SOE governance needs improvement

Friday, Jul 20, 2018 08:37

The State Capital Management Committee for State-owned enterprises (SOEs) should be empowered to take close watch of the SOEs in order to improve the management of State capital in those companies, according to economist Pham Chi Lan.—Photo

The State Capital Management Committee for State-owned enterprises (SOEs) should be empowered to take close watch of the SOEs in order to improve the management of State capital in those companies, according to economist Pham Chi Lan.

The committee was founded on February 3 after the Government’s Resolution 09/2018/NQ-CP, which represents the Government’s move to take control of State capital in SOEs. The committee is expected to administrate VND5 quadrillion (US$222 billion) worth of State capital and assets in SOEs.

The Government needs to reduce the number of government agencies that manage the State capital in SOEs because those agencies have demonstrated poor operation efficiency, thus leading to State capital losses in SOEs so far, Lan said at a meeting on Thursday.

Viet Nam has not clarified the role of the government agencies in controlling the State capital in SOEs, thus they don’t fully understand their tasks and responsibilities, she said, adding there are too many agencies with similar assignments so no one has taken accountability for the State capital losses in SOEs.

“SOEs are put under the management of many agencies but none of them have really taken responsibility for the losses, so their reports are almost meaningless, useless and overlapping,” Lan said.

Another big problem with SOEs is poor risk management and State-funded companies often neglect that activity, Lan added. “That’s different from private firms where risk management is of utmost importance for their operation.”

“Risk management is not a big problem for SOEs and their managers because the State would bear their losses while they would take the entire profits,” Lan said.

The Government has organised business trips and training programmes for Government agents and officials to study examples of other countries in SOE governance using the State budget, official development assistance funds and firms’ expenses, however, there are still problems with the SOE governance mechanism, she said.

Existing problems with SOE operations and business performances are resolvable, but the managers of those SOEs have done nothing about it because of their own personal interests in the companies, Lan stressed.

Pham Duc Trung, head of Corporate Development and Reform Department under the Central Institute for Economic Management (CIEM), reported that the percentage of loss-making SOEs in 2011-16 did not decline and their combined reports showed 23 of 91 corporations and groups recorded total VND17 trillion ($755.5 million) worth of accumulative losses by the end of 2016.

“The companies’ rate of return or rate of return over equity has fallen by 39 per cent and the rate of return over assets has dropped 30 per cent,” he said.

Those SOEs have invested trillions of dong in non-core sectors but they have failed to make profits from those projects, even some of the projects are now valued below their initial investment values, Trung said, adding efforts have been made to cover some of the losses in loss-making projects but the results have remained poor.

“It is the inspection, monitoring and administration of the State-capital representative in the SOEs and internal control that have remained ineffective and led to violations in the use and management of State capital and assets in SOEs,” said Trung.

In fact, there are many legal documents regulating the jurisdiction of Government agencies and responsibility of the SOEs under the management of those agencies, according to Trung.

However, those documents are not consistent in terms of scope, definition and content, leading to the overlap between policies and creating difficulties for both Government agencies and SOEs, he said.

In addition, none of the Government agencies are empowered and competent enough to carry out full, comprehensive, effective assessment of SOEs, he added.

CIEM director Nguyen Dinh Cung said that an urgent issue now is how to study and develop appropriate policies so that SOEs can perform better, and ensure Government agencies are able to either assist or administrate SOE business performances.

SOEs should employ competent, professional and experienced individuals instead of recruiting employees based on the standards of public servants to assure the businesses perform well and their capital is secured, he said.

Cung also suggested the administration of SOEs must be done regularly to address rising issues and drive the companies in the right direction. In addition, there should be regulations to tighten internal discipline and fine violations in those firms.

Besides, Government agencies in charge of managing State capital in SOEs must assist the companies to operate creatively and proactively, Cung said.

“Business managers must see what companies are actually doing, not through papers and reports. We must strengthen the SOE governance system so that the firms improve the use of capital and resources.” — VNS

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