SOE Restructuring: Behind Schedule

 

Finance Minister Vuong Dinh Hue said SOE restructuring is a big job that needs to be considered in many aspects. But, the instant task is to improve corporate governance and reduce administrative costs by 5-10 percent to reduce production costs and enhance production and business efficiency in the light of the Government’s Resolution 01/NQ-CP.

 

The Ministry of Finance corporate administrative cost consists of two types of costs: Direct cost - fundamental costs that constitute product price, and indirect cost - management costs (reception, inauguration, administration, etc).

 

The main objective of SOE restructuring scheme is to increase capacity and corporate governance of SOEs, where financial management is paid special attention. This time, the Government not only requests administrative expense reduction but also productivity improvement and depreciation reduction. “While inflation remains high and interest rates have not gone down, strengthening financial management is vital in both short term and long term,” said the minister.

 

Reshuffling plan is carried on a large scale, especially large corporations. Bao Viet Holdings (BVH) - the biggest insurer in Vietnam - was the first SOE to announce administrative cost reduction. It plans to cut VND145 billion. Other top-rated SOEs also revealed their plans to cut huge values of administrative expenses, including the Electricity of Vietnam Group (EVN), Vietnam National Shipping Lines (Vinalines) and Vietnam National Petroleum Corporation (Petrolimex).

 

Dr Nguyen Dinh Cung, Deputy Director of the Central Institute for Economic Management (CIEM), said he did not believe in this cost reduction programme if oversights are poorly performed. He is one of SOE restructuring planners.

 

“The 5 percent reduction needs to be made clear. What is it based on? Where does it come from? Who are subjected? SOEs must explain the process of cost cut and the amount to be reduced. For example, it is no problem if they can achieve the plan but if they fail who will be responsible for it? It is necessary to define and assign responsibility,” he said.

 

Speaking at an international seminar on SOE restructuring held in Hanoi by the Office of Government and the World Bank (WB), Mr Pham Viet Muon, Vice Chairman of the Governmental Office and Deputy Director of the Steering Committee on Business Renovation and Development, expressed his concern over the progress of implementation even when the Government has approved the SOE restructuring scheme.

 

According to Mr Muon, 21 top-rate SOEs will have to submit their restructuring plans to the Government from now to the first quarter of 2012. It is hard to approve this many within one month.

 

“Under the current mechanism, it takes at least one year to equitise an SOE, let alone delays for various reasons,” he noted. “A company valued VND500 billion takes several months to audit financial data. “If we do not have a proper methodology for the current mechanism, the success is unlikely,” said the vice chairman of the Office of Government.

 

He added that SOE structuring plan needs to define execution steps and industries the State needs to hold controlling stakes. Multiple ownership needs to be applied to SOEs where the State does not need to keep controlling stakes.

 

However, the multiple ownership in SOEs is very difficult. For example, PetroVietnam Gas Corporation (PV Gas) with a chartered capital of VND20,000 billion could not sell 3 percent of its stakes in public offering. Or Vietnam Bank for Industry and Trade (Vietinbank) - one of most profitable banks in Vietnam, needed two years to reach an investment deal with the International Finance Corporation (IFC).

 

“The objective of SOE restructuring and equitisation are to reform enterprises and obtain better than current results. Currently, restructuring measures are somewhat financial. We must tell the truth and take real action. Hence, it is essential to change thinking and boost SOE transparency,” said Mr Muon.