14. Conclusions and recommendations

The Government of Viet Nam has made progress in recent years to improve its frameworks for ownership and corporate governance of SOEs. In particular, it established CMSC – a ministry-level entity – in 2018, with a view to enhancing efficiency, facilitating equitisation and separating ownership of the country’s largest 19 SOEs and state corporate groups from the state’s regulatory function. It has enacted a new Enterprise Law, subsequent Decrees and circulars to guide the streamlining of the SOE sector. The government has developed and implemented a form of regular aggregate reporting for the information of the Prime Minister and cabinet members. Furthermore, the number of SOEs has been reduced from 12 000 in 1990s to around 2 100 today thanks to the government’s extensive divestment and equitisation programmes. In terms of next steps, the government recently announced its plan to revise the Law No. 69/2014/QH13 69 on Management and Utilisation of State Capital to make it more aligned with the OECD SOE Guidelines as well as a five-year roadmap to adopt IFRS.

However, important challenges remain. Viet Nam has yet to develop a concrete and unified ownership policy. The legal and institutional framework for state ownership builds on a number of documents specifying policy priorities in the area of state ownership and management. To varying degrees, these normative documents have delineated the rights and responsibilities of state ownership across government representatives including Prime Minister, sectoral ministries representing the owner, and the BoM/Chair/representative of state capital at SOEs.

The powers of the new state ownership entity CMSC place it, in OECD vernacular, somewhere in between being a state ownership agency or a state co-ordination agency. It has a co-ordination power over SOEs in its portfolio, but a number of important decisions can be taken only in concert with other government bodies. Also, it does not have a comprehensive data collection and reporting mechanism which allows for having a comprehensive view over key financial and non-financial data of companies in its portfolio. Moreover, due to the CMSC’s relatively limited resourcing and lack of in-depth sectoral knowledge across its portfolio of SOEs, line ministries in practice continue to play an important role in the control of the companies that are in the portfolio of the CMSC. In some cases, the CMSC may even be seen by SOEs as adding just another bureaucratic, including when they are involved in equitisation or large investment projects.

For this and other reasons, state ownership and market regulatory functions are in practice still exercised in concert in many cases. In addition to the institutional placement of oversight roles, a second complication arises from regulations on the management and use of state capital vested with SOEs. These are often so closely aligned with the government’s public policy objectives that they allow only a limited distinction between production and business activities of SOEs and the state’s exercise of political powers.

On the issue of competitive neutrality, no formal statutory discrimination between SOEs and private firms is detected. However, the proximity of SOEs to policy makers, continued conflation of the exercise of ownership rights, the government’s explicit use of SOEs as a main vehicle for the implementation of the State’s industrial or sectoral policies, policy formulation and regulatory responsibilities within the same government ministries/agencies have led to a perception of discrimination and discrepancy while distorting the playing field.

The degree of disclosure and quality of information (both financial and non-financial) vary depending on the responsible line ministry or controlling stakeholder, with many SOE websites appearing non-compliant. SOEs’ compliance with the requirements to populate the new publicly-available “Business Information Portal” on a six-month and annual basis should provide greater transparency on the finances of all SOEs, but its success will require greater monitoring of compliance than is provided currently.

The state ownership representative body is mandated to issue decisions on assigning annual production/business plans to SOEs, which include expected return on equity (ROE). However, this is done on an ad-hoc basis in practice. There is no legal regulatory framework in place to ensure market consistent costs of equity financing from the state and capital injections from the state are subject to a minimum expected rate-of-return on equity. These same deficiencies apply with regard to equity investments made by SOEs.

While the government submits the aggregate report to the Prime Minister and the cabinet member, the state does not have in place a dedicated website which publishes the information contained therein and on individual SOEs. The state suggests that by preparing the report and disclosing it in period meetings and conferences that they are making publicly available information about SOE’s financial and non-financial performance.

More remains to be done to assure a strong, autonomous role for SOE boards of directors. The top management is often closely linked to the national executive powers, and in some cases important corporate decisions are made directly by the government bypassing the corporate decision chain. At a minimum, the state approves the appointment of CEOs in all SOEs – including JSCs or directly appoints the CEO in the case of company groups (by the Prime Minister directly).

The existing mix of in-company state and Party control procedures with business practices aspiring to meet international standards creates substantial challenges to effective internal control of SOEs – particularly but not only in those 100% owned by the state. The roles and responsibilities for internal control are formally and informally dispersed between the SOE Board of Members/Directors, the Board of Controllers, the Party Organisation or Committee sitting in the company, the “Internal Control Board” reporting to the Board and the internal audit function which reports in turn to the Internal Control Board. In practice it appears that one of the most effective corporate ‘checks and balances’ is the Party Committee, which may be providing disincentive for the true adoption of international practices in internal audit and corruption-risk management.

Finally, and perhaps most importantly, a key concern remains the implementation of existent rules. Viet Nam has put in place legal, regulatory and institutional structures that in principle compare favourably with many other countries, including OECD members, but the problem is that formal procedures are often not adhered to. The existence of power structures based on personal connections as well as Party affiliation in practice mean that high-level ministerial and SOE officials may feel at liberty to act autonomously with impunity. As this feature of the political landscape is unlikely to go away in the foreseeable future, the strongest options for ensuring a better governance of SOEs involve a further strengthening and professionalisation of the ownership function and a higher degree of disclosure and transparency around corporate and ministerial actions.

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