Haiphong breaks ranks with auction of state enterprises HANOI - The northern port city of Haiphong is to auction more than 20 state-owned enterprises (SOEs), adopting a fundamental mechanism of the free market in an effort to bypass difficulties in assessing the true value of SOEs. The plan is seen as having significant potential to speed-up the process of privatising Vietnam's moribund state-sector, which is burdened with more than US$14 billion in debt, and if successful the Haiphong pilot project could be adopted nationally. The auction is slated to take place next month. It is part of a project, supported by the World Bank and the Australian Government, which aims to privatise 60 Haiphong-based SOEs, worth between US$60,000 and US$200,000, before the end of the year. Pham Vu Cau, deputy head of the Haiphong Business Renovation Board, said the companies involved in the first round of bidding included trading, engineering and construction firms and food and seafood processors. He said the auction would involve both the outright sale of SOEs and bidding for leases of as yet to be determined duration. "Vietnamese experts and specialists from the International Finance Corporation who studied privatisation of companies in central and eastern Europe agree that auctioning of SOE's provides the best results," he said. The bidding process allowed the market to determine the company's true value while sidestepping existing complicated and contentious valuation procedures, he added. Bidding will be restricted to Vietnamese individuals and legal entities only, and it remains unclear whether the subsequent buyers will be allowed to enter into post-purchase joint-ventures with foreign companies. According to World Bank estimates, Vietnam's state-sector still produces close to half of the country's gross domestic product. Despite adopting policies towards a market economy nearly 15 years ago, domestic private enterprise accounts for just 7 per cent of GDP, with foreign invested private enterprise contributing 10 per cent with the remainder coming from family-managed and staffed small business. But Vice-minister for Finance Tran Van Ta told a recent conference in Hanoi that only 40 per cent of SOEs were making a profit and that the sector was bloated, with more than 25,000 unproductive workers, whose wages exceeded US$20 million per annum. "More than 60 per cent of SOE directors can not read a balance sheet. "This is clearly unacceptable," he said. Inefficiency had been exacerbated by redundant technology and poor planning, which saw multiple loss-making SOEs continue to operate within the same market sector. Equitisation - the Vietnamese term for partial or full privatisation of SOE's - has progressed much slower than originally planned, but Hanoi has vowed to reinvigorate the process, reducing the number of SOEs from the present 5,280 to 3,000 in the next three years, and to 2,000 by 2005. By Huw Watkin - The South China Morning Post - May 25, 2000.