For historical reasons, many SOEs are located in
central urban areas, where land is very valuable.
Photo: Viet Tuan.
| The
adoption of the unified Law on Enterprises in 2006 was intended to
establish a single legal regime for all firms, regardless of their
ownership. The issuance of the Law was a critically important step in
the drive to accede to the World Trade Organisation (WTO) and to adapt
to its requirements in terms of fair competition. While it was clear
that its implementation could not be immediate, the ultimate goal was to
put an end to the separate regimes applying to foreign direct
investment (FDI) and to SOEs. And the target was July 1, 2010. |
As
the date approached, there were still many companies operating under
the old FDI regime, due to lack of agreement between owners to
re-register under the unified Enterprise Law. But there were many more
SOEs remaining. This was mainly because of slow progress in
equitisation. As SOEs get private investors, they become joint stock
companies, one of the corporate governance models under the Law on
Enterprises. But with close to 1,800 SOEs remaining, the July 1 deadline
needed to be enforced by other means. “Basically, this conversion is
crucial because it helps to bring the SOEs to the same ‘playground’ as
enterprises in other sectors,” said Mr Dinh Hong Ky, CEO and Chairman of
Secoin Building Material Corporation (SBM), a local company established
in 1989 with three subsidiaries and five factories in the country.
“However, it is a different story as to whether this playground would
create fairness or not. It will depend on the mechanisms, policies and
management of authorities.”
In this context, an article on
“Rapid and Sustainable Development” published by Prime Minister Nguyen
Tan Dung just two weeks after the July 1 deadline attracted much
attention. In the article the Prime Minister states that “private sector
development must be facilitated as it has the highest growth rate and
creates jobs in the largest number”, adding that “it is necessary to
renovate, restructure and improve SOEs so that they become the key tool
in the enforcement of policies on market organisation and shaping.”
Importantly,
the article states that “ownership must be diversified transparently
while bettering corporate administration. More importantly, SOEs must
compete equally with other economic sectors in the market mechanism.
Only in this way can the performance of SOEs be upgraded and their
development not snatch resources needed for the development of the
private sector - a key driver of growth.”
While agreeing
with these statements, many in the private sector have concerns about
their implementation. “The Prime Minister has mentioned the role of the
private sector as a key driver of growth and this is a new point in the
government’s awareness,” said Mr Ky. “However, he also confirmed SOEs as
a ‘key tool’. To be honest, I have not understood the meaning of ‘key
tool’.
In more practical terms, concerns revolve around
three issues: how easy will it be for private investors to acquire
capital in the transformed SOEs? Who will represent the interests of the
State in those companies? And will the transformed SOEs still have
preferential access to resources, including finance and land?
It
is widely acknowledged that in its initial stages equitisation amounted
to transferring State capital in SOEs at a discount to their workers
and directors. “For a long time equitisation in Vietnam was a closed
process, just within the enterprises and related SOEs”, said Ms Pham Chi
Lan, a well-known economist. “Information about equitisation is not
publicly disclosed so even if private enterprises want to buy, they
can’t. Financial statements are also not sufficiently transparent to
make people believe that the enterprises’ performance is good enough to
justify buying shares or to believe in the real value of the enterprise.
Somehow it creates convenient conditions for the directors of the
equitised enterprises. It can be seen that after equitisation in many
enterprises the management board remained the same but the State’s
property gradually became their property.”
This viewpoint
was echoed by Mr Ky. “Previously, due to loose policy, buying shares in
SOEs was thought of as ‘splitting up State property’ among people in
SOEs,” he explained. “There are many stories to back this up, like the
one about a large hotel in the centre of Hanoi that was valued at just a
few billion dong.” But there is also recognition of the progress made
since then. As equitisation gained momentum, more transparent mechanisms
to value companies were introduced, going all the way to Initial Public
Offerings (IPOs) on the stock market.
Some actually think
that the government may have erred in the opposite direction. According
to Mr Ky, “over the last few years the government has adjusted its
policies. A series of new regulations was issued to tighten them, but
they were tightened too far. For example, Decree 109 issued in 2007 to
guide SOEs equitisation, or Circular 146 regulating the valuation of
enterprises in relation to their real estate value, led to a situation
where the value of enterprises became too high and no longer attracted
investors. This is partly why thousands of SOEs cannot be equitised and
must be converted into single-owner limited liability companies on July
1.”
Management of state ownership rights in these
companies is a key issue. “For the smaller SOEs, the government has a
clear strategy,” Mr Martin Rama, Lead Economist at the World Bank in
Vietnam told VET in June. “It involves bringing in private investors,
converting them to the corporate governance models established by the
Law on Enterprises, transferring residual state ownership rights from
ministries and provinces to the for- profit State Capital Investment
Corporation (SCIC), and having the SCIC either divest the residual State
ownership rights or list the companies so as to be able to monitor
their performance.” While implementation has been slow, due to the
limited capacity of the SCIC to manage and divest a large number of SOEs
at once, Mr Rama considers this approach defensible.
However,
there is less clarity in relation to larger SOEs. These are
increasingly organised under the Economic Group model, which is not part
of the 2006 Law. “The growing number of Economic Groups is actually at
odds with the move to have a single legal regime for all firms,
regardless of ownership,” Mr Rama said. “And one of the most important
questions remaining is which government entity will represent the
interests the State in these groups. Given their size and market share,
having line ministries in charge can create a conflict of interest, as
if the government was both player and referee in the market
competition.”
As for preferential access to resources, the
main advantages still enjoyed by SOEs relate to land and finance,
regardless of whether or not they have been converted into the corporate
governance models of the unified Enterprise Law. For historical
reasons, many SOEs are located in central urban areas, where land is
very valuable. But they do not have to pay rent for that land at market
prices. Regarding capital, it has been contributed by the State budget
for free. And some wonder whether it would not be time for the State to
require SOEs pay back a notional dividend to the budget.
▪ LE CAM LE15:10 (GMT+7) - Tuesday, August 17, 2010http://news.vneconomy.vn/20100817030549559P0C6/on-equal-footing.htm
