Law change sees SOEs braced for radical shake-up

The changes will bring Electricity of Vietnam, just one of the nation’s thousands of SOEs, into line with today’s economic environment.

From next July, a state-owned enterprise (SOE) will be defined as a company whose chartered or share capital comes either in part or in full from the state.
“The 1995 SOE Law was designed to regulate wholly-state-invested firms, but these latest amendments allow a diversification of investment sources, from the state and the non-state sectors both at home and abroad,” said Le Tuan Anh, a consultant from the law firm Vision & Associates.
“The focal point of these amendments is the re-conceptualisation of SOEs. They can now be wholly, partially or mostly state-invested.”
“The second point is who has ownership of an SOE,” Anh said. Under the amended law, SOEs will be able to operate as state-owned, joint-stock or limited-liability companies.
In another change agreed last week, the National Assembly Standing Committee has approved a transitional scheme to separate the managerial role of ministries and provincial peoples’ committees by establishing a state corporation to invest and trade state capital in the restructured SOEs.
Anh said the managerial mechanism was a legacy of the centrally-planned economy, and was now ineffective because officials were managing the state and state capital and assets at the same time.
“The purpose of an SOE is that it allows the government to invest and reap profits as in other business sectors, instead of granting or allocating capital.”
The amendments bring the the country’s 5,200 SOEs more in line with the current economic environment.
Anh said that in principle, one of the intentions of the amendments was to unify the SOE and Enterprise Laws to create a level playing field for enterprises from every sector.
“However, international practice shows there is usually a separate law to regulate state management of state-invested companies and companies in socially-oriented sectors like health and education.”
“During the transition process [from a centrally-planned to market economy], when the non-state sector has yet to develop fully, the large number of existing SOEs and the social need for their existence and development, makes an SOE law necessary.
“The current SOE restructuring measures aim to attract more investment capital, rather than sending more companies down the privatisation road.”
Directors of the Central Institute of Economic Management, Dinh Van An, said the 1995 SOE Law had been adjusted to draw a clear line between the role
of the government as the company owner and manager, to gradually bring SOEs to the same level as companies from other economic sectors, and to help prevent a state monopoly from becoming corporate monopoly.
Some experts have said pushing ahead with the development of the non-state sector would put SOEs under great pressure to change and that this was a more practical way of transforming SOEs given their activities were already highly regulated.
Anh said it was not clear this cause-effect relationship existed.
Some observers are concerned the amended SOE law allows for too many different forms of SOEs: independent companies, state corporations, joint stock companies, one or two-member state limited liability companies and overseas state companies.
“Under these regulations, it is difficult for the government to avoid the role of investor; that role will be strengthened instead,” said Cao Ba Khoat, a member of the Enterprise Law Implementation Task Force.
The corporate sector is managed by three laws: the Enterprise Law, the State-owned Enterprise Law and the Foreign Investment Law. Many legal experts believe it is feasible for the Enterprise Law to be adjusted to cover all economic entities.
The secretary of the Enterprise Law task force, Nguyen Dinh Cung, said: “If we hold the view that laws should focus on defining the legal status of a business in a certain form and not on its ownership rights, the existing Enterprise Law can be applied to state-owned enterprises.
“What matters is whether we apply it or not since, once it is being implemented, relations between the concerned state agencies and businesses will be basically changed. Separation of ownership and management rights leads to power shifts and a revision of interests.
“Some mention 2004 or 2007 as a deadline for unifying the Enterprise and SOE laws, but this ignores the fact that the SOEs Law is now amended.
“One more feasible direction, is that foreign-invested enterprises (FIEs) and domestic ones could come under the same law. Presently, FIEs are regulated by the Foreign Investment Law.
“In my opinion, 2005 will be the year we expand the coverage of the Enterprise Law to FIEs, which also fits with Vietnam’s attempt to enter the World Trade Organisation and the Vietnam-US Bilateral Trade Agreement.”