Divestment a fertile ground for corruption, Vietnamese inspectors find

The Vietnamese state has been pushing hard for accelerated divestment from state-owned enterprises (SOEs), but a significant part of the earnings from this process are being diverted to personal pockets instead of the state budget, officials say.

Inspectors with the National Assembly, Vietnam’s legislative body, say the state divested from 571 companies in the 2011-2016 period. 

While tangible benefits have been seen in terms of assets and revenue appreciation at the equitized firms, as well as in increased incomes for workers, the process has been riddled with corruption, the inspectors add.

Equitization is the term Vietnam uses to describe the process of issuing shares to partially privatize state-owned businesses, with the government continuing to hold a majority stake in many.

By the end of 2015, SOEs had divested to the tune of nearly VND10 trillion ($438 million) and the process contributed more than VND11 trillion to the state budget, inspectors told a meeting in Hanoi on Monday.

However, the practice of dodging to law for personal profit was rife, causing losses to the state budget, they said.

In most cases, the SOEs significantly undervalued their shares and land values and then struck under-the-table deals with investors to get commissions, the inspectors said.  The loser, in each instance, was the state budget, they added.

Citing examples, they said that while Vietnam Cable Television, VTVcab and Saigontourist Cable Television Company (SCTV) were found to lower their asset values, Vinaconex Transportation Joint Stock Company did not include one of its land lots in Ho Chi Minh City in the assets listed for for equitization.

Meanwhile, some other SOEs like the Vietnam Oil and Gas Group (PVN) and Thang Long Tobacco Company did not immediately transfer the funds raised through equitization to the State Capital Investment Corporation (SCIC), as regulated.  Instead, they held on to the funds and used them their own purposes.

Inspectors also found that several SOEs had sold parts of their subsidiaries before they were equitized, and only transferred capital raised from equitization of the remaining part.

The firms that engaged in this ruse include the Vietnam Vegetable Oils Industry Corporation, Vietnam Seaproducts Joint Stock Corporation, and Vietnam Electrical Equipment Joint Stock Corporation.

Vietnam’s policymakers have framed divestment from SOEs as a means to both increase fiscal revenue and reduce government expenditure, London-based lender HSBC had said in a report in August last year.

In 2016, Prime Minister Nguyen Xuan Phuc signed a decision pushing for further divestment of state’s capital in existing SOEs by eliminating or reducing the minimum level of ownership that the government had to hold in certain industries.

The decision also provided a clearer roadmap for equitization, saying the state will equitize 137 SOEs and sell its entire stake in 103 firms.

The Ministry of Finance said in June last year that the country’s public debt, which includes central government debt, government-backed loans and local government debt, may reach the ceiling set by the NA for 2017-2018 at 65 percent of gross domestic product (GDP).

By the end of last year, public debt accounted for 61.3 percent of the nation’s GDP, which expanded by 6.8 percent last year, the highest rate to be recorded in Vietnam since 2007.

According to HSBC, the number of SOEs dropped by 1,538 between 2003 and 2008, but only by 312 over the next five years.

 “The low hanging fruit of earlier reforms had already facilitated the sale (or closure) of most small loss-making SOEs while many remaining companies are much larger with more complex ownership and management structures, with sometimes unclear financial and debt obligations,” the bank said.

Official government data shows the country had 718 operational SOEs as of late 2016, compared to 6,000 in 2001.