Articles
New PM Decision Changes Room For Privatization

04 - 05 - 2011
By Bui Ngoc Hong and Nguyen Ngoc Ha*

On 4 March 2011 Vietnam Prime Minister issued Decision No. 14/2011/QD-TTg ("Decision 14"), which from 20 April 2011 replaces Decision No. 38/2007/QD-TTg dated 20 March 2007 ("Decision 38") and provides for the criteria for sectors in which the State owns wholly or majorly.  

Decision 14 keeps the same two categories of sectors: the first category in which the State owns 100% of the total equity; and the second category in which the State owns more than 50% of the total (equitized) shares.  What's new is that Decision 14 has introduced the changes that will affect privatization in the respective sectors.

With respect to the first category, two key changes are introduced.

The first key change is that ‘large scale multi-purpose electricity distribution' is added to the sectors in which the State owns 100%.  This change indicates that the State wishes to continue its monopoly in critical electricity distribution projects. This change also implies that those electricity distribution projects that are not considered ‘large scale multi-purpose' can then be released for privatization.

The second key change to the first category is that the State is to own 100% in enterprises ‘playing major role in business, development strategy; holding the key technology and know-how for which State-owned corporations need to retain 100% ownership so as to implement the tasks assigned to the corporations. This second key change is possibly introduced to limit the number of State owned subsidiaries in strategic areas. However, the vague language of the Decision may lead to loose interpretation that eventually slows down the privatization in these areas.

With respect to the second category, where the State holds more than 50% of the total (equitized) shares, the following six changes will affect the relevant plans for privatization.

First, ‘maintenance of the national railway system' has been narrowed down to only ‘maintenance of the infrastructure of the national railway system'. Second, environnemental sanitation services have been added to allow the State to owns more than 50% of one equitized company's total shares. Third, the annual output capacity of an equitized enterprise in which the State owns more than 50% of the total shares has changed in some sectors:  one company's annual output capacity in electricity production has now increased from 100 MW to 500 MW; and in production of cast iron and steel from 300,000 tons to 500,000 tons (i.e. those having annual capacity lower than these new thresholds can change for a minority State ownership). Fourth, ‘currency trading, insurance' is now replaced by ‘finance, credit, insurance'. And fifth, ‘production of beer above 100 million litres per year' has been removed from the list of the second category, giving way for private sectors to hold as much ownership of the beer industry as they can.

While a majority of the sectors and industries still remain under the firm control of State ownership, the changes by Decision 14 have brought hopes to further privatization in quite a number of sectors.
 
(*) Please contact the authors at hong.bui@indochinecounsel.com and ha.nguyen@indochinecouncel.com  or our partners if you wish to have more information or specific advice for the topic of this article.
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