Seeking Solutions to Speed Up Privatization of SOEs

9:46:48 AM | 6/1/2022

Policy bottlenecks in equitization and divestment of State capital in enterprises have been removed by authorities with various solutions. Besides good outcomes, many limitations and problems still remain. Therefore, finding solutions to clear existing problems to boost the country's socioeconomic development and effective restructuring is a long-term goal that Vietnam needs to achieve.

Not very effective

The restructuring of State-owned enterprises (SOEs) has produced positive results over the past time. With SOE restructuring plans, with a focus placed on State-owned corporations/groups, and SOE equitization and divestment plans in 2016-2020 according to the Prime Minister's decisions, the number of SOEs decreased sharply as compared to the 2011-2015 phase. Despite accounting for only about 0.08% of total active enterprises in the country as of December 31, 2020, SOEs still hold many important economic resources.

SOE equitization and divestment have helped improve financial capacity, adopt modern corporate governance methods, achieve better operation than before, and pay more tax to the State Budget. This process has also basically helped achieve the goal of harmonizing the interest of the government, businesses, investors, employees and other stakeholders.

As the world and domestic economies are struggling with numerous difficulties caused by the COVID-19 pandemic, SOEs have affirmed their key position in the economy and played an important role in stabilizing macroeconomic performance and fostering socioeconomic development. SOEs are always at the forefront of adopting social security policies, overcoming the consequences of natural disasters and epidemics, and ensuring security and defense tasks.

However, many objectives of SOE restructuring have not achieved desired results. Mr. Pham Van Duc, Deputy Director of the Corporate Finance Department under the Ministry of Finance, said that 180 SOEs were approved for equitization by competent authorities with a total business value of VND489.69 trillion in 2016-2020, including VND233,792 billion of State capital. Nevertheless, among 180 SOEs subject to equitization, only 39 out of 128 SOEs were equitized according to Official Letter 991/TTg-DMDN and Decision 26/2019/QD-TTg of the Prime Minister (reaching 30% of the plan). Regarding divestment, the total divested par value of VND27,312 billion brought in proceeds of VND177,397 billion in 2016 - 2020. According to statistical results, many enterprises did not complete equitization and divestment. State interest in SOEs remained high after equitization, resulting in the failure in corporate governance changes.

Finance Minister Ho Duc Phoc said existing problems in equitization and divestment include slower progress than expected by the Government and lower equitization proceeds than planned. Particularly in 2021, the National Assembly assigned the Government to collect VND40 trillion from equitization but the eventual value was less than VND2 trillion, meaning that equitization was very slow. In addition, business value determination was reportedly inaccurate, often lower than the real value, resulting in losses and waste. After being audited, the value increased many times, 2.8 times on average. This showed that business valuation is imprecise but the biggest risk arises in determining land value.

Furthermore, land and housing arrangement lacks clear regulations on the determination of commercial advantages and joint ventures, among other factors. The role of SOE leaders is not decided, giving rise to unsatisfactory progress.

Focus on perfecting institutions and policies

In the unpredictably changing international and domestic context, production and business capacity, competitiveness and sustainable development of the business community, including SOEs, will be seriously affected. To foster the sustainable development of SOEs, unlock their strengths and potential, and prove their really important material force on the state economy, Party and State policies on renovation and capacity building continue to be affirmed. The latest is the Project on SOE Restructuring in 2021 - 2025, issued together with Decision 360 /QD-TTg dated March 17, 2022 by the Prime Minister.

To speed up equitization and divestment, the Ministry of Finance proposed improving the performance and competitiveness of SOEs in the coming time, driven by modern technology, innovations, and international governance standards, to effectively lead business development in other economic sectors to mobilize, allocate and effectively use social resources for socioeconomic development and strictly manage, preserve and develop State capital and assets at enterprises.

It is also important to reshuffle SOEs, mainly focusing on important and essential areas in terms of national defense and security and on sectors where other enterprises do not invest; conduct focused restructuring of weak and loss-making companies; basically handle belated projects, inefficient investment, and prolonged losses of SOEs.

Moreover, the Ministry of Finance proposed perfecting institutions and policies to speed up decentralization and empowerment to businesses in the coming time while tightening supervision, control and inspection of power, reforms, publicity and transparency in SOE restructuring, equitization and divestment; reviewing and researching regulations on the exclusion of land value in business valuation. In particular, it is necessary to change implementation methods linked to the responsibility and accountability of business leaders and enhance the activeness of SOEs and their relevant authorities that manage SOEs.

According to Mr. Pham Van Duc, the focus on institutional improvements in 2021 - 2025 is revising the Law 69/2014/QH13, which will complete building the legal framework for management and investment of State capital in enterprises; harmonize the market-based relationship of the State and enterprises, effectively use State investment fund, create motivation and pressures to promote SOEs to accelerate active reforms to play a leading role in driving the development of domestic enterprises. The SOE sector is really an important force in the economy and socioeconomic development.

