Measures necessary after SOE audits

Experts have called for practical restructuring actions in order to avoid undermining the economy’s competitiveness, Photo: Le Toan

Over the past weeks, the National Assembly has been heated up by the State Audit of Vietnam sending to the legislature’s members a document on results of its fresh audits at many state-owned enterprises (SOEs) across the country. Previously, the operational effectiveness of SOEs was something kept secret to all but a few National Assembly members.

The auditing results showed that many SOEs have been performing badly for years with high debt-to-equity ratios. Their business activities largely depend on bank loans and capital appropriation, which have caused high risks to the economy.

The debt-to-equity ratio status was revealed at SOEs including PetroVietnam’s PTSC Petro Hotel (4.8 times) and Quang Ngai Petro Services (22.4 times); the Electricity of Vietnam’s EVN GENCO 1 (5.48 times), and EVN GENCO 3 (6.41 times); Thuan Binh Wind Power (5.02 times); Central Pharmaceutical No.3 (19.23 times); Codupha Central Pharmaceutical (9.02 times); CPC1 Central Pharmaceutical (6.85 times); and Saigon Housing Business, Construction and Investment (6.36 times).

Many enterprises also suffered great losses, such as PetroVietnam Construction (VND3.38 trillion or $146.82 million), Hanoi Housing Development and Investment No.68 (VND51 billion or $2.21 million), five out of 21 subsidiaries of Viglacera (VND81 billion or $3.52 million), PetroVietnam Marine Shipyard (VND581 billion or $25.26 million), Dung Quat Shipyard (VND1.16 trillion or $50.4 million), and one of eight subsidiaries of Saigon Transportation Mechanical (VND266 billion or $11.56 million). Meanwhile, according to a government report, the total loss in 2017 of three major ­economic groups including Southern Food, Saigon Agriculture, and Duyen Hai was VND177.9 billion ($7.73 million). Besides, the loss in 2017 of another three parent companies of three big economic groups, namely Vietnam National Chemical, Southern Food, and Duyen Hai amounted to VND421.48 billion ($18.32 million).

More seriously, the accumulative loss of 10 economic groups and corporations as of 2018 totalled nearly VND14 trillion ($608.7 million), such as Vietnam National Chemical (nearly VND2 trillion or $87 million), Viettel (VND5.6 trillion or $243.47 million), Vietnam Coffee (VND44.7 billion or $1.94 million), and Vietnam National Shipping Lines (VND3.25 trillion or $141.3 million).

“If these enterprises fail to be restructured and equitised in a practical fashion, they will continue undermining the competitiveness of the economy and badly affect the domestic business and investment environment,” said Nguyen Dinh Cung, head of the Central Institute for Economic Management (CIEM) at a recent conference on the state economy and SOE restructuring organised in Hanoi.

Further, the government also reported that many SOEs had gigantic bank loans, which can affect the safety of the national banking system and raise the system’s bad debt, such as EVN (over VND132 trillion or $5.74 billion), Vietnam National Coal-Mineral Industries Holding (VND48.65 trillion or $2.1 billion), Vietnam ­National Chemical (VND12.85 trillion or $558.7 million), and Vietnam ­Rubber (VND10.3 trillion or $447.8 ­million).

What is more, according to the government, many SOEs have ­invested in their non-core activities while their financial capacity remains limited. As of late 2016, these ­enterprises invested more than $7 ­billion overseas, with 29 per cent of projects suffering from accumulative losses.

“The government should reconsider the operational effectiveness of SOEs as soon as possible,” said Pham Duc Trung, head of the CIEM’s Board of Corporate Research, Reform and Development, at the conference.

Urgent actions required

According to such international organisations as the Asian Development Bank and the World Bank, though Vietnam’s economy has witnessed relatively high growth over the past few years, its competitiveness and growth quality remain problematic. One of the reasons is the slow-paced equitisation and restructuring of SOEs, which has been impeding private enterprises from engaging more in the sectors currently held by the state, such as electricity, oil and gas, fertiliser, and natural minerals.

In such a context that many SOEs have failed to be equitised and to boost equitisation, and have been making great losses, the Central Party Economic Committee (CPEC) has asked the government to take drastic action to boost the restructuring of SOEs.

