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Economically, the transformation of an SOE into a one-member
limited liability company does not necessarily change the nature
of its relationship with the state (its owner). Therefore, one
should not expect that its incentives change and that its
performance improves. To effectively manage its shares in SOEs,
the state needs to establish a State Capital Investment
Corporation that has i) sufficient authority to deal with other
government agencies (which used to be “administrative ownership”
agencies) and ii) operates transparently (with periodic external
audits).
The state has given state-owned enterprises many privileges,
particularly through incentive and subsidy schemes. First, for
some SOEs, the state subsidizes production inputs. Second,
during the last ten years, the government has forgiven
approximately VND 40,000 billion worth of bad SOE debts. Third,
in terms of finance, SOEs enjoy preferential access to low-cost
credit and “soft” credit from the public investment fund (Quy
Dau tu phat trien). Fourth, the most common subsidy for key SOEs,
including some commercial banks, takes the form of increased
investment capital from the state budget. From 2001-2005, the
government increased the legal capital of commercial banks by
over VND 12 billion. In principle, all of these kinds of
subsidies should end when Vietnam officially joins the WTO.
Mr. Vu Thanh Tu Anh, Research Director
Fulbright Economic Teaching Program
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The main advantages of SOEs occur on a practical rather than a
legal level. SOEs have better access to the government, can
obtain licenses faster, find it easier to obtain loans, and,
because they are monopolies, hold a lot of negotiation power.
Thus, the impact of the decree converting SOEs into one-member
limited liability companies on the achievement of a level
playing field between different types of enterprises remains to
be seen. Although the new LLCs will be governed by the EL's
provisions, they will remain linked to public bodies such as
ministries, which may still provide them with certain advantages
on a practical level.
Mr. Oliver Massmann, Partner
International Lawyer, Baker & McKenzie, Hanoi
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 SOEs
should have been offered more restructuring choices, such as
being allowed to transform into two-member limited liability
companies (i.e., as foreign-invested and privately-owned
enterprises). The two-member LLC is a more flexible form of
ownership than the one-member LLC, and in practice, some
investors may prefer closely-held (i.e., with a limited number
of owners) entities to public ones. The case of Sao Vang Farm in
Thanh Hoa province is a good example of how an SOE can be
converted into a two-member LLC. Unfortunately, our existing
legal framework doesn't support this kind of transformation.
The State Capital Investment Corporation (SCIC) has been
established to manage more efficiently the state's investment in
equitized companies that are currently scattered under the
administrative management of ministries and provincial
authorities. In such firms, the SCIC, rather than administrative
authorities, will now exercise the ownership function. However,
it will take time to fully resolve one of the key issues in SOE
reform: separating the state's regulatory and ownership
functions in all existing SOEs, especially the large ones. We
need to study further how to handle large corporations and
groups, which currently report to the Prime Minister. In four
years, all state-owned corporations and groups are supposed to
transform into one-member limited liability companies; who will
manage the state's shares in those firms? By that time, we hope
that the issue of separating administrative and ownership
functions will be resolved.
Vietnam is currently in the process of WTO accession and has
committed to eliminate subsidies to SOEs. In order to join the
global playing field with its new rules and counterparts, the
government needs to review the entire context of SOE subsidies.
The state's funds should only be invested in profitable firms
that can survive in the new competitive arena. Poorly performing
SOEs will ultimately be eliminated from the market.
Mr. Tran Tien Cuong, Director of
Department of Enterprise Reform and Development,
Central Institute for Economic Management
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