In a supervisory report, the NA Economic Committee affirmed that over the past years State economic groups and corporations have played an important role in national socio-economic development. Many of them have made profits and achieved annual growth, but varied in rates.

By December 2008, 91 State economic groups and corporations, capitalised at VND1,241 trillion, contributed nearly 40 percent of the country’s GDP and took the lead in generating jobs and ensuring social welfare. Many of them, such as the Vietnam National Oil and Gas Group (PetroVietnam), the Vietnam National Petroleum Corporation (Petrolimex) and the Electricity of Vietnam Group (EVN) helped the government stabilise and regulate domestic market prices.

Equity capital in these groups and corporations increased by 46.5 percent for the past three years, reaching VND485.65 trillion in late 2008. The increase was attributed to their additional post-tax profit and overcapitalisation. Overall, the State poured a great deal of money into its economic groups and corporations, helping them expand business and production.

The State Capital Investment Corporation (SCIC) is a case in point. Its revenue increased from VND144 billion in 2006 to VND1,272 billion in 2007 and VND2,204 billion in 2008. Its pre-tax profit also increased from VND119 billion to VND1,150 billion and VND1,301 billion respectively.

Most groups and corporations with their equity capital exceeding VND100 billion operated efficiently as their return on equity (ROE) was above 12 percent on average. However, up to 45 percent of the businesses had their ROE of less than 10 percent and nearly 7 percent of them made a loss, affecting the State economic sector’s operation.

The NA Standing Committee proposed finalising policies on the management and use of State capital and property in economic groups and corporations. It said that the legislature should issue a bill on State capital use as soon as possible to manage the State capital distributed to enterprises in different economic sectors.

Deputy Ma Dien Cu said the SCIC model is testimony to a major change in Vietnam’s business management. This means administrative and business agencies would no longer intervene in business activities, but through a representative of the business in line with the Enterprise Law and the market regulations.

He pointed to the fact that as State economic groups and corporations enjoy privileges of exploiting natural resources such as petrol, oil electricity and coal, they create a monopoly in market prices and services, causing difficulties to consumers.

In addition, these businesses, which rely mostly on bank loans, invested in high risk areas beyond their known capabilities. No one knows exactly how efficiently they operated, as their profits were not made public every year.

Deputy Cu proposed that the government set up a special agency to oversee and publicise the operations of these groups and corporations. He said the government should issue a decree on the management of State capital investment. According to the deputy, each business must focus on its main line of operation before expanding to other areas of activity no matter how they are related to its development plan.

Deputy Nguyen Thi Hong Ha said the SCIC model is a key factor behind the equitisation of the State owned enterprises (SOEs). However, the model revealed its weaknesses in its operation. After transforming their ownership, State businesses will transfer their State capital to the SCIC for management. As a result, the provincial People’s Committees will no longer be responsible for managing capital and personnel in these businesses, posing difficulties in managing and using local property.

The deputy said the SCIC should be regarded as a historical model which temporarily exists in the process of transforming SOEs. She recommended that similar SCICs will be established in Hanoi, Ho Chi Minh City and at the regional level to boost local development.

She also proposed that the government review the transformation of SOEs to make clear the role of the existing parent & subsidiary and group models.

Deputy Tran Du Lich echoed Ms Ha, saying the government should establish several capital investment companies instead of the only one like the SCIC at present. He said Vietnam should have a bill on State capital investment and management, citing the fact that on July 1, 2010, the State Enterprise Law will expire and all businesses will operate in line with the unified Enterprise Law.

Only when such a bill is issued, will the State capital be managed and used efficiently, Mr Lich stressed.