Troubled state companies passed around Vietnam’s public sector

In an effort to ostensibly restructure state-owned enterprises, the Vietnamese government has done little more than transfer troubled subsidiaries among state groups, a practice that hurts everyone involved, experts said.

According to a recent report released by the Central Institute for Economic Management (CIEM), since Vietnam started restructuring its SOEs more than 25 years ago, 158 businesses and subsidiaries have been sold.

But most of them have merely been passed around among state firms, national groups and ministry businesses, like EVN Telecom being moved from power monopoly Electricity of Vietnam to military-run telecommunications giant Viettel last year.

Or in 2010, under a government order, debt-ridden shipbuilder Vinashin transferred seven subsidiaries, 23 second-tier subsidiaries, and five projects to the Vietnam National Shipping Lines and state-owned oil and gas group PetroVietnam.

Nguyen Thi Luyen, deputy head of CIEM’s business reformation and development division, recently told an economic forum that although troubled subsidiaries were being transferred among state firms and national groups, there was no legal framework to regulate such activity.

In the meantime, since the rule is that subsidiaries are transferred in their original states, firms which take over troubled businesses end up incurring their troubled financial situations, according to the CIEM report.

Not to mention that at the time of transfer, many subsidiaries had piled up unfinished and delayed projects, the report said.

“Acquiring companies have to deal with lots of financial problems of acquired businesses, a task that is not simple at all,” it said.

For instance, after acquiring EVN Telecom, Viettel had to deal with debts, personnel problems, unfinished contracts and assets that Viettel had no use for, according to the report.

Viettel is now trapped in disputes with six companies hired by EVN Telecom to build base trans-receiver stations.

Dau Tu (Investment) newspaper reported in July that after the transfer, Viettel found 80-95 percent of the stations unnecessary, so it terminated the projects with the builders. But, while many accepted its offers, these six companies did not and demanded compensations.

According to the newspaper, Viettel paid some VND4.5 trillion (US$209.5 million) in EVN Telecom debt, and had distributed jobs for 1,600 of its employees as of the end of last year.

Meanwhile, PetroVietnam is stuck with the Lai Vu Industrial Zone in the northern province of Hai Duong, which it took over from Vinashin, Dau tu reported early this week.

In the hope of withdrawing from the 200-hectare (494-acre) zone, which was on the verge of bankruptcy upon the transfer, PetroVietnam has been talking with Pacific Textiles Holdings Limited and Crystal Group’s Tinh Loi Company, both Hong Kong-owned, over the sale of Lai Vu, for more than one year.

But no deal has been made so far.

The CIEM report said that many projects transferred from Vinashin to other state firms were large and most of their works and infrastructure were unfinished, so they could not be put into operation, adding that some were not even licensed.

After the transfers, some projects failed to continue operating and many were canceled outright, according to the report.

No help at all

In an interview with Thanh Nien, economist Bui Kien Thanh called the transfer of troubled subsidiaries among state groups an “administrative order,” arguing that it puts lots of pressure and hardship on acquiring groups.

The government should review the status of each business before transferring it, and those businesses which are too troubled and do not operate in key fields should be liquidated or sold, he said.

He also urged the government to allow private investors to buy failed businesses instead of pushing for privatization, saying that if the government still holds a majority of shares, investors cannot really restructure the businesses.

Tran Tien Cuong, an independent consultant with CIEM, also said the practice is a way of restructuring state firms with “administrative” measures and “non-market mechanisms.”

When the government must transfer businesses or projects among state firms, the transfer should require the mutual agreement of both sides, or at least the consent of the acquiring business without being imposed upon by government agencies, Cuong said.

Economist Pham Chi Lan said she has urged the government not to transfer poor businesses from one state firm to another. She says the practice weakens strong firms and makes things worse for already-weak companies.

“The practice cannot solve core problems of the economy; weak companies should be sold,” she said.