Land, State Capital Issues at Equitized Enterprises in City

Equitization of state-owned enterprises (SOEs) in Ho Chi Minh city over the past 16 years has brought about good results. Sales, capital and wages have all increased. However, there remain some problems related to the use of land, houses and factories.

Refrigeration Electrical Engineering Corporation (REE), one of the successful equitized companies

Many SOEs now have management mechanisms that are more dynamic, more independent and more responsible. Thirty-four SOE wrongfully used 11 hectares of land, according to an examination by the city conducted at the end of 2007. Most of them used rents fixed by the government to calculate the value of land use rights and then include that value in the capital of the enterprise.

The state-fixed rent is lower than the market rent. Some companies take advantage of this difference by renting land from the state at a fixed rate and then subleasing at a market rent. The question here is: “Which account is money earned in this way put into?”

According to the Law on Enterprises, joint stock companies have the right to use their assets, including premises and factories. But according to the city, land leases of these companies indicate that the land - on which the premises and factories are situated - may not be subleased. The city also bans “joint stock companies from subleasing of premises and factories that have been handed over to them.”

According to regulations, equitized SOEs must use land and premises for the purposes indicated in their business registration. They must not sublease land and premises or leave them unused. However, no violation of this regulation has been punished so far.

Another problem is that some joint stock companies do not comply with regulations on shares owned by the state, causing a reduction of state capital in the total capital of those companies.  Specifically, sale or purchase of state-owned shares have not reported to or got approval from the city authorities. Many companies do not make regular reports on the increase or reduction of state capital.

A recent examination by the city showed that the state capital and the capital contributions by employees at equitized SOEs have declined by 3 percent and 8.3 percent respectively. Meanwhile, capital owned by outsiders has risen by 11.3 percent.

To cope with the above-mentioned problems, the city has proposed the central government adjust rent on the basis of market prices and apply those rates to companies that rent state-owned land. Allocation of land to equitized SOEs should be applied instead to leasing land to them. At the same time, market prices must be used in calculation of the value of the land use right.

The city also proposes regulations on treatment to equitzed SOEs that use land improperly, causing losses and waste.

By Tran Toan – Translated by Truc Thinh

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