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Evaluation of the Pilot Conversion of Tct 90-91 into Group Formation


- Vietnam Electricity Group

3.9

3.4

88%

- Post and Telecommunication Group

6.7

6.8

101%

- Coal-Mineral Industry Group

3.5

5.5

155%

- Vietnam Shipbuilding Industry Group

0.7

0.8

117%

- Vietnam Rubber Industry Group

1.5

1.3

88%

- Vietnam Textile and Garment Group

0.223

0.366

164%

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Evaluation of the Pilot Conversion of Tct 90-91 into Group Formation

Source: Government Report

Second, the current situation of using state capital in economic groups.

One is the capital adequacy ratio.

The debt-to-equity ratio of 18 special economic groups and corporations is at an acceptable level (4)

However, there are also businesses that operate mainly on borrowed capital, capital appropriation, unstable financial structure, easy to generate risks in cash flow balance, liabilities are many times higher than equity, low payment capacity affects the stability and development of the business.

Second, debt situation and debt quality.

Total credit institution debt of 7 economic production and business groups as of the end of 2008 increased by 20.5% compared to the end of 2007, accounting for 10% of total credit institution debt for the entire economy, of which medium and long-term debt is the main one (accounting for 85% of total debt).

In addition, the economic groups also issue bonds to credit institutions. The total overdue debt of the 7 economic groups accounts for more than 3% of the total outstanding debt of the economic groups. In particular, the overdue debt of the Vietnam Shipbuilding Industry Group accounts for more than 90% of the total overdue debt.

Third , capital efficiency.

In general, State capital invested in corporations and general companies is preserved and developed. After more than 2 years of piloting the model of economic corporations, the scale of equity capital of economic corporations has increased significantly compared to when they were state corporations. In 2008, equity capital of economic corporations increased by more than 52% compared to


4 In 2006 it was 1.1 times, in 2007 it was 1.2 times, in 2008 it was 1.3 times

2006

Evaluation of the use of state capital in state-owned economic groups and corporations according to the Return on Capital indicator shows that the number of units with a Profit Margin of over 15% in 2008 increased compared to the previous 2 years, while the number of units with a Profit Margin of under 5% decreased, the number of loss-making units was only 3 units (halved).

2.1.3. Evaluation of the pilot conversion of TCT 90-91 into a group

economic group

2.1.3.1. Results achieved

After nearly 3 years of piloting the economic zones, a general assessment of the

The advantages achieved are mainly reflected in the following issues:

Firstly , the scale of equity capital has increased, the total equity capital of the 7 corporations is expected to increase by one and a half times in 2008 compared to the previous 2 years, which has improved the financial capacity of the corporations.

Second , economic groups have expanded their scope of operations, not only focusing on domestic investment but also initially expanding their investment abroad. The brands of many economic groups have also affirmed their solid position in the domestic and international markets. Economic groups are reliable partners for foreign organizations and enterprises that have business relations with Vietnam, and are their top concern when coming to Vietnam to invest in the fields in which economic groups operate.

Research, innovation and application of scientific and technological advances are promoted. The role of directly and closely linking science, technology, training, research and development with production and business is well performed.

Third , the formation of a multi-ownership structure in economic groups contributes to mobilizing resources from economic sectors into the production and business of the groups. Nearly 50% of the member companies of the groups have been equitized, together with newly established joint stock companies, creating more than 400 joint stock companies in the groups, which are a channel for mobilizing capital from many economic sectors, participating in the production and business activities of economic groups.

Fourthly , economic groups together with state corporations continue to play a leading role, ensuring the supply of essential materials, products, goods and services for the economy, creating a large source of revenue for the state budget, contributing to economic growth, and helping to ensure the state's macroeconomic regulation. Especially during the difficult period since early 2008, economic groups and state corporations have taken the lead in finding solutions to carry out the Government's tasks of curbing inflation, maintaining macroeconomic stability, preventing economic recession, and ensuring social security. Economic groups have initially demonstrated their role as a tool for the Government to regulate the economy.

Fifth , the economic groups participate in charity work well, contributing to ensuring social security such as creating many jobs, making charitable contributions, implementing the movement of gratitude, and successfully implementing the Party and Government's policy of hunger eradication and poverty reduction.

2.1.3.2. Limitations

Firstly, the equity capital of corporations is still too small compared to the requirements of development and integration.

