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15 August, 2016
Comments to Vietnam Investment Review on a recent MPI draft decree supporting the establishment of a state-level management Committee to steer SOEs
Vietnam’s Ministry of Planning and Investment has announced a draft decree highlighting the need to establish a committee exclusively in charge of managing state-owned enterprises (SOEs). Currently SOEs are managed by different localities, ministries, and sectors.
It is expected that this Committee will manage up to 30 economic and corporations. It will also separate the state’s role of state management from the role as a trader and a producer.
Do you think that the establishment of this Committee is good for Vietnam’s economic now? Why?
I believe the establishment of a Committee exclusively in charge of managing SOEs, separating SOEs from their managing Ministries is a positive move of the Government.
The Ministries will not be put in a position when they have to adopt policies to regulate all enterprises within their managing authority and at the same time having to care about their interests in their SOEs. With the establishment of the Committee, the Ministries will have no chance or no incentive to be biased towards SOEs. In other words, all enterprises will be treated equally, regardless of whether they are SOEs or private.
The proposal to establish the Committee is extremely important, especially when SOEs are proved to continue operating at loss, investment activities are inefficient, state ownership capital is poorly managed,all leading to loss of state assets. I note that SCIC was established with the expectation to perform the same duties of representing state ownership in SOEs. However, SCIC is only an agency under the Ministry of Finance, which makes it not of equal leverage with and independent of other ministries and unable to regulate big SOEs. Thus, it is necessary to have another independent Committee to take over SCIC’s responsibilities.
In many nations, is this model applied?
This model is very similar to that in Germany when there was reunification between East and West Germany. The current model in China is considered as closely similar to the proposed one in Vietnam. However, instead of only establishing a Committee at a central level, meaning the Committee will not take over SOEs under provincial management, Ministry of Public Security, Ministry of National Defence, public enterprises and state-owned commercial joint stock banks, such Committee in China is established at all levels, from central to provincial one.
It could be a good start to have the Committee at central level. I recommend that after a trial period to supervise the efficiency of the model, it should be implemented at all provincial level under central management as well.
Do you have any recommendations?
According to the Draft Decree, chairman and vice-chairmen of the Committee will be appointed by the Prime Minister. I am concerned that ministers or vice-ministers of other ministries may have to take the chairman or vice- chairmen position of the Committee concurrently with their minister role. This will not be efficient. Instead, the management of the Committee must include both Vietnamese and foreigners. I recommend at least one foreign expert who has worked as manager for private companies and has a success track record should be member of this Committee. I can recommend some people if the Government could approve the budget for this position. I myself am very willing to be a member of the Committee to assist. The foreign expert must not necessarily be the decision-making person, but at least (s)he is there to give advice to the Committee.
Members of the Committee must be independent. They should not comprise of representatives from selected ministries who have certain interest in some SOEs, or else neutrality cannot be ensured. The Committee must act as an investor responsible for all investment activities of state capital before the Government. Only by doing so can SOEs play the same game with same rules as in the private sector.
In addition, it is important to create an operation regime for this Committee towards transparency for public supervision. Transparency is a critical issue, especially for a Committee which holds huge state assets worth around VND5.4 quadrillion.
For further information, please contact:
Oliver Massmann, Partner, Duane Morris
omassmann@duanemorris.com
