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Economy

Scandals at Petrovietnam highlight Vietnam's reform headaches

State-owned enterprises reassert their dominance as TPP talks stall

For decades, Petrovietnam has enjoyed an effective monopoly on fuel retailing in Vietnam.   © Reuters

HANOI Vietnam currently has the highest level of economic growth in the Association of Southeast Asian Nations, but efforts to reform state-owned enterprises -- a key to further expansion -- seem to be going nowhere.

Moreover, scandals that have beset the country's largest SOE expose just how much further there is to go. Also, many see these scandals as little more than political witch hunts.

On Sept. 29, the former chairman of Petrovietnam, Nguyen Xuan Son, was sentenced to death for embezzlement and other wrongdoing. Petrovietnam, or PVN, is the largest state-owned company in the communist state and widely seen as a steppingstone to a top government position. Son's downfall was followed by another former PVN executive, Tong Quoc Truong, abruptly resigning from the post of CEO of Vietnam Lottery Co. in October, amid rumors he was connected to the scandal.

At this point, the arrests linked to the scandal seemed to be developing a common theme -- everyone involved was a close ally of former Prime Minister Nguyen Tan Dung, who was ousted in 2016.

In August, Trinh Xuan Thanh, the former chairman of PVN affiliate PetroVietnam Construction, allegedly handed himself in to police in Hanoi, having previously fled to Germany while facing charges of mismanagement leading to losses of $150 million. The German government claimed Vietnamese intelligence had kidnapped Thanh in Berlin. Although it is unclear whether Berlin's assertion is correct, the incident remains a pending issue for the two governments.

In May, Dinh La Thang, former chairman of PVN and a previous boss of Thanh's, was forced out of the key post of Ho Chi Minh City's party secretary. He was also removed from the Communist Party Politburo -- a rare instance of a member of the country's highest decision-making body being punished.

Dung had pushed for large-scale investment projects, including the construction of nuclear power plants and high-speed railways, and succeeded in bringing foreign companies like Samsung Electronics to Vietnam. These moves helped to put the country's economy on a growth track. He also showed a willingness to push reforms. Dung had been expected to become the first party general secretary hailing from the south of the country, but his excessively firm leadership did not sit well with top party leaders, leading to his downfall.

"If these people of the Dung group, who are rumored to control behind the scenes, can be removed under the pretext of wiping out corruption, it benefits the old-guard cronies who want to secure their vested interests" of the company, said a senior official of a Vietnamese company doing business with PVN.

REFILLING A VOID State-owned companies are hotbeds of vested interests in Vietnam, and their earnings function as a "second budget." With decisions on investment, internal reserves and other matters in the hands of executives, they are a juicy source of benefits as well as dividends for the government and a breeding ground for corruption.

A local newspaper estimates that the government earns 140 trillion to 200 trillion dong ($6.16 billion to $8.80 billion) in dividends from about 650 SOEs every year. Vietnam Dairy Products, or Vinamilk, alone contributes $87 million of this.

Former Petrovietnam Chairman Nguyen Xuan Son, center, is escorted to court in Hanoi on Sept. 29.   © Reuters

PVN is considered the top player among Vietnam's state-owned companies. It raked in 471 trillion dong in sales in 2016, paying taxes worth 89 trillion dong .

The scandals surrounding PVN started to erupt around the time U.S. President Donald Trump announced America's departure from the Trans-Pacific Partnership in January, leading to speculation that it had created a chance for vested interests to reassert themselves.

In exchange for TPP membership, Vietnam had pledged to overhaul its SOEs that obstruct fair competition. Now, however, the country's priority is to sign a bilateral pact with the U.S. to expand trade, apparently damping enthusiasm to tackle a fundamental overhaul of the state-owned sector.

The slowdown in reform has been seen at various companies. Vietnam was a strong TPP advocate, announcing in September 2016 that it would sell government shareholdings in 12 profit-making SOEs such as Vinamilk and Saigon Beer Alcohol Beverage, or Sabeco. It was rumored that U.S. pressure was behind the decision to privatize. But so far, little or no progress has been made.

Since the end of the Vietnam War in 1975, Vietnam has implemented economic reforms under the slogan of Doi Moi, including the introduction of market mechanisms and foreign capital into the country. It joined the World Trade Organization in 2007, and has proceeded with free trade policies, including pacts with Japan and South Korea.

As a result, Vietnam has boasted a 6.7% growth rate for 2017 -- the highest level among ASEAN members. The country's active stance toward the TPP was meant to maintain this growth momentum.

The U.S. leaving the TPP may have dampened enthusiasm for reform, but scandals on the scale of what has happened at PVN show the problem is far more deep-rooted.

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