OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam

7. Rationales for state ownership

Abstract

This chapter assesses the Vietnamese state ownership policy based on the Chapter I of the SOE Guidelines. It analyses the country’s ownership accountability, disclosure of its ownership rationale, and looks at how the state defines the rationales for owning individual SOEs and subject these to recurrent review.

Overarching recommendation from the SOE Guidelines

The state exercises the ownership of SOEs in the interest of the general public. It should carefully evaluate and disclose the objectives that justify state ownership and subject these to a recurrent review.

7.1. Articulating the rationales for state ownership

A. The ultimate purpose of state ownership of enterprises should be to maximise value for society, through an efficient allocation of resources

Viet Nam’s state ownership rationale can be gleaned from a number of documents specifying policy priorities in the area of state ownership, investment and management. The government has stated state ownership rationale and public policy objectives of SOEs through promulgation of the 2020 Law on Enterprises, 2014 Law 69 on Management and Utilization of State Capital, relevant laws, Decrees guiding the implementation of laws and sectoral ministries’ circulars. Main priorities underpinning the Government’s ownership of SOEs include conserving and developing state capital invested in enterprises; guiding SOE development per economic, political, and social goals of the government; and strengthening SOEs’ leading role in socio-economic development.

The State retains its ownership in key industries such as electricity, telecommunication and mining to deliver public service obligations, implement overarching industrial strategies and regulate the economy of the country. The 2014 Law 69 on Management and Utilization of State Capital stipulates the fields where 100% of the enterprise’s capital is held by the State, including enterprises providing essential products and services for the society; enterprises operating in the direct auxiliary sector for the purpose of national defense and security; enterprises operating in the natural monopoly sector; hi-tech enterprises that are pioneering areas/industries considered economic spearheads; and areas/industries related to national security and defense (see Box 7.1).

Covering such a wide range of areas/industries, state ownership and the state economic sector play an extensive role in the country’s socio‑economic development. The State explicitly uses SOEs as a vehicle for achieving national economic development agenda, ensuring macroeconomic stability, curbing inflation, and generating revenue for the state budget. It regularly commissions SOEs to undertake major infrastructure projects. When exercising its ownership over public assets, it often acts as a project owner or developer in its economic engagements.

Box ‎7.1. Provision on the scope of state investment in business establishment in the Law 69 on Management and Utilisation of State‑Owned Capital

Article 10. Scope of state investment in business establishment.

1. State investment in business establishment shall be made within the following scopes:

a. Enterprise providing basic public products and services;

b. Enterprises operating in the direct auxiliary sector for the purpose of national defense and security;

c. Enterprises operating in the natural monopoly sector;

d. Hi-tech enterprises, and those making large‑scale investment in and serving as the driving force behind the fast growth of different industries, sectors as well as the entire economy.

2. Government shall provide specific regulations on state investment in business establishment and order placement mechanism of the State, applicable to the enterprise that plays its significant roles in regulating the national macro‑economy and maintaining the social security in accordance with provisions laid down in Clause 1 of this Article.

Source: Law 69 on Management and Utilisation of State‑Owned Capital

7.2. The ownership policy

B. The government should develop an ownership policy. The policy should inter alia define the overall rationales for state ownership, the state’s role in the governance of SOEs, how the state will implement its ownership policy, and the respective role and responsibilities of those government offices involved in its implementation

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. The government has formulated and implemented policies regarding SOE ownership through the promulgation of the 2020 Law on Enterprises, 2014 Law on Management and Utilisation of State Capital, 2017 Law on Management and Use of Public Property (Law No. 15/2017/QH14), relevant laws, decrees guiding the implementation of laws and sectoral ministries’ circulars. These normative legal documents have specified the rights and responsibilities of state ownership representative bodies (including the government, Prime Minister, sectoral ministries representing the owner) as well as those of Members’ Council and its Chairperson at SOEs.

