Viet Nam urgently needs an effective model for managing State capital at State-owned enterprises (SOEs) to prevent loss and corruption while promoting efficiency in using State capital.

Party General Secretary Nguyen Phu Trong, at the fifth plenary meeting of the 12th Communist Party of the Viet Nam Central Committee, said it was necessary to complete the model of managing State assets and capital at enterprises. Further, by 2018 at the latest, a specialised agency to represent State ownership was required to be formed.

Statistics of the Ministry of Finance revealed that State capital at SOEs is estimated to be VND1.3 quadrillion (US$57 billion) – a large sum, but stories about huge loss-making projects and failure in clarifying accountability were ringing alarming bells.

The separation of State capital ownership and management functions was, despite being an extremely hard job, undeniably essential. The foundation of the State Capital Investment Corporation (SCIC) marked a change not only in thinking but also in the management mechanism.

However, SCIC, after 10 year in operation, had managed only 1 per cent of the total State capital at enterprises while the rest were under the management of ministries and local authorities -- a decentralised management model -- which made it difficult to transfer State capital to SCIC.

A committee or an enterprise?

Two State capital management models were being discussed - a committee and an enterprise.

The former would be a specialised committee under the Government while the later would be an SOE upgraded by SCIC that would be in charge of managing State capital at enterprises.

Both would meet the need of separating ownership from management and have their own certain strengths and weaknesses; therefore careful consideration was needed to determine which was more suitable.

According to Nguyen Dinh Cung, director of the Central Institute for Economic Management, any model must minimise administrative intervention in managing and using State assets to prevent the long-term and strategic target of State investment from being distorted.

Cung said a committee under the Government would have stronger legal status than an enterprise but less impetus for efficiency and accountability.

Weak legal status would make it difficult to transfer State capital from other SOEs, Cung said.

Dang Quyet Tien, deputy director of the Corporate Finance Department under the Ministry of Finance, said the model of an enterprise developed from SCIC sounded appropriate but attention must be paid to two issues.

The first was elevating the legal status of this enterprise and the second was handling the relationship with large SOEs.

Tien said this State capital management enterprise should be an “accompanier” rather than a “parent” company to SOEs and it was important that this enterprise did not create obstacles or hinder production and businesses of SOEs.

Agreeing with Tien, Nguyen Viet Loi, director of the Institute for Financial Strategy and Policy, said the model of concentrating management of State capital at an enterprise was being used by many countries worldwide because of a number of advantages.

However, the concentration of State capital at an enterprise would increase risks and problems related to transparency and accountability, especially in a poorly-performing management environment, Loi said.

Thus, Loi said the model must enhance capacities in three stages - from managing capital of the owner, creating a transparent business environment and supervising capital use efficiency.

“If we want to achieve too many goals, it will be impossible,” Nguyen Xuan Thanh, director of Fulbright University Viet Nam, said.

Thanh said the first priority would be efficiency, adding that the model as an enterprise would certainly be better, given the current situation of Viet Nam.

Thanh added any operation mechanisms must target efficiency of the use of State capital.

According to Pham Dinh Soan, former director of the Corporate Finance Department, a real quality-driven change was the need of the hour. Soan said establishing a committee which would operate as an administrative agency to manage State capital would be a step back, not forward.

“The model of an enterprise will be more feasible, in my opinion,” Soan said, adding that this could not be implemented immediately but with an appropriate roadmap.

Vu Tien Loc, director of the Viet Nam Chamber of Commerce and Industry, said the State capital management agency should operate following the model of a financial corporation. — VNS