The Perils of Delaying State-Owned Enterprise Privatization: Navigating Financial Insecurity

Historical Obstacles

According to the Ministry of Finance, in the first nine months of 2024, units continued to implement equitization in accordance with the approved plan for rearranging SOEs and state-capital enterprises for the 2022-2025 period, as endorsed by the Prime Minister. Accordingly, during this period, 19 enterprises will undergo equitization, and state capital will be withdrawn from 141 enterprises. However, with three quarters of 2024 already passed, no enterprise has been approved for an equitization plan by authorized agencies.

Regarding capital withdrawal, state capital has been withdrawn from five wholly state-owned enterprises, with a total value of VND 145 billion, reaping VND 157 billion. In addition, state-owned corporations and groups withdrew capital from three subsidiaries, with a value of nearly VND 41 billion and earning VND 183 billion.

According to the Ministry of Finance, the delay in equitization and state capital withdrawal is mainly due to obstacles related to the arrangement and handling of houses and land. A typical example is in Dong Nai, where the province has to equitize the Dong Nai Food Industry Corporation (Dofico) and its subsidiaries and branches; the Industrial Zone Infrastructure Development Corporation (Sonadezi); the Tin Nghia Corporation; and public non-business units (the Dong Nai Motor Vehicle Registration Center and the Bien Hoa City Bus Station).

According to the Dong Nai Business Renewal and Development Steering Committee, equitization and capital withdrawal are facing obstacles and delays, and there are no specific solutions. As an example of equitization and capital withdrawal at Dofico, the obstacles are due to historical factors such as contribution documents, dossiers for capital contribution in the form of land use rights, and contribution of assets on land that do not meet current regulations.

“The difficulties and obstacles to equitization and capital withdrawal have been mentioned many times and have lasted for many years, but there are still no solutions. We propose the need to develop multiple plans to accelerate the process,” said a representative of the Dong Nai Business Renewal and Development Steering Committee.

Many Enterprises Face Financial Insecurity

One of the issues with SOEs is the inefficient management and operation of capital. Most recently, the Ministry of Finance announced a report on the results of financial monitoring and evaluation of business performance in 2023 for enterprises wholly owned by the State. This data was compiled from 143 enterprises in the central block, based on reports from representative agencies of the owners and enterprises. Accordingly, the total revenue of the enterprises under the ministries and ministerial-level agencies in 2023 reached nearly VND 1.4 quadrillion, with a total profit after tax of VND 101 trillion.

Out of the 143 enterprises, 107 enterprises ensured financial security. There were seven enterprises that operated at a loss, with a total loss of VND 23.5 trillion. Specifically, the Vocational Education Equipment Company had an incurred loss of VND 82 million, Ha Long Seafood Company lost VND 15 billion, the Agricultural Publishing House One-Member Limited Company lost VND 639 million, the Ha Thanh One-Member Limited Company lost VND 276 million, the Sports and Tourism Publishing House One-Member Limited Company lost VND 339 million, and the Central Scientific and Documentary Film Studio lost VND 4.6 billion. The Vietnam Electricity Group incurred the largest loss, with VND 23.5 trillion.

The Ministry of Finance pointed out that 10 enterprises showed signs of financial insecurity, including the Parent Company – Corporation 15, the Parent Company – One-Member Limited Liability Company 622, the Vocational Education Equipment Company, the Application and Development of Technology One-Member Limited Company, the Sports and Tourism Publishing House One-Member Limited Company, the Central Scientific and Documentary Film Studio, the World Publishing House One-Member Limited Company, and the Vietnam Coffee Corporation.

Worryingly, four enterprises were identified as financially insecure, including the Ha Thanh One-Member Limited Company, the Ha Long Seafood One-Member Limited Company, the Agricultural Publishing House One-Member Limited Company, and the Hanoi Agricultural Products and Food Import-Export One-Member Limited Company.

“The total loss of SOEs in 2023 increased by VND 44.6 trillion compared to 2022. The number of enterprises wholly owned by the State in the central block has not decreased compared to the previous period. For the local block, the number of loss-making enterprises has increased,” said the Ministry of Finance.

Talking to Tien Phong Newspaper, economic expert Ngo Tri Long said that for many years, SOEs have held significant resources in terms of capital and land. While some enterprises operate efficiently, there are still cases of loss-making SOEs facing financial insecurity.

Regarding loss-making enterprises, Mr. Long proposed that the authorities should consider the objective and subjective causes leading to the losses of each enterprise and put forward solutions. The managing agencies should also consider the position and role of the enterprise, whether it is still appropriate, whether it needs to hold a monopoly, and whether the enterprise performs political or ordinary business tasks to find suitable solutions.