Warming the Equitisation of SOEs

According to Deputy Minister Dang Huy Dong, the draft Decision replacing Decision 14/2011/QD-TTg aims to further improve the classification criteria and category of SOEs in the direction of promoting the diversity of owners of SOEs. Besides, the draft decision is in accordance with the directions set out in Decision No. 929/QD-TTg issued on 17^th July, 2011 of the Prime Minister approving the scheme of restructuring SOEs with the focus on state-owned groups and corporations. The discussion to issue the decision in the shortest time aiming to adjust the operation of Vietnam’s SOEs in the context that the economy is facing many changes is essential. However, under current economic conditions, the Ministry of Planning and Investment assumes that the revision of decision No. 14/2011/QD-TTg is facing basic challenges such as approach method and validity time of the decision.

 

Currently, the access method to the Decision is still traditional. Particularly, the decision is considered to make classification criteria on which classification and plan of arranging SOEs under one’s management is made for the Prime Minister's decision. Also, according to experts, that the amendment of this decision takes place under the context that the economy is facing a prolonged recession, financial and real estate markets consecutively meet unfavorable conditions has affected the progress of equitisation and divestments of shares in SOEs.

 

Speaking at the workshop, Ms Seiko Sato, Coordinating Director of portfolio and project activity programme in Vietnam (World Bank) said that the draft Decision replacing Decision No.14/2011/QD-TTg is necessary. The World Bank is delighted to support the Ministry of Planning and Investment in the process of implementing this draft. According to Ms Seiko Sato, SOE reform is a long process. Therefore, to implement this draft in an effective manner, a roadmap to review and assess activity areas of enterprises is essential. Besides, she said that the state no longer participates in the sectors that the private sector can handle but takes charge of key industries. The World Bank hopes that the Government of Vietnam has close, consistent and powerful coordination to promote this process since this is the important work of the reform process that Vietnam set to become a middle-income country and to reduce fragmentation in the management of SOEs.

 

Mr Le Manh Hung, Deputy Director of Business Development Department further analyzed that the new points of this draft decision include specific provisions on implementation roadmaps sorted by criteria, organizations, draft structure. Besides, it also narrows portfolio of enterprises with 100 percent state capital and removes some sectors from the list the State holds dominant shares. The development of classification criteria and category of SOEs will have an impact on the restructuring of state ownership in accordance with the conditions and requirements of socio-economic development in each period with the final goal is to use the state capital in the most effective way. The viewpoint of classification criteria and category of SOEs is to ensure strategic objectives of national defense, social security, to lead the development of economic sectors and to regulate macro economy.

 

Specifically, in Decision 14/2011/QD-TTg, SOE classification is based on two criteria groups including sector and operation capacity. Classification of enterprises into two business groups includes 19 sectors in which the State holds 100 percent of charter capital and 27 sectors in which the State holds more than 50 percent of the total number of shares when making equitisation. However, according to the Draft Decision replacing Decision 14/2011/QD-TTg, the classification criteria are divided into four groups based on the percentage of capital held by the State. Specifically, there are lists of state holding 100 percent, more than 75 percent, more than 65-75 percent, and more than 50-65 percent of the charter capital.

 

The draft decision also removes some sectors from a list of sectors the State holds 100 percent of capital including marine terminal type I management and exploitation, airport management, cigarette production, dyke management, maintenance and construction, flood diversion and disaster prevention, watershed forests and forests in special use planting and protection. The Draft also removes some sectors from the list of the State holding dominant capital since specialized laws encourage other economic sectors to invest in those sectors or in sectors which are not the object of the decision set of SOE classification criteria. Specifically, iron and steel production capacity reaches over 500,000 tonnes per year; cement rotary kiln has design capacity of over 1.5 million tonnes per year. Besides, there are newsprint and high-quality writing paper production, insurance, science film, documentaries and films for children production.

 

According to the Ministry of Planning and Investment on the implementation of Decision No 14/2001/QD - TTg of the Prime Minister, in the two groups that the State holds 100 percent and 50 percent of capital including 909 enterprises transforming, being equitised and continuing to divest in the 2012-2015 period, 804 companies (accounting for nearly 89 percent) make appropriate arrangements with the content specified in the Decision. Some units have plan fully in compliance with Decision 14 such as Vietnam Rubber Industry, Vietnam Paper Corporation, etc. However, the rate of state-owned corporations expected to be equitised is quite high. Besides, more than 10 percent of enterprises have not been classified in accordance with the criteria in Decision 14.

 

In terms of time, from 2012 to March 2013, the country has arranged 27 businesses, in which 16 enterprises were equitised, five merged, three sold and three transformed into one-member limited companies. The number of enterprises subject to equitisation plan but arranged in 2015 is 76, in which 61 being local enterprises, 15 enterprises of corporations and groups. Ho Chi Minh City and Hanoi are two localities with the largest number of enterprises which will be sorted after 2015.

 

Under this circumstance, the evaluation of the Ministry of Planning and Investment shows that the restructuring speed of state-owned enterprises is relatively slow. The reason is that in the last period, the research and development of restructuring scheme of big corporations and groups has taken place relatively slow. Therefore, the overall plan of arrangement cannot be implemented immediately. On the other hand, enterprises under arrangement in this period are large-scaled or allocated more land so the financial processing also takes time. Besides, that the economic situation and the stock market are riddled with difficulties also poses major impact on this process.

 

According to Mr Tran Tien Cuong, former Chief of Enterprise Innovation Department (Central Institute for Economic Management) said that, in principle, object arranged and classified should be carefully considered by the drafting board because at present, a large number of state-owned economic groups and corporations have level 3 enterprises as the National Oil and Gas Group has 206 companies. Therefore, it is essential to consider, orient and arrange with those enterprises to avoid complexity in operation and management between parent company and its branches. In contrast, some enterprises are now so small that the State holding capital makes little sense and little economic efficiency. Therefore, the process of drafting and promulgating the new criteria set of the Decision should be clear, transparent to avoid undue enterprise equitisation, which poses bad impact on macro economy.