Gov’t seeks to speed up SOE privatization, obstacles remain

Thanh Nien News (The story can be found in the February 21 issue of our print edition, Vietweek)

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Engineers of the PetroVietnam Gas Corporation check the pipeline system at a facility of the company

Vietnam’s plan to privatize the Dung Quat Oil Refinery, the only such facility in the country, was set to begin implementation in 2012, but nothing has happened to date. 

The state-owned oil and gas group, PetroVietnam, sole owner of the refinery, is still seeking investors to sell a 49 percent stake in it, to raise funds and boost its capacity by 54 percent to 10 million tons a year.

PetroVietnam had estimated the value of the refinery at VND43.3 trillion ($2.1 billion) in 2011.

The refinery, built by French oil services group Technip, began operations in May 2010.

Nguyen Hoai Giang, chairman of the refinery’s operator, Binh Son Refining and Petrochemical Co, said: “Despite our efforts, we can’t equitize the refinery as scheduled because of difficulties in finding suitable investors.”

Dung Quat is one of many state-owned enterprises that have delayed their privatization plans for years.

The Vietnam National Textile and Garment Group, which planned to equitize in 2012, is scheduled to do so this year.

The government approved privatization plans for national carrier Vietnam Airlines as early as 2008, but the plan was shelved because of the economic and stock market downturns.

This year, the government has expressed strong determination to accelerate the privatization process, officially referred to as equitization.

At a meeting on SOE equitization in Hanoi on Tuesday, Prime Minister Nguyen Tan Dung said ministries should consider the work as a main political task and implement it successfully.

“The equitization of 432 SOEs, which has been approved, must be implemented in the next two years,” Dung said. Any company leader that shows “hesitation” during the process needs to be heavily disciplined.

Among the companies planned for equitization this year are Vietnam Airlines, Vietnam Automobile Industry Corp., Waterway Transportation Corp, Vietnam National Textile and Garment Group (Vinatex) and the leading maker of building and construction materials Viglacera Corp.

Dragging their feet

Dung described as “slow” the pace at which the process has been implemented thus far, noting that, just 99 SOEs have been privatized in the past three years.

Furthermore, some firms have violated laws, badly affecting the general reputation of SOEs, the PM said.

Privatization is the focus of the country’s efforts to restructure its economy, but many SOEs were slow to do it, even after their privatization plans have been approved, like 16 businesses under the Ministry of Culture, Sports and Tourism, Dung said.

He also ordered SOEs to speed up their divestment, saying that investment in non-core businesses was estimated at VND17 trillion.

Economists have attributed the sluggish pace of equitization so far to a reluctance on the part of current SOE leaders, because it would mean a dilution of their power.

Minister of Transport Dinh La Thang said: “Equitization is not a difficult. The issue is whether leaders of sectors want to implement it or not.”

But Dung said that leaders of SOEs who are reluctant to equitize their enterprises would not be granted promotion or allowed to remain in their current positions. They would be assigned to other work, he said.

Economist Bui Kien Thanh said the equitization process will be successful only when the equity allowed to be sold to investors increases.

“It now is small. Investors are not keen on buying SOE shares because of the low cap.

“The state still wants to hold large stake in many equitized enterprises to control their businesses. It makes the firms become less attractive to investors,” he said. “Many investors do not want to buy stakes in firms in which they cannot participate in making decisions.”

This is one of reasons for the slow equitization process over the past three years, he said.

Thanh said international investors have noticed the government’s ongoing consideration of higher foreign ownership limits, from the current 49 percent to 60 percent in non-banking businesses.

Echoing Thanh, economist Nguyen Tran Bat said: “I think it is not easy to implement the government’s goal. It wants to lure more capital by privatizing SOEs, but is not ready to sharply reduce its ownership in the firms.”

Vinatex general director Tran Quang Nghi said his firm is considering the best time to make much delayed initial public offerings (IPO). It is now waiting for the government to approve that the equity allowed to be sold to strategic investors is opened up for all investors.

Even if this is done, the state will still hold 51 percent of stake in Vinatex after its equitization.

Economist Le Dang Doanh said the state should not hold the large part of stake in the firm. Sectors such as garment, cement and construction material are not strategic and sensitive ones, as they do not hold national secrets relating to science and technology or national defense.

The government should consider allowing investors to buy more stake because it would help businesses attract more capital,  improve their business management and make them more competitive, he said.

“We should not be too worried about the risk that our firms will be controlled by foreign investors, and miss out chances of luring their investment,” Doanh said.

Thanh said another problem now is that investors could lose confidence in the equitization of SOEs after the long delays.

The heavy dependence on imported materials is also a barrier to investors in deciding to buy stakes in privatizing firms, he said. The dependence on imported materials is seen as an obstacle to stable development.

Thanh said: “It is not easy to equitize SOEs with ineffective business or prolonged losses. This requires the government to deal with technical and legal issues arising in the equitization process.”

Several experts have said that SOEs are the bane of the economy set to expand below 7 percent for a seventh straight year in 2014.

Under a draft decree on the categorization of SOEs, the government will own more than 50 percent of shares in firms providing public services like urban drainage, environmental hygiene maintenance and urban lighting, Tuoi Tre reported.

However, Le Manh Ha, vice chairman of the Ho Chi Minh City People’s Committee, said recently that he saw no reasons why these businesses must be owned by the state, because they have recently been caught violating regulations.

Other sectors will possibly work in these fields more effectively, he said.

According to the draft introduced by the Ministry of Planning and Investment, the state will own 100 percent of chartered capital at businesses in fields like national defense and electricity; at least 75 percent in fields like aviation, telecommunications, and mining; and at least 65 percent in fields like tobacco, rubber, and coffee.

The Ministry of Transport reported that 11 of its businesses engaged in building traffic infrastructure were completing the last steps before launching their initial public offerings (IPOs).

Transport Minister Dinh La Thang also announced that the ministry will privatize a subsidiary of Vietnam Airlines Corporation (VAC) to mobilize more funds for Long Thanh International Airport project that will be launched next year in the southern province of Dong Nai.

The airport, which will replace the Tan Son Nhat International Airport in HCMC, is estimated to need US$7 billion for the first phase.

VAC, which manages Vietnam’s 22 civilian airports, will start privatizing this year with the government owning more than 75 percent of its shares.

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