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RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION

RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION. Presenter A.Prof., Dr. Tran Xuan Cau . PRESENTATION CONTENTS. CONTENTS. 1. CURRENT OPERATION OF THE STATE OWNED ENTERPRISES (SOE). 2. EXECUTION OF

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RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION

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  1. RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION Presenter A.Prof., Dr. Tran Xuan Cau

  2. PRESENTATION CONTENTS CONTENTS • 1. CURRENT OPERATION OF THE STATE OWNED ENTERPRISES (SOE) 2. EXECUTION OF SOE’ RESTRUCTURING, FOCUSING ON STATE GROUPS AND CORPORATIONS IN THE COMING TIME

  3. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES 1.   SOEs identification 3.The limitations of the current VN SOEs Contents 2.SOEs in the context of VN economy and world economy 3

  4. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES 1. SOEs identification According to Article 4 in the Vietnam’s Law on Enterprise in 2005: "Enterprise is an economic entity having its own name, assets, and stable transaction office; its business is registered following the legal regulations with the aim of carrying out business activities, whereas State-owned enterprises are enterprises in which the State owns over 50% of charter capital (i.e the capital which is contributed by members and shareholders in a given period of time and is recorded to the company charter) "

  5. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES 1. SOEs identification Divided by size:(As Decision 90, 91 of Gov., 1994)State economic groups Divided according to the level of state ownership: (According to the Project on Government Restructuring, 2012) • Enterprises with 100% state capital • Equitized enterprises with: • - Over 75% of the state capital • - 65% of the state capital • - Over 50% of the state capital • The SOEs which prolonge losses and haven’t no ability to fix State Corporation Independent State companies

  6. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES

  7. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES Bases established groups and corporation by Decision 90 and Decision 91 of the Prime Minister • Article 2 of Decision 91 of the Prime Minister: “Group shall have seven members and more business and legal capital (the minimum required capital levels as prescribed by law to established enterprises) at least VND1,000 billion".  • Article 5 of Decision 90/TTg of the Prime Minister: “The corporation is state-owned enterprises having at least 5 units... All corporations have legal capital of over VND 500 billion, for a number of corporations in specific sectors, the legal capital may be lower but not less than VND 100 billion"

  8. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES The bases newly established groups by the Government's draft Have a limited liability company or joint-stock company The conditions listed in the draft of the Government dated November 15, 2011 on criteria for naming groups & corporations Have a capital of 1,000 billion VND or  more and own more than 50% of capital rate of at least 5 other companies To be Prime Minister allowed

  9. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES 2. SOEs in the context of the VN economy and world economy Economic context of Vietnam The context of the world and regional economy

  10. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES a. State owned enterprises in the context of the economy of Vietnam Attach to the reform process in Vietnam and international integration:Enterprises operate under the market-oriented mechanism, multi-sector economy is developed Non-state enterprises increased; FDI increased VN’ economy integrate into the world economy From 1990 The economy was operating under the market mechanism, had an autonomy in doing its own production and business activities, tied to market 1986-1990 VN’s economy was operating under the centralized mechanism. The majority was SOEs which had weak competitiveness and slow development Before 1986

  11. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES Table 1: The different types of enterprises from 2001 to 2009 Source: Statistical Yearbook of the General Department of Statistics

  12. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES b. State owned enterprises in the context of the regional and world economy

  13. THE CURRENT OPERATION OF STATE-OWNED ENTERPRISES • 3. Current operation of SOEs and their limitation • Process of changes in SOEs Trends:- Number of SOEs decreased continuously reflects the growing trend of multi component economy. - Reduction in number but high level of concentration, big business efficiency, holding the sectors key

  14. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES Table 2: Change of SOEs in recent years Source:Statistical Yearbook of the General Department of Statistics 2010 and 2011

  15. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES Table 3: Number of 100% state capital SOEs (as of October 2011) Source: Report of the Central Steering Committee for Innovation and Enterprise Development

  16. THE CURRENT OPERATION OF STATE OWNED ENTERPRISES Table 4:Centralization levelof 100% state capital SOEs compared to other types of businesses Source: Report of the Ministry of Finance

  17. CONTRIBUTION OF STATE OWNED ENTERPRISES In 2011, 18 SEGs and SCs, especially the Vietnam Oil and Gas, the Military Telecom, and Textile and Garment Group, gained over VND 128 thousand billion profit, paid VND 200 trillion on the state buget, increase of 20% over the previous year.

