For what purpose?

Mr Bui Kien Thanh, senior independent finance expert, tells sees a number of issues with plans to inject funds into state-owned economic groups.

The State has decided to allocate VND5,200 billion ($260 million) to five state-owned economic groups, of which VND3,500 billion ($175 million) is going to PetroVietnam. What are your thoughts on the decision?

It raises a number of serious questions. Is the State allocating the money to state-owned economic groups for their production and business activities or to compensate for their losses? As we all know, not every state-owned economic group generates profits. If the money is being used to compensate for their losses then it should be made clear how much they lost and how much they need as compensation and why. Let’s take one example. If this money is being used to compensate for losses at Vinashin and its affiliates, then the sum is negligible. So the National Assembly should carefully consider the status of each state-owned economic group or even each project, and why the allocations are needed.

With regard to PetroVietnam, it is a state-owned enterprise but this legal status seems to be ignored and the group is considered as just a “cash cow”. PetroVietnam exploits the country’s natural resources for the benefit of the national economy but almost all of its revenues are taken by the State. In the first nine months of this year PetroVietnam earned $6.54 billion from exports, or 14 per cent of the country’s total, and VND95,200 billion ($4.760 billion) has been transferred to the State budget.

The State should have facilitated PetroVietnam’s long term development and profit generating capacity and imposed taxes on their profits instead of taking over almost all of their revenue. Under the Corporate Law, PetroVietnam is a one-member state-owned limited liability company, so its business operation should be subject to the Corporate Law like others.

In terms of its investment in the first nine months, PetroVietnam poured nearly VND54,000 billion ($2.7 billion) into 19 existing projects and 25 projects now under implementation. It also signed seven new oil contracts with foreign partners (six in Vietnam and one overseas). It is clear, then, that giving it VND3,500 billion ($175 million) for business development is inadequate.

In the medium and long term, according to oil-related international organisations, Vietnam’s oil output will fall from 400,000 barrels/day in 2010 to 325,000 barrels/day in 2019, while oil requirements will increase 68 per cent to 625,000 barrels/day in 2019.

In order to ensure national energy security, PetroVietnam should expand its petroleum production both inside and outside of the country. For the purpose of ensuring both energy security and defence security, the State should not milk PetroVietnam to the limit. The country’s natural resources should be re-invested, not spent on short-term use in the State budget.

Vietnam is now the third largest petroleum producing country in Southeast Asia, with crude oil output of between 15 million and 17 million tons a year and gas output of between 8 billion cubic metres and 10 billion cubic metres. The government should work out an appropriate fiscal policy and respect the power of the National Assembly relating to the State budget. Imagine if the government did not put PetroVietnam’s revenues from production and exploitation of natural resources into the State budget. The budget deficit would be much greater and nowhere near the figure approved by the National Assembly.

Dr Tran Du Lich, a National Assembly delegate for Ho Chi Minh City, once said that “the people have allocated the government capital of up to $30 billion, not to mention 365,000 hectares of land, to do business.” With such a huge amount of money do you agree that there should be a law to supervise the management of this State capital source?

When you pour such a large amount of people’s money and other resources into state-owned economic groups, of course you need to fully supervise how the money will be used and whether it will be used effectively, to ensure that corruption does not take place. But in my opinion it is not necessary to have another law; we can use existing laws for supervision. More important is the unfailing determination of State supervisory agencies. The National Assembly should also upgrade the competence of its personnel and seek resolute and effective supervision before thinking about creating a new law.- VnEconomy

Tags: PetroVietnam