Going One’s Own Way

The Government is under consideration of reviewing pilot group model after eight years of operation. Self-rearrangement at some groups reflects the desire to separate themselves, going their own way.

 

 On 2^nd October, two groups namely Song Da Corporation and Song Da Holdings and Housing and Urban Development Group (HUD) received the decision by Prime Minister Nguyen Tan Dung on the termination of the pilot.

 

Two years ago, these two groups were established on the basis of reorganization of 11 corporations of the Ministry of Construction under the decision of the Prime Minister. VNIC Construction Industry considers Song Da Corporation as the key development determinant while Housing and Urban Development Corporation is the key determinant of Housing and Urban Development Group.

 

At that time, group establishment projects all expressed the ambition to set up businesses which are strong enough to dominate the participating area, to become a general contractor dominating the field of real estate in the context that some selected major corporations were unable to undertake their key role. However, after one year, in December 2011, the Government conducted the summary review on pilot group establishment and stated that two construction groups had failed to achieve the designed objectives. Therefore, it comes to the decision to dissolve these groups and establish corporations as before.

 

According to the decision of the Prime Minister, Minister of Construction is responsible for the establishment of Song Da Corporation on the basis of the reorganization of the parent company - Song Da Group and its members. Similarly, Housing and Urban Development Investment was also established on the basis of the reorganization of the parent company – formerly known as HUD Group and its member. Along with that, the Prime Minister requested these enterprises to work out equalization plan for submission to obtain the decision.

 

Minister of Construction earlier proposed to the Prime Minister about his ministry‘s desire to directly manage two groups including Housing and Urban Development Group and Construction Industry Group. The Ministry of Construction proposed not to put Song Da Group, HUD Group and Vietnam Cement Industry Corporation in the list of groups and corporations directly executed some rights of the owner by the Prime Minister. The Ministry requested the Government to delegate the right and obligations of the owners of these groups and corporations to the Ministry itself.

 

However, according to Mr Vu Duc Dam, Minister, Chairman of the Government Office, the fact that these groups or corporations are under the direct management of the Ministry can be only considered as an informal acceptable understanding. However, considering the legal aspect, it is not compliant with the law.

 

In the regular press conference, Mr Vu Duc Dam stated that the Government determined to implement the SOE restructuring scheme. After the overall evaluation on the pilot group models, the Government will direct the restructuring of groups, corporations. This will be made ​​downward with the orientation to maintain a few groups operating in the key areas of the economy and restructure corporations operating in key industries with the focus on the adjustment of the scale so as to ensure its responsiveness to the market requirement, management ability and financial capacity.

 

Getting back to the issue of termination of two pilot groups, the Prime Minister decided to transfer the right of management of the state capital of Song Hong Joint Stock Corporation and Construction Development Investment Joint Stock Corporation from Song Da Group to the Ministry of Construction. Other seven corporations sharing the effectiveness of decision include Vietnam Machinery Erection Corporation, Construction and Infrastructure Development Corporation, Construction Engineering Corporation, Bach Dang Construction Corporation, Hanoi Construction Corporation, Glass and Ceramic Corporation and Vietnam Environment and Water Supply and Drainage Construction Investment Corporation.

 

In the Government’s regular press conference in September, the information that most attract people’s attention is the statement made by the Government’s speaker on the cutting of economic groups, from 13 to 5-7.

Groups that the Government retains are the ones which operate in the areas related to the people’s life and national development and play a key role in economic development such as energy, oil and gas, telecommunications, etc. These include Vietnam oil and Gas Group (Petro Vietnam), Electricity Group (EVN), the Petroleum Corporation (Petrolimex) and Post and Telecommunications group (VNPT).

 

In only two years from 2005 to 2007, eight economic groups were constantly established. In 2009, even when Vinashin began to collapse in the absence of a pilot sum-up, other 4 new groups were established. The groups hold 30 percent of the total asset value, 51 percent of the total equity, and nearly 40 percent of SOE sector’s labor force.

The 4 important groups mentioned above nearly reaches the number of five to seven groups that the Government intends to retain. The 09 remaining groups operating in the field of ship building, insurance, construction, textiles, chemicals …will give up their group model operation. Instead, restructuring will be made to enhance the effectiveness.

 

Regarding restructuring, colossal debts of some groups need to be restructured in a definite way. Currently, the bank debt of Vinacomin and Vinashin has reached VND20,500 billion and approximately VND 20,000 VND, respectively. By the end of 2011, outstanding bank loans of state-owned enterprises had accounted for 16.9 percent of the total outstanding loan on the national scale.

 

At this time, the Government has shown great determination to conduct review on pilot group model. Earlier at the end of last year, the Government did organize a conference on preliminary summary on the economic group model.

 

The fact shows that when group model is beyond the management ability, serious problems will arise. Applying for big loan, pouring non-sector investments into risky areas such as securities, real estate and making investment in banking and insurance have driven many groups to the poor operation and collapse.