  18. A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements; the consequences of some state corporations are not completely resolved. 2. Investment is widespread and inefficient. 2. The limitations of the SOEs 3. Financial situation of the groups is weak, having potential risks and imbalances 5. A Number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements 4.The organizational structure of groups is cumbersome, the number of employees in the groups is high CURRENT LIMITATIONS OF SOEs 1. The SEGs, SC’s competitiveness is not high, not in line with the resources and preferential advantages 6. - The implementation of the rights and obligations of the state for SOEs is still inadequate, awkward and inefficient.

  19. 1. The SEGs, SC’s competitiveness is not high, not in line with the resources and preferential advantages

  20. 2. Investment is widespread and inefficient. Table 5: Investment outside of major business sector (billion VND) Source: Ministy of Finance, 2011

  21. Inefficient in comparision with none-SE and FIEs Table 6: Compared by performance indicators with other enterprises (%) Source: General Statistics Office. Enterprise survey data, 2008 SOEs had more efficiency than none-Ses but much less than FIEs

  22. 3. Financial situation of the groups is weak, having potential risks and imbalance. Table 7: The total outstanding debt of a large group in Vietnam (as of 9/2011) Source: Ministry of Finance

  23. 4. The organizational structure of groups is cumbersome, the number of employees in the groups is high • LIMITATIONS- Cumbersome structure, many affiliates • (example, EVN has 32 units, 39 subsidiaries, 14 affiliates, and three business units; PetroVietnam has 11 units, 4 corporations,19 ubsidiaries, 3 link units and 3 units of scientific research) • Concentration of employees • Such, in EVN there are near 10 thousand workers, in Vinchem - 2.7 thousand workers • REASONS- Do not have to compete • State-backed • Impact of subsidy • management mechanism in the past • - The lack of business management renovation • - The weakness of the state agencies in the management of SEGs and SCs CONSEQUENCES- Easily spiral out of control and management capacity of the SEGs and SC- Loose management, lack of unity and connection between the unit members in the economic groups and corporations

  24. WEAKNESS OF THE STATE MANAGEMENT AGENCIES FOR SOEs 1. A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements Investment widespread outside and loss of VINASHIN and VINLINES have appeared in the early 2000's. However, due to the stagnation of the inspection and supervision of state agencies, especially slow implementation of the state auditor, the consequence is often serious and difficult to overcome

  25. WEAKNESS OF THE GOVERNMENT BODIES IN MANAGING SOEs 2. Inadequate, awkward, inefficient implementation of the rights and obligations of state owners in SOEs

  26. CAUSES OF THE LIMITATIONS The summary of the causes

  27. 6. Solutions to solve difficulties to implement SOEs’ restructuring 7. Considerations when restructuring SOEs 3. Contents of SOEs’s restructuring 4. Roadmap of SOEs’ restructuring 2.The goal of restructuring SOEs: 5. Difficulties and challenges of the process of restructuring SOEs IMPLEMENTATION OF STATE-OWNED ENTERPRISES’ RESTRUCTURING, FOCUSING ON SEGs AND SCs 1. Legal basis for implementation of the SOEs’ restructuring

  28. Legal basis for implementation of the SOEs’ restructuring The Closing Speech delivered by Mr. Nguyen PhuTrong, General Secretary of the Vietnam’s Communist Party, at the 3rd Central Conference, Intake XI on 10th October 2011 on the Decision to restructure the economy 1 5 "Restructuring SOEs, focusing on SEGS and SCs 2011-2015," of the Prime Minister on 17 July 2012 2 4 The 5th Central Conference of the Party Central Committee, intake XI on 15 June 2012 The Directive No. 03 of the Prime Minister dated on 17 January 2012, on promoting the state owned enterprises’ restructuring 3 The Decree No. 101/2009 of the Government on trial establishment, organization and management of SEGs

  29. MAIN CONTENTS OF THE DOCUMENTS The 5th Central Conference of the PCC • Improving the management of SOEs; promoting implementation of state owner, conducting transparent auditing and financial disclosure The Decree No. 01/2009 of the Gov. • Regulating operation and management SEGs and 11 major businesses of the SEGs The Project Restructuring SOEs, of the P.M • Grouping of SOEs and solutions for each group, specifying content and requirements SOE restructuring

