Vietnam's state companies get fat on privileges

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A woman pays for a refill at a gas station in Da Nang January 20. Photo courtesy of Tuoi Tre

State-owned giants have announced large profit increases for 2013, but economists say the gains came from monopolies and pricing privileges, not good business practices.

Experts said successful giants like power provider EVN (Electricity of Vietnam), fuel retailer Petrolimex, coal and mineral group TKV, or telecommunication service providers Viettel and VNPT (Vietnam Post and Telecommunications Group) are either the dominators or sole occupiers in their economic sector, and tend to raise prices anytime they like, according to a Tuoi Tre (Youth) newspaper report.

The military-run Viettel's pretax profit surged 27.5 percent from 2012 to more than VND35 trillion (US$1.66 billion), topping all telcos' profits and accounting for 21.5 percent of the company's revenues.

VNPT, which owns MobiFone and VinaPhone and together with Viettel holds 97.3 percent of the market share, profited 89.38 percent more than last year with VND9.3 trillion in registered profits.

The companies made more profits during the second half, when they hiked 3G fees by 40 percent in October to VND70,000 a month. In April they had raised the monthly tariff from VND40,000 to VND50,000.

Local experts and the public accused the companies of violating the competition law by increasing their fees at the same time but Vietnam Competition Authority said it did not detect signs of collusion.

Nguyen Ngoc Son, a lecturer on competition laws at the Ho Chi Minh City University of Economics and Law said monopolies making profits is a normal story.

"Given their market dominating position, and many price hikes, their profits are not a surprise," Son said.

Petrolimex also reported a 97.07 percent increase in its pretax profit, of VND1.93 billion as after many ups and downs in 2013, gasoline retail price ended up at VND24,710 ($1.17) a liter, or 6.7 percent higher than in the end of 2012.

Gasoline accounts for 40 percent of the company's profit and the rest comes from its side investments in banking, insurance, transport and cooking gas.

Tran Van Thinh, general director of Petrolimex, said its success is thanks to government policies but also its own efforts.

But economists said the only thing the company has been good at making is filing requests to the government and demanding stable import tariffs and more autonomy.

Son said the gasoline profits merely came from price increases.

He said the market operation has to have price cuts and increases as a matter of course, but what angers the public is the fact that the company always raises prices more than it reduces them.

"It's an unfair game," he said.

"Fuel businesses have kept moaning about losses, but the losses are not clear as they are referring to base prices, not real ones. At the end of the year, they're still making profits."

Vietnam National Coal and Mineral Industries Group TKV was an unexpected winner, according to analysts.

The group reported VND3 trillion in profit for 2013, up around 20 percent from the previous year.

Its deputy general director Nguyen Van Bien said the figures were estimations and the real ones could be larger.

Its report said the important factor driving its finances is the fact that the government cut export tariffs and allowed it to increase prices to power plants.

The Ministry of Finance in September 2011 raised export tariffs to 20 percent to reduce the flow of raw ores out of the country, but TKV then complained about stockpiles, and the tariffs were halved a year later.

The tax was raised to 13 percent last May again on ore waste concerns, but it was brought down again more than a month later after requests by TKV.

The company's general director Le Minh Chuan said the group's exports were struggling at around 1,000 tons a day under the 13 percent tax, but then surged to more than 4 million tons in December.

EVN has announced its profits, but announced a revenue increase of 19.8 percent in 2013 to VND172.4 trillion.

The company has surged prices seven times since 2009, including the latest for 5 percent in August, citing losses every time.

Its report said the company "has basically cleared its losses from previous years," which were previously revealed to be VND19.8 trillion.

A recent approval by the government gave the company more rights to set prices until 2015.

On conditions

Economist Pham Chi Lan, a former government advisor, said privileges should be given to state-owned enterprises on the condition that they need to improve technologies, maintain supplies and avoid making wastes.

Vu Dinh Anh, deputy director of the state-backed Institute of Economy and Finance, said the most simple way to make profits is to raise prices, which is normally avoided for the sake of competition.

"State-owned enterprises (SOEs), for their monopoly position, can raise prices and people still have to buy.

"Take electricity, there's hardly another option for Vietnamese consumers if they don't buy from EVN," Anh said.

Anh said the profits that SOEs are enjoying are given by the government, and that should be called "spoiling" rather than "support."

Nguyen Hoang Hai, general director of Vietnam Association of Financial Investors, agreed that the privileges have to come with requirements like lowered expenses, and more transparent information about operations.

But Hai said the best way to increase competitiveness among the monopolies is privatization.

"The government should not hold the dominant shares, but leave it to private investors."

Vu Quoc Tuan, who used to be a member of the Prime Minister's Study Group, also said that the businesses need to be taken away from government agency umbrellas to avoid an economy of "group interests."

Tuan said Vietnam is allowing monopolies in major economic sectors and that prevents market prices from existing.

"There are only market prices when there's harsh competition, when businesses are forced to reduce costs, sometimes accept losses to have the chance to survive and develop in the long term."

He said the sectors need to be open to more participants.

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