Nov 30, 2012

Vietnam - When SOEs are governed by 101 agencies

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VietNamNet Bridge – Vietnam has 1,309 wholly state owned enterprises (SOEs) and they are managed by up to 101 stage bodies, according to Dr. Tran Tien Cuong, former head of the Enterprise Reform and Development Department of the Central Institute for Economic Management (CIEM).

State enterprises have too many "mothers" but it is very difficult to define which mother takes the responsibility for their children’s mistakes. This problem has been discussed in many forums and meetings, especially at the National Assembly sessions, when some state-owned groups, as the Vietnam Shipping Lines Group (Vinalines) and the Vietnam Shipbuilding Industry Group (Vinashin) incurred losses of up to billions of USD.

The situation in which SOEs earn profit and their losses are suffered by the state budget and SOEs do not have to take responsibility for their losses is expected to gradually reduce along with the implementation of the SOE restructuring process, in which an important solution being disinvesting their capital from non-core business fields to focus on their core business.

However, according to Mr. Nguyen Dinh Cung, CIEM deputy director, the implementation of this plan seems to be reluctant, hesitant and not really aggressive. Some even "talked back" that this plan cannot be completed before 2015 as committed.

In the desire to create a turning point for the economy in 2012, specialists from the Vietnam Institute of Economics in a recent workshop invited Dr. Pham Duy Nghia, a lecturer of the Fulbright Economics Teaching Program to present on the issue of ownership of SOEs.

This speaker said that the lack of a clear representative mechanism, the ownership right of state capital in SOEs is actually divided among many state agencies, by civil servants who are appointed as representatives, by the boards of management of groups and the holders of the operating rights in SOEs.

In the conflict between national interests, the interests of ministries and sectors, the interests of enterprises and the group of people who hold the ownership right at SOEs, the lack of counterpoise and continuous monitoring pressure--that representative power is more likely to be abused for private benefit." Nghia said.

The speaker also "lamented" that, in Vietnam ministries can be legal entities to manage state-owned groups, while in many countries, the change of a corporation's charter must be approved by the congress.

Going into management decentralization of SOEs at the economic forum with the topic "Innovating decentralization in institutional reform," held by the National Assembly’s Economic Committee in September, Dr. Tran Tien Cuong mentioned the fact that there are too many agencies representing the state ownership and managing SOEs.

Specifically, at the end of 2011, there were 101 state bodies involving in the management of 1,309 wholly state-owned enterprises (not mentioning the agencies that manage enterprises that are partly owned by the state), including: 17 ministries and ministerial-level agencies, government agencies with 355 SOEs; 63 provinces with 701 SOEs, 11 State economic groups with 147 SOEs and 10 corporations with 106 SOEs.

At the same time there are five agencies performing the role of the state owners at SOEs, including the four Ministries of Finance, Home Affairs, Labor, War Invalids and Social Affairs, Planning and Investment and the Government Office.

This form of management has led to the corollary that SOEs have low economic efficiency but nobody takes responsibility for that, causing public concerns.

In a report presented at the 11th session of the National Assembly Standing Committee, the National Assembly’s Finance and Budget Committee stated that "business performance of SOEs is not commensurate with the advantages of this type of business, does not guarantee the position and the role in the economy."

The committee also cited the audit report for 2010, which said that SOEs had high occupancy rate of capital; most of them invested in non-core business fields; more than 50% of them operated based on occupancy capital and borrowed capital; 70% of the total number of SOEs incurred losses (around $6.5 billion in 2010); after-tax profits of SOEs was about 9%, close to the consumer price index (CPI) (11.75%).

According to documents from the National Assembly's Economic Committee, SOEs accounted for about 70% of total bad loans of banks, in which economic groups, corporations accounted for 53% of the bad debts.

Defining the owners of SOEs has become crucial. To do this, Dr. Pham Duy Nghia said that it is necessary to have public property committee (being appointed by public entities owned by the central government or the local authorities) to usurp all ownership rights over SOEs, which are still scattered now.

"It is time to terminate the business management of ministries and allocate them to the public property management committees," Nghia suggested.

Dr. Tran Tien Cuong said that in the medium and long term, Vietnam needs to set up specialized agencies representing the state owner, which are under the government.

These agencies will perform the representative role over important SOEs and guide and monitor the implementation of the ownership function at ministries and provincial People's Committees.

Cuong also said that the provinces and cities that have many SOEs can establish specialized agencies to exercise the rights and obligations of the representative of the state ownership at SOEs in these localities.

Vinh An

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