  30. The goal of restructuring state-owned enterprises

  31. The goal of restructuring state-owned enterprises

  32. 2 3 1 Contents of SOEs’s restructuring • Review and respecify the tasks of the business and main business • Develop strategy to 2015, Vision to 2020 which are in line with the strategy of the industry, market demand, the ability of capital and managerial capacity • Develop plans to reorganize business, and restructuring of membership units

  33. 5 6 4 Contents of SOEs’s restructuring • Develop a financial plan to implement the main assigned tasks, give up an investment outside the industry • Promote the link among the member enterprises: the parent company focuses to develop a development strategy, renew the organization, management, technology and product, develop market • Apply the principles of corporate governance in accordance with the international corporate governance convention; improve internal audit controls mechanism, improve the management

  34. Contents of SOEs’s restructuring By early August, 7 out of 11 SEGs submit to the government a scheme to restructure their groups. - Actual deployment of the main contents of the restructuring scheme in the economic groups and corporations: • Business management model- Finance  investment- Corporate governance system- Human Resource Development During 8 recent months, 53 economic groups and state corporations have completed and submitted their scheme in which 9 were approved

  35. The limitations in the construction of the scheme of SEGs and SCs • Inconsistency of basic topics related to restructuring content • Serious about assessing the situation; restructuring the content is simple, asynchronous • Scheme write very detailed full, the Viet Nam Oil and Gas Corporation: page 155, but the group write very short, only chemicals group summary with 31 pages • Lack of detail on some of the content, such as finance, corporate governance, human resource development • "If SOEs in general and SEGs in particular have not yet trully perceived about the restructuring and restructuring has not yet their demand, they still use casuistry” (Source: Mr. Vo Tri Thanh, Deputy Director of CIEM , "Restructuring SOEs: A weighty achievement and casuistry project", Vietnam Economics Times, No. 194, 14 August 2012, p.5 )

  36. Contents of direction of the Government for SOE restructuring

  37. Roadmap of SOEs’ restructuring

  38. Roadmap of SOEs’ restructuring

  39. Roadmap of SOEs’ restructuring Vietnam mainly ongoing passive restructuring

  40. 2 1 3 Difficulties 4 5 The difficulties and challenges facing the process of restructuring SOEs The national financial system is not strong enough to effectively support the restructuring of enterprises It is not easy to have full recognition and unified action in the political system, especially the heads of SEGs and SCs, for restructuring The difficulty and instability of the world economy in recent years The settlemen and placement of employment and redundant labor within SOEs in the restructuring process Group interests are interfered

  41. The national financial system is not strong enough to effectively support the restructuring According to the Minister of Finance Ministry, Mr. Vuong Dinh Hue, VND 55,000 billion to 65,000 billion (equivalent to USD 24 billion to USD 32 billion) are estimated to be needed to restructure SOE including debt restructuring, settlement of losses and redundant labor…This is a matter of concern because it will increase public debt, create a burden for the economybut according to Mr. Hue "we need to make a patient stronger prior to treat the diseases and it is the same in every country” Is it more effective or should we treat the disease before taking a supplement?

  42. Group interests are interfered “Group interest” means a group of people who have common interest affecting the agencies, who may make decisions in favor of themselves and those interests and decisions go against the interests of the collective. The groups interests cause disorder and economic losses of the country. At the conference "SOEs’ Restructuring" organized by the Academy of Finance (MOF) in November 15, 2011, many argue that "The restructuring SOEs will be extremely difficult because it touchs the benefits of powerful groups”

  43. Difficulties in dealing with employment and redundant labor • Organizational restructuring and staff will narrow the production and focus on major business; organizational structure more compact and human resources will reduce, so redundant capacity to work will be happen • The Challenge • Policy regime for workers is inadequate • Unemployment rate is high and Unemployment is great • Life of workers is difficult • For every SEGs and SCs: • - Limited awareness of leaders as well as the employees on the benefits of the restructuring • - Psychology afraid to change • - Weak management capacity of leades, • - Capital shortage.

  44. Some solutions to solve difficulties to implement SOEs’ restructuring

  45. Considerations when restructuring SOEs

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