Although the size of the equity capital of economic groups has increased significantly compared to before, it is still very small compared to economic groups in other countries in the world. The total equity capital of economic groups in 2008 increased by one and a half times compared to the previous two years, but only reached more than 300 trillion VND, equivalent to about 20 billion USD. However, the equity capital of each group is still too small compared to the groups in the region and internationally. The Oil and Gas Group has the largest equity capital, accounting for more than 45% of the total equity capital of the groups, but only reached nearly 145 trillion VND. The equity capital of the two Oil and Gas Groups and the Electricity Group alone accounts for nearly 70% of the total equity capital of all economic groups. That limits the competitiveness of many groups in the trend of international economic integration.

Second, the performance of economic groups is not yet commensurate with the invested resources, and many goals set for the groups have not yet been achieved.

Operational efficiency is not high, there is still waste in investment, typically in the efficiency of capital use, slow completion of key investment projects. There are also member units of the Economic Group operating at a loss (in 2007, the Economic Group had a total of 8 member units operating at a loss).

The total investment of large economic groups with total assets of nearly 700 trillion VND, while the total revenue of 7 economic groups in 2008 reached more than 500 trillion VND. This revenue compared to total assets is not proportional when compared to large corporations in the world (In 2007, Wal-Mart had assets of 163,514 billion USD, revenue of 378,799 billion USD; Exxol Mibil had total assets of 242,082 billion USD, revenue of 372,824 billion USD; Royal Dutch Shell had total assets of 269,470 billion USD, revenue of 355,782 billion USD; BP had total assets of 236,076 billion USD, revenue of 291,438 billion USD).

Some corporations have not achieved their main goals and have not done well in management. Investment activities of economic corporations are still scattered, lacking focus, ineffective, slow to recover capital, and lacking in expertise.

The goal of developing multi-industry and multi-sector corporations has been implemented incorrectly. Many corporations have invested in fields that are completely different from their main business lines, causing the very small capital resources of the corporations to be dispersed. In particular, many corporations have invested in risky fields such as securities, real estate and specialized fields such as banking and insurance, with a very high ratio compared to the total investment capital of the parent company.

Third , the organizational model for managing economic groups has not been clearly defined.

There are still many confusions in determining the organizational model for managing economic groups. Groups as well as state corporations have many management units. However, the management of groups is not strict. There is no clear distinction, there is still overlap and dispersion of responsibilities in dividing the function of representing the owner among state management agencies for economic groups. There is deep intervention of state management agencies in the activities of groups (the strategic business goals of the group: the Government approves, the sector management ministry directs the implementation, the Ministry of Planning and Investment supervises the implementation). There is a task of loosening management (checking and supervising the financial activities of the group).

Fourth, the production and business management organization model and the internal management mechanism of the group are not clearly defined.

The internal management mechanism of the group still has many shortcomings. The organization and operation charter of the groups is slow to be approved, making the legal framework for the group's operations inherently lacking, untimely, inconsistent, and inconsistent. The financial mechanism within the group still has many shortcomings. Investment capital overlaps between the parent company, subsidiaries, and grandchildren. Internal accounting of the group still has many shortcomings. The regulatory and controlling role of the group through the parent company still has many limitations.

2.1.3.3. Causes

- The financial management mechanism for economic groups is still confusing. Currently, some groups do not have Financial Regulations. Some Financial Regulations are not issued by a single agency, the Ministry of Finance. There is no mechanism to closely inspect and monitor the financial activities of groups.

- The Group takes the parent company's management apparatus as the task and function of managing the Group. Partly due to previous administrative management habits, partly due to the management capacity of the staff not meeting the requirements, the effectiveness of the Group's management work is still limited. The assignment of representatives of the parent company's state capital at the subsidiaries is not really appropriate (some representatives at many subsidiaries, some concurrently hold leadership positions of the Group...), leading to inefficiency, the capacity of the representatives not meeting the requirements and assigned tasks.

- The mechanism of personnel management, assignment, decentralization of salary and bonus management, separation between state management and state capital management, for economic groups, is still implemented according to current regulations. The management of production and business activities according to the market mechanism is not really complete, especially the accounting and pricing mechanism.

- The governance in economic groups is still heavily influenced by the previous SOE mechanism. In economic groups, there are still member units organized and operating under the Law on State Enterprises, which is not in accordance with regulations.

In terms of form, parent company - subsidiaries are member units that switch to operating

operate under the Law on Enterprises.

- There are some cases where the subsidiary invests back into the parent company, the parent company contributes controlling capital to the subsidiary companies, making the investment relationship complicated and overlapping. There are cases where the subsidiary has to bear the parent company's ineffective investments, leading to the risk of loss and bankruptcy of the subsidiary.

- The state administrative management function has not been separated from the state ownership management function for economic groups. In the long term, if this management measure is continued, it will cause disadvantages for both economic groups and the State in the face of pressure from implementing WTO commitments.