Mr. Nguyen Tan Thinh, Director of Public Property Management Department - Ministry of Finance

Improving policies and laws on land and housing rearrangement and handling

To date, central and local agencies across the country have reported and proposed plans for handling 202,647 housing and land establishments, with a total area of 7,287.1 million square meters of land and 276.4 million square meters of houses. Competent authorities have approved the plan to rearrange and handle 159,870 establishments with 3,368.3 million square meters of land and 230.1 million square meters of houses.

According to the summary report on property declaration released by the Ministry of Finance, centrally administered enterprises are currently managing and using about 17,564 houses and land, equivalent to 130 million square meters of land. Up to now, the plan has been approved by competent authorities for rearrangement and handling of 15,976 houses and land, equivalent to 124 million square meters of land.

Housing and land rearrangement and settlement of SOEs have produced positive results in recent years, but many difficulties and obstacles remain. Specifically, housing and land management is still complicated and difficult to handle. Relevant authorities, agencies and enterprises have not yet fully reshuffled and handled land and housing, while relocation policies are carried out slowly.

To resolve the above difficulties and obstacles, it is necessary to continue to review and perfect policies and laws on land and housing rearrangement and handling and policies on SOE equitization to speed up this process.

Besides, it is necessary to amend the Land Law to enable equitized enterprises to only apply annual land rents and not to change land-use purposes. In case they do not need to use it, it will be returned to the State and will be compensated and supported by law.

Mr. Nguyen Manh Hung, Standing member of the National Assembly’s Economic Commission

Separating land valuation from equitization

The inclusion of land-use right value into business value has many interpretations and lacks a convincing basis, especially when equitization and divestment processes may be lengthy and losses may occur. Thus, this may frustrate the public and cause the public to misunderstand equitization.

Meanwhile, the value of land-use rights only increases when land-use purposes are changed given that the land-use form of enterprises before and after equitization remains unchanged. The State still allocates and leases land. After equitization, the conversion of land-use purpose (if any) must conform to the planning approved by competent authorities and comply with relevant laws.

The necessity of including land and housing treatment and arrangement plans into equitization and divestment processes is unclear, causing difficulties in SOE equitization and divestment, while reviewing the current status of land use is a regular task of competent authorities in line with land laws, performed both before and after equitization, in order to ensure the purpose and effect of land use and avoid wastefulness.

Therefore, it is proposed to exclude the determination of land-use right value from SOE equitization and divestment because the State still allocates or leases land to enterprises before and after equitization and divestment. So, the value of land-use rights does not increase in equitization or divestment but only when there is a change in land-use purposes. After equitization, the conversion of land-use purpose (if any) must conform to the planning approved by competent authorities and comply with relevant laws.

Mr. Nguyen Hong Long, Deputy Director of the Steering Committee for Innovation and Business Development

One-time payment of land lease must be taken out of business valuation

Currently, business valuation is performed under Decree 126/2017/ND-CP dated November 16, 2017 and Decree 140/2020/ND-CP dated November 30, 2020 by the Government. These two documents also clearly stipulate which land with one-time annual rent is included in business valuation. This is a very difficult matter.

The one-time payment of land rentals must be taken out of business valuation to remove a major "bottleneck" to accelerate equitization. Theoretically, it must be determined by market value and what the market price is when the bidding has not been announced. Even when there is an auction, it remains uncertain whether it is a market price or not, either too high or too low. So, to exclude land out of business valuation, there must be a mandate on this content.

On land-use plans, it is not right to think that equitization and divestment will end land ownership. The core is the loss of State budget revenue. Therefore, it is necessary to reconsider the land-use plan and regard this as the core. For example, when preparing for equitization of the Bank for Agriculture and Rural Development, thousands of land plots are rearranged for use, but just more than 94% have been completed. This will result in a failed equitization.

Ms. Nguyen Thi Thu Binh, Deputy Director of Administration Office, Committee for Management of State Capital at Enterprises

Further separating State administration and State ownership

In 2016-2020, policies on SOE restructuring, equitization and divestment still faced many obstacles in enactment while being slowly amended and supplemented. In late 2020 and early 2021, regulatory hindrances were basically removed. Besides, divestment is difficult due to the small market size. It is hard to absorb all the capital that SOEs sell in a given period of time. The interest of the market and investors in enterprises in some industries is still weak, leading to unsuccessful divestments despite the Committee’s active direction for the development and implementation of divestment plans.

To remove obstructions and speed up SOE equitization and divestment, it is necessary to consider thoroughly separating State administration and State ownership, both institutionally and organizationally. In addition, there is a need for further completing the legal framework on the sale of shares to strategic investors; promoting sustainable development of the stock market; and improving the business legal system to gradually apply the corporate governance framework in line with international standards.

The Committee will request the Ministry of Finance soon integrate the opinions of relevant agencies, and draft the revised law on the management and use of state capital invested in enterprises. Competent agencies will review and propose amendments to inadequate or unclear legal provisions on SOE restructuring, equitization and divestment. For its part, the Ministry of Planning and Investment will complete and submit enterprise rearrangement plans in 2021-2025 to the Prime Minister for consideration and approval.

By Quynh Chi, Vietnam Business Forum