“It is necessary to strictly punish all agencies, organisations, and individuals who refuse to equitise their enterprises and fail to accomplish goals and tasks in renewing, restructuring, and improving the operational effectiveness of SOEs,” said a CPEC statement. “Those who are slow in posting their enterprises’ shares and transfer their enterprises to the Commission for the Management of State Capital at Enterprises also need to be strictly sanctioned.”

The commission, established in February 2018, will manage the state capital at 19 state-owned economic groups and corporations.

Meanwhile, Prime Minister Nguyen Xuan Phuc has ordered that the Ministry of Planning and Investment quickly submit to him for consideration and approval of a scheme on SOE equitisation towards next year, including the same scheme of Ho Chi Minh City.

In fact, since early this year no SOE has been equitised or had their equitisation schemes adopted, meaning opportunities for private enterprises have yet to be opened wider.

Under Document No.991/TTg-DMDN dated July 2017 by the prime minister, the 2017-2020 period was set to see the equitisation of 127 SOEs, including 44 in 2017, 64 in 2018, 18 this year, and one in 2020. In 2019, some ministries are required to complete equitisation of their enterprises. For example, while the Ministry of Industry and Trade must carry this task out for eight enterprises including Vietnam National Coal and Mineral Industries Group and Vietnam National Chemical Group, the Ministry of Agriculture and Rural Development must do the same for Vietnam National Coffee Corporation, and the Ministry of Information and Communications must complete equitisation of its Vietnam Posts and Telecommunications Group. However, by late last year Vietnam had about 514 SOEs. Last year, only 33 SOEs were equitised, and another 23 had their equitisation schemes approved, with total corporate value of VND31.71 trillion ($1.38 billion), including VND16.74 trillion ($727.8 million) worth of state capital.

Capital divestment of all SOEs nationwide has hit only 30 per cent of all total capital required to be ­divested over the past 10 years, which is too slow, according to economic ­expert Can Van Luc. “It is because the state still wants to keep its presence in almost all sectors of the economy. It’s understandable that ­private enterprises may have to wait for a very long time in the future for a level playing field.”

Echoing this view, Trung of CIEM said, “Based on our calculations, I am not sure that the targets under Document 991 will be reached. However, if the targets are hit, it will be only in terms of quantity of enterprises only, not quality.”

“Thus Vietnam will not be able to accomplish the important goals from SOE equitisation and restructuring such as attraction of investment from the private sector. This also means the state-owned stake will continue to be maintained at a high level,” Trung added.

State interference remains

Cao Duc Phat, vice head of the CPEC, also noted that in the context of many SOEs performing very poorly, “the state still directly interferes on a large scale in the economy as an investor and owner of enterprises,” and this will “undermine competitiveness, making it hard for the private sector to partake more in the economy.”

In fact, some SOEs have failed to successfully conduct equitisation as the capital volume they have sold is too small as compared to their total capital, such as Vietnam National Shipping Lines (1 per cent), Power Generation No.3 (3 per cent), Song Da (0.8 per cent), and Vietnam Rubber (21 per cent).

Cung of CIEM noted that if the state changes its role and SOEs are equitised and restructured in an efficient manner, it could help the economy grow by 8-9 per cent annually, not an average of 6 per cent as over recent years. Meanwhile, according to economic expert Le Xuan Ba, the issue of SOE equitisation and restructuring has been discussed over the past several decades. “If we put them in a pile, the volume of documents related to this issue enacted by authorities over the past years may be as high as several metres,” said Ba.

“While the government assigns tasks to heads of enterprises to make these enterprises operate well, they have taken them to losses,” he added. “Thus the state needs to create clear-cut solutions and sanctions on those violating equitisation and restructuring regulations.”

According to the Ministry of Finance, from the beginning of 2016 to November 2018, total money collected from SOE equitisation and divestment hit VND206.72 trillion ($9 billion) including VND30 trillion ($1.3 billion) in 2016, VND144.58 trillion ($6.28 billion) in 2017, and VND32.14 trillion ($1.4 billion) in the first 11 months of 2018.