- The management level of staff has not kept up with new management requirements: either direct intervention according to previous administrative habits, or lax management of their capital in member companies.

These are necessary issues that need to be innovated through improving state management of economic groups.

2.2. Current state management of Corporation 90-91 towards forming economic groups

In practice, state management of Corporations 90-91 in the direction of forming economic corporations focuses on the following main contents:

- Issue a system of legal documents, regulations and regimes to create a legal environment for 90-91 corporations to form and develop into economic groups.

- Manage the development process of converting 90-91 corporations into economic groups.

- Manage organizational and personnel issues.

- Inspection and control work.

2.2.1. Promulgate a system of legal documents related to Corporations 90-91 and economic groups converted from Corporations 90-91.

Implementing innovation in accordance with the market mechanism, since the early 90s of the 20th century, state management of enterprises including the 90-

91 has made important developments. This is firstly demonstrated through the State's promulgation of legal documents regulating business activities. The main documents can be summarized as follows:

- Directive No. 316/CT dated September 1, 1990 of the Chairman of the Council of Ministers (now the Government) on the pilot project of granting the right to use and responsibility for preserving capital to State-owned enterprises (SOEs).

- Directive No. 138/CT dated April 25, 1991 of the Central Committee of the Communist Party of Vietnam on expanding the right to use and responsibility for protecting production and business capital for state-owned enterprises.

- Decree No. 332/H§BT dated October 23, 1991 on capital preservation and business capital development in state-owned enterprises.

The above documents have affirmed the State's viewpoint on granting autonomy to SOEs. Enterprises have the responsibility to manage, effectively use, preserve and develop the capital assigned by the State. At the same time, eliminate State intervention in business activities of enterprises, separate the State management function and the function of representing State ownership of capital and assets in enterprises; Create a favorable, open and equitable business environment for enterprises of all economic sectors while strengthening State supervision and guidance on business activities.

In order to meet the requirements of the reform process, the Government, together with ministries and functional agencies, has issued many legal documents to create a legal basis for the State management mechanism as well as the operating mechanism of state-owned enterprises. The key important legal documents include:

- Decree 388/H§BT, dated November 20, 1991 of the Board of Directors (Board of Directors) on the establishment and dissolution of state-owned enterprises.

- Decision 90/TTg, dated March 7, 1994 of the Prime Minister on continuing the restructuring of State-owned enterprises.

- Decision 91/TTg, dated March 7, 1994 of the Prime Minister on the pilot project

Business Group establishment point.

- Directive 272/TTg, dated May 3, 1995, issued by the Prime Minister on the urgent task of completing the organization and rearrangement of the Unions and Corporations.

- Decree 39/CP, dated June 27, 1995 of the Prime Minister on the Charter of organization and operation of State-owned corporations.

- Directive 500/TTg, dated August 25, 1995, issued by the Prime Minister on developing a comprehensive plan for restructuring state-owned enterprises in each industry and each locality.

- On April 20, 1995, the National Assembly passed the Law on State-owned Enterprises.

- Directive 573/TTg, dated August 23, 1996 of the Prime Minister on the creation of

Conditions for the Corporations to decide to establish and soon come into operation

Definition.

- Decision 838 TC/Q§/TCDN, dated August 28, 1996 of the Ministry of Finance on promulgating the model financial regulations for State-owned corporations.

- Decree 59CP dated October 3, 1996 of the Government promulgating the Regulation on management and business accounting for State-owned enterprises.

- Directive 20/1998/CT-TTg, dated May 26, 1999 of the Prime Minister on strengthening, reorganizing, innovating the management of State-owned enterprises, shareholders and perfecting the Corporations.

- Directive 15/1999/CT-TTg, dated May 26, 1999, issued by the Prime Minister on improving the organization and operation of State-owned corporations.

- Circular 66/1999/TT-BTC, dated June 7, 1999 of the Ministry of Finance on guidance on the development and amendment of the Financial Regulations of State-owned Corporations.

- In 2003, the National Assembly passed the amended Law on State-owned Enterprises (referred to as the 2003 Law on State-owned Enterprises).

- Decree 153/2004/ND-CP dated December 3, 2004 of the Government promulgating the Regulation on financial management of state-owned enterprises and management of state capital invested in other enterprises.

- In 2005, the National Assembly passed the Enterprise Law.

- Decree 111/2007/ND-CP dated June 26, 2007 of the Government on organization and management of state corporations and conversion of state corporations, independent state-owned companies, and parent companies into state-owned companies in the form of parent companies - subsidiaries operating in the same form.

according to the law of enterprises

- Decree No. 101/2009/ND-CP dated November 5, 2009 of the Government on pilot

establishment, organization, operation and management of state economic groups.

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