 percent of total assets, over 14 percent of owner’s equity and 7.6 percent of long-term contract workers of all Vietnamese enterprises in total.
In 2010, economic groups (except for Vinashin Group) made profit but the rate of return was not high. The net profit margin was 7 percent in 2010. The Ministry of Planning and Investment admitted that most pilot economic groups have developed only in quantity, like fast-expanding scope. The development has exceeded the level and governance of such groups and imperceptibly restrained operating efficiency of many economic groups. For that reason, this experimental model should be brought to an end. Moreover, as this is in the process of experiment, the regulatory framework is necessarily amended for completeness.
Prime Minister requested relevant ministries and branches to submit SOE restructuring plans in late 2011 or January 2012. SOEs will be directed not to invest in noncore business fields, exercise their autonomy in business operations, and quickly go public in case the State does not need to hold 100 percent of stake, and divest from noncore business.
Le Hien
Vietnamese
