Transcript State owned enterprises in vietnam

Policy Design and Implement in Developing Countries
Le Thu Trang (MET11305)
Overview of SOEs in Vietnam
 Role of Stakeholders
 Effectiveness of SOEs
 A case of Vinashin
 Problems and solutions
 Show failure of a project due to
poor management, lack of
regulations and planning.
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Investments by sector in Vietnam
(1995 - 2010)
Unit: billion VND
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
1995
1996
1997
1998
1999
Public Sector
2000
2001
2002
Private Sector
2003
2004
2005
Foreign Sector
2006
2007
2008
2009
2010
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Establishment of Groups and State owned
Corporations according to decisions of Prime
Minister in 1990 and 1991.
As a key pillar of Vietnam’s economy to help
Vietnam primarily become an industrial country
by 2020.
As a tool to operate the economy.
Necessity: Investment of infrastructure and
technology, lack of quality staff and managers and
avoid competition from multinational
corporations.
In 2011: 11 Groups and 85 State owned
Corporations.
There are two different types of State owned Corporations in Vietnam:
STATE OWNED
CORPORATIONS 90
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Established in 1990
Decisions by Ministries,
Local Committees
Directors and Staff 
appointed by Ministers,
Head of Local Committees
Minimum capital: 500 billion
VND (25million USD)
Business: Multiple areas
In 2006: Government started
to privatize and equitize.
STATE OWNED
CORPORATIONS 91 (GROUPS)
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Establish in 1991
Decisions by the Prime
Minister
Management Board: 7
members  appointed by the
Prime Minister.
Minimum capital: 1,000 billion
VND (50 million USD)
Business: Multiple areas
In 2006, they became
industrial groups with
additional capital from
government.
Electricity
 Cement
 Construction
 Power
 Petrol
 Telecommunication
 Ship Building
 Coal and Mineral
 ….
 Cover most of business areas in the economy
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Unit: billion VND
Banking
Stock Market
Insurance
Investment
Fund
Stakeholders
Roles
Prime Minister
- Appoint members of Board.
- Approve investment projects of Groups and State
owned Corporations.
Related Ministries
- Provide development strategies for SOEs.
- Approve and comment the investment projects of
Groups.
Ministry of Planning
and Investment
- Provide development strategies for SOEs.
- Approve and comment the investment projects of
Groups.
Ministry of Labor
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Ministry of Finance
- Approve and provide capital for SOEs
- Financial supervisory function
Decide and manage salary and benefit for SOEs’ staff
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Capital from government budget.
Loans with low interest rate (not officially
announced).
Lower corporation tax rate.
Priority in participating government projects
compared to private companies.
Easy access to state funds and real estate.
Lower price of electricity and water.
There is lack of regulations or legal framework for
SOEs:
 All Groups are in the trial procedure (trial and
correction style).
 In 2004, 8 Groups were established. 4 others were
established in 2009.
 There are only 4 articles in Law of Corporations
2005 about features, functions and responsibilities
of SOEs. Detailed legal regulation is decided by
Government.
 However, only in 2011, Decree No 101 on trial
establishment of Groups were issued.
Total assets
Total Debts
Capital
Revenue
Profit before tax
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In 2011, there were 11 groups and 85 state
corporations.
Contributed 34% of GDP (2010).
Most of SOEs had profits, however, some groups
had big loss: EVN – 24,000 billion VND (1.2 billion
USD), Vinashin – 5,000 billion VND (250 million
USD),…
Rate of profit before tax on capital is 13,1%
(compared to lending interest rate 15-20%)
80% profit from 4 Groups: Petro Vietnam, VNPT,
Viettel, Vietnam Rubber Group.
30/85 state corporation had rate of debts on
total assets greater than 3.
 7/85 state corporation had rate of debts on
total assets greater than 10.
 Total debt of SOEs is 50.4 Billion USD
compared to 39.5 billion USD of own capital.
 High potential risk
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Established in 2006 according to Decision
signed by Prime Minister
Goal: to implement development strategy to
develop ship building industry.
To become world number 4 shipbuilder by
2015.
Business areas: ship building, shipping and
cargo services, import and export, other
business areas.
60,000 employees and 28 shipyards
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1st Sep 2005: Prime Minister approved to
provide a 750 million USD loan to Vinashin
with 6.975% annual interest rate (compared to
the annual lending interest rate from 15% to
20% for private sector).
2007, State Bank of Vietnam lended Vinashin
600 million USD.
Many other loans with 0% interest rate.
Provided large plots of land for Vinashin
expansion.
However,
 Loss: 5,000 billion VND (due to high speed
passenger boat and 2 electricity plants without
approval).
 160 contracts were cancelled due to global crisis.
 Big amount of debts: 4.4 billion USD and 600
million USD from foreign financial institutions
(compared to 4.7 billion USD of total assets).
 Went bankrupt.
 Transfer business activities and debts to other
Groups.
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Established more than 200 companies under
management of Vinashin in many business areas.
Approved many projects without approval from
Government.
Appointed many relatives to be managers and take
individual benefits.
Provided erroneous reports to Government.
Intentionally violated state regulations on
economic management.
Hide many transactions from Government.
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Scale of trial project (establishment of State
Corporations and Groups) is too large (capital,
business areas).
Regulations are cursory  responsibilities and
obligations of each stakeholder are not clear.
Lack of distinguish between ownership and
management of the Government.
Easy access to funding encourages both
negligence and poor corporate governance
among SOEs.
Poor capability of staff.
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Reform structure of the whole economy (Project of
Ministry of Planning and Investment).
Detailed regulations about responsibilities and
obligations of each stakeholder.
Privatize SOEs (since 2006 for state owned
corporations) and require Groups to divest their
non-core business activities.
Independent supervisor agency.
Improve transparency of investment, financial
performance and management.
Improve equality between public sector and
private sector.
THANK YOU!