Torch to shine into foggy SOE climate

Many SOEs have yet to step up to the plate and compete with the private sector

Slow equitisation and management mechanism at state-owned enterprises are raising international community questions whether another Vinashin-type financial scandal could emerge in Vietnam.

At the annual Consultative Group meeting in Hanoi last week, development partners reiterated the need for greater transparency and modern governance as keys to an effective state economic sector.

Asian Development Bank country director for Vietnam Ayumi Konishi pointed out that despite Vietnam’s intention to use World Trade Organization accession to leverage the acceleration of reforms, the efficiency and competitiveness of state-owned enterprises (SOEs) had not improved.

Konishi stressed the need for separating the ownership from management of SOEs and encouraged the government to let SOEs operate on commercial principles.

United Nations resident coordinator in Vietnam John Hendra said Vinashin’s financial trouble  had revealed weaknesses in corporate governance structures in Vietnam’s SOEs.

According to the government, Vinashin’s total debts at present are $4.5 billion, while its total assets sit at $5.4 billion. The ratio of debt to equity is 11 that the government said “is seriously imbalanced”. The group had to asked financial support from the government to avoid bankruptcy.

“It has underscored the need to professionalise the management structures of Vietnam’s SOEs. The government has already announced a package of measures to redress the specific situation of Vinashin. It should, however, take this opportunity to address more systematically some of the corporate governance weaknesses common to the whole SOE sector in Vietnam,” said Hendra.

According to development partners, if the government let another large-scale SOE fall into financial trouble like Vinashin, it would seriously impact on banking system and the nation’s credit ratings.

“SOEs became increasingly inefficient in channeling investment to its most productive uses. We wonder whether Vietnam will have a second case like Vinashin. Reform of the state sector is essential to improved productivity and efficiency of investment,” said United States ambassador to Vietnam Michael W. Michalak.

Minister of Planning and Investment  Vo Hong Phuc said Vinashin was “an anguished lesson” for the government, adding that the government had recognised the gap in managing SOEs and would tighten the management policy to those enterprises.

Michalak said equitisation was a good way to improve governance at SOEs, but added this was processing slowly. “We have been discussing equitisation at SOEs for three years, but I have not yet seen any improvement. Equitisation at large-scale SOEs stands still.”

As of October 2010, 6,140 SOEs had been restructured and rearranged under various forms such as equitisation, contracting, leasing and selling, according to the Steering Committee for the Enterprise Reform and Development.

There are 1,200 wholly SOEs in Vietnam operating in areas that have an important role in ensuring macro balance or providing essential services to society such as oil and gas, and electricity.

Vice minister of Finance Tran Xuan Ha said the slowness of equitisation at SOEs in recent years was caused by unstable of global and domestic financial markets.