Changing State Capital, Asset Management Model at Enterprises

 

The Commission for Management and Supervision of State Capital and Assets at Enterprises will be assigned power, rights and obligations specified in the Law on Management and Use of State Capital at enterprises, similar to those of ministries administering State capital in enterprises.

 

The list of enterprises and State capital at enterprises will be handed over to the Commission. It will represent State stake in 30 big corporations. It has not assumed any responsibility in State-owned companies engaged in public utilities in localities as well as State companies administered by the Ministry of Public Security and the Ministry of Defence.

 

Thus, the draft is showing efforts to bring State capital invested in companies to one management unit. In big groups and corporations, the State usually holds from 50 per cent or higher of interest and this agency can manage up to VND5.4 million billion (over US$240 billion - 1.2 times of the country’s GDP).

 

Deputy Minister of Planning and Investment Dang Huy Dong, Chief of the Drafting Committee, said that the biggest objective of setting up a specialised agency is separating functions of State management from functions of State ownership representation to create a fair, non-discriminatory investment and business environment for enterprises in all economic sectors and promote market economic reforms.

 

“In principle, the agency will not directly operate every enterprise but it manages with binding mechanisms in carrying out objectives, tasks and plans assigned,” stressed Dong.

 

 Mr William Mako, a senior specialist at the World Bank Group (WB), said that corporate governance is fragmented from State company to State company and each ministry administers several companies. Therefore, if the new specialised agency is set up and operated, this will be a groundbreaking step. Nevertheless, this is an ambitious and difficult target.

 

Dag Detter, a specialist from the WB, also said that better management of State capital invested in companies will help Vietnam achieve growth and development objectives. However, the effective use of these resources is low. The return on invested capital (ROIC) is equal to a half of the private sector. Most real estate owned by State-owned enterprises cannot demonstrate productivity and usage. Therefore, enhancing the economic efficiency of State capital in enterprises will significantly improve GDP, reduce budget deficit and solve other social issues.

 

According experts, the name is not as important as the mechanism of operation. It must be operated and governed effectively regardless of operating model, SCIC or Supervisory Commission. “Can we pay salary according to competitive market principles? Can the management be fired or have salary cut if companies suffer loss?” said Dr Can Van Luc.

 

Some specialists fear that this agency can become a cumbersome bureaucratic apparatus keen on interfering with day-to-day operations of enterprises. Even, some raised doubts over the separation of State ownership rights from State economic management. The agency will maximise the value of State capital or State property because if it aims to maximise the value of property, the State can consider investing in other industries, crowd into industries and areas where the private sector is doing well.

 

In answer to the question about how State management role is separated from this model, Mr Pham Duc Trung, Director of Enterprise Renovation Characteristics under the Central Institute for Economic Management (CIEM), said, this agency, according to the draft decree, has no power to issue legal documents and administrative management tasks to enterprises of all economic sectors. This means that the Commission will be separated from State management functions.

 

“This is why we chose the legal status for this model. This agency is affiliated to the Government rather than a ministry," said Mr Trung.

 

To avoid falling into the wrong ‘footsteps’ of the State-owned Assets Supervision and Administration Commission (SASAC) of China, Vietnam should apply the same legal framework for operations of private enterprises and State-owned enterprises according to international practices, experts said. This means that requiring the application of international accounting standards, independent auditing and transparency will result in ensured accountability and efficiency of the new model.

 

Dag Detter advised that, to manage State capital more effectively, the first step is having an integrated data system storing State assets invested in production and business sectors on the basis of market prices and independent auditing. William P. Mako suggested that the agency not be organised into divisions as the current administrative style but organised into specialist groups.