State firms losing because of sloppy restructuring, oversight

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A Petrolimex's station employee pumps gasoline in downtown Hanoi. Many state-owned enterprises, including Petrolimex, have reported massive losses. 

Many state-owned enterprises reported massive losses last year, with analysts blaming it on poorly manage restructuring and ineffective government oversight.

The government recently sent a report to lawmakers saying Electricity of Vietnam (EVN), Vietnam National Petroleum Group (Petrolimex), Vietnam National Shipping Lines (Vinalines), Vietnam Waterway Construction Corporation (Vinawaco), and Military Petroleum Corporation (Mipecorp), five of the biggest SOEs, lost a total of VND5.8 trillion (US$278 million).

Some companies have in fact accumulated losses in excess of their capital. For the Vietnam Sericulture Corporation the excess is VND281 billion ($13.48 million) and for Vinawaco, VND604 billion.

The report blamed the losses on the global economic downturn.

"Vietnam has significantly suffered from this downturn, including in the financial and stock markets," it said.

But economist Bui Kien Thanh refused to buy this, saying: "The real reason for the firms' failure is the lack of strict oversight of their activities and their ineffective restructuring.

"Investment in projects without proper assessment is also one of reasons for the heavy losses.

"The licenses for their investments should have been more carefully considered, and the investment progress frequently monitored."

Besides, some employees made use of the investment binge and poor oversight to indulge in corruption, Thanh said.

Though the restructuring of SOEs has been in the works for many years, specific measures have not been mapped out yet, making the process inefficient, he explained.

Oversight of the SOEs is poor basically because of a shortage of inspectors and auditors, he said.

"To strengthen oversight of SOEs, it is very important to improve the capacity of these departments."

Nguyen Duc Thanh, director of an economic and policy research center at the Hanoi National University, said the losses suffered by SOEs are understandable in the context of the global economic downturn and shrinking markets.

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But Vietnam should speed up their restructuring, he said.

"The restructuring of both loss-making and profitable firms should be implemented. Many now achieve good results because of incentives they get in terms of land and capital or operating in monopoly sectors.

"Under such favorable conditions, they have not yet been exposed.

"So we should improve the efficiency of SOEs so that they are able to cope with challenges."

Experts have called for SOEs to sell shares or pull out of non-core sectors, but it is not an easy task under the current conditions.

A recent IPO of 5.94 million shares in SHB-Vinacomin Insurance Firm was cancelled in October because only one institutional investor and individual investor each registered to buy. The shares had been priced at VND10,000 each.

Economist Nguyen Minh Phong said divesting from non-core sectors is necessary, but should be carefully planned.

"The bearish stock market cannot cope with trillions of dong being withdrawn," he said.

In July Prime Minister Nguyen Tan Dung approved a project to restructure SOEs, which requires them to withdraw from non-core businesses by 2015.

Overdue debts

By late last year debts owed by state-owned firms had topped VND1,292 trillion, up 18.9 percent from 2010, according to the Ministry of Finance. Their debt-to-equity ratio was 1.77.

Many SOEs have overdue debts of trillions of dong. EVN owes over VND10.1 trillion, while the figure for oil and gas group PetroVietnam is VND1.73 trillion.

When state firms have difficulty repaying such debts , the Ministry of Finance provides them loans.

The ministry has helped Vietnam Paper Corporation, the Vietnam Construction Corp., construction group Song Da, and the Vietnam Cement Corporation, which face debts that total  $109.7 million.

Minister of Finance Vuong Dinh Hue said the firms are restructuring and are committed to repaying the loans within five years.

An economist, who did not wish to be named, said this bailout is also a reason for SOEs' inefficiency, pointing out they are not too worried about incurring losses.

The government should make them swim or sink on their own to improve their competitiveness, he said.

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