VietNamNet Bridge – The Enterprise Finance Management Agency under the Ministry of Finance has proposed to remove the finance and credit privileges for State owned enterprises (SOEs) as a part of the SOE reshuffle.

High-expectation model drives to despair

The Ministry of Construction has asked for the government permission to stop the pilot program on developing its two economic groups – HUD (the Vietnam Housing and Urban Development Group) and VNIC (the Vietnam Industry Construction Group).

After a period of operating on a trial basis, the two economic groups have shown their shortcomings in production, capital and labor force management, while the profits have been inadequate to their power assigned by the State.

HUD was expected to create a general synergy from its subsidiaries which have advantages in capital, experience in housing and urban area development, technical infrastructure execution capability and the construction material production. All the subsidiaries of HUD are the “big names” in their fields.

Similarly, VNIC was believed to gather the strength of the Vietnamese leading construction and installation companies, mechanical engineering manufacturing and shipbuilding enterprises.

With the combination of strength, VNIC hoped it would have more opportunities to obtain big EPC contracts (engineering, procurement and construction). It planned to turn into a powerful construction group in the region and in the world.

However, the two economic groups still cannot become powerful as expected. Though the groups comprise of the most powerful brands in the market, they have been just the “addition” of the members, putting enterprises together, while they cannot generate a synergy.

The government inspectors have found a series of wrongdoings at the two economic groups relating to the huge sum of money worth 10,676 billion dong.

Unprofitable SOEs to be put on sale

According to the Ministry of Finance, by December 2011, Vietnam had had 1309 SOEs with the total assets of 1800 billion dong and the stockholder equity of 700 trillion dong.

The SOEs had paid 231 trillion dong to the state budget, while making up 27-30 percent of GDP every year.

Dang Quyet Tien, Deputy Head of the Enterprise Finance Management Agency, has pointed out that despite the great advantages, especially in capital, SOEs have low competitiveness. Meanwhile, some state owned economic groups and general corporations have shown the latent risk of suffering financial imbalance and prolonged loss.

Tien said under the SOE restructuring plan, SOEs would be classified into three groups. The first one comprises of the SOEs where the State holds 100 percent of chartered capital, operating in some specific fields including national defense or public security and the fields of the state monopoly.

The second one gathers the equitized SOEs, where the State still holds more than 50 percent of the chartered capital after the equitization.

Meanwhile, all the SOEs of the third group – the ones that suffer prolonged losses – would be sold, dissolved or bankrupted.

Tien said a lot of things need to be done to ensure the success of the SOE restructuring. He has suggested establishing a department to be in charge of managing and supervising the enterprises’ financial situations.

Especially, Tien said it is necessary to stop providing privileges in financial mechanism and credit to SOEs. The proposal has been applauded by economists, who believe that SOEs have been enjoying too many preferences, while they cannot bring the expected efficiency.

To date, 23 SOEs have got their restructure plans approved by either the ministries or the Prime Minister. Meanwhile, the restructure plans of another nine SOEs have been submitted to the Prime Minister.

Phuoc Ha