The National Assembly has promulgated the 2014 Law on Management and Utilization of State Capital Investment in the Enterprise’s manufacturing and business activities, which specifies the cases in which the State must hold 100% of the charter capital. The Law stipulates the Government’s authority to decide on investment and establishment of State capital, and the rights and responsibilities of the agencies representing state capital. According to the Law, ministries and agencies develop policies, perform management and supervision as per their functions and tasks. For example, the Ministry of Finance promulgates regulations on finance and accounting for SOEs and supervises the financial situation of SOEs. In case of detecting signs of violations, it can organise direct inspection. It manages public assets; grants government guarantees for SOEs to borrow foreign loans.

7.2.1. Government bodies responsible for defining the ownership policy

Governmental agencies responsible for determining fundamental ownership policies encompassing issues such as performance management, human resource management and remuneration are the Ministry of Finance (MOF), Ministry of Planning and Investment (MPI) and other relevant ministries such as the Ministry of Justice (MOJ), Ministry of Home Affairs (MOHA), and Ministry of Labour – Invalids and Social Affairs (MOLISA). When developing ownership policies, these ministries consult stakeholders such as SOEs, associations, consumers, and general public through workshops and seminars. Government is mandated to adhere to directions of the Party in its ownership policy. Based on Party Resolutions adopted at Congresses, the government assigns sectoral ministries and committees to formulate ownership policies by sector or specialised area.

The agencies implementing the State’s ownership policy are CMSC (for groups and corporations), Ministries and agencies (for enterprises with special characteristics in the field of security and national defense), and provincial People’s Committees (for local enterprises). The agencies performing the state ownership function have the right to appoint and dismiss the Chairman and members of the Board of Directors, as well as to decide on other important tasks of the SOEs (reported by the members of the SOEs’ Board of Directors). These agencies have set up subordinate units to advise and co‑ordinate with state management agencies (Ministries) to perform the functions the owner’s representative agencies.

7.3. Ownership policy accountability, disclosure and review

C. The ownership policy should be subject to appropriate procedures of political accountability and disclosed to the general public. The government should review at regular intervals its ownership policy

Ownership policies stated in 2020 Law on Enterprises, 2014 Law 69 on Management and Utilisation of State Capital, 2017 Law on Management and Use of Public Property (Law No. 15/2017/QH14) and relevant regulations are publicly disclosed on websites of the government, the owner’s representative agencies including Commission for the Management of State Capital at Enterprises (CMSC), Ministries and State Capital Investment Corporation (SCIC).

The government and sectoral ministries which exercise state ownership function periodically review and assess the impact of ownership policies in practice on SOE governance stakeholders through feedback from SOEs, conferences, workshops, surveys, and periodic reports from the owner’s representative agencies, SCIC, relevant ministries and functional agencies (such as the State Audit, the government Inspectorate) in order to promptly solve problems within its scope of authority or report to the National Assembly for consideration. For some groups of SOEs with specific characteristics, the government sets up a Working Group headed by the government Leader to directly handle arising issues within a period of one month or less.

7.4. Defining SOE objectives

D. The state should define the rationales for owning individual SOEs and subject these to recurrent review. Any public policy objectives that individual SOEs, or groups of SOEs, are required to achieve should be clearly mandated by the relevant authorities and disclosed

Every five years, the Prime Minister issues a Decision on criteria for classification of SOEs for review of sectoral ministries and state owner’s representatives and submits to competent authorities for approval.

In case of making capital contribution to other enterprises, SOEs must be approved by the owner’s representative agencies or higher level whereas in private enterprises, the board of directors considers and makes its own decisions. In principle, when participating in investment plans, SOEs as well as enterprises must expect, evaluate and manage risks to achieve maximum profit and be approved by the competent authority (usually the ownership entity) on the investment plan. In case of capital investment with a lower interest rate than that in the market, SOEs must clearly present the reason and must be approved by the competent authority. However, as of now, no regulations specify the mandatory minimum rate of return. Similarly, in the case of business expansion projects, SOEs must report to the owner’s representative agencies for approval, carry out bidding procedures to select contractors according to the State’s regulations. The policies that bind the operation of SOEs are specified in the relevant legal system including the Law on Investment and the Law on Bidding.

All public policy objectives that each SOE or SOE groups should achieve must be communicated by relevant competent authorities and publicly published. However, exceptions are made for SOEs related to national security/defense industries or industries that concern state secrets.