Lao PM: Embezzlement, lax management key to losses by state enterprises

Prime Minister Phankham Viphavanh tells the National Assembly that nepotism dominates many state enterprises. - VT

VIENTIANE (Vientiane Times/Asia News Network): Embezzlement by executives and staff, combined with poor management, are the main reasons for the chronic losses suffered by state enterprises, the Prime Minister has told the National Assembly (NA).

Premier Phankham Viphavanh said the government is now engaged in comprehensive reform of these enterprises, hoping to put an end to the state’s burdensome subsidy of their operations.

The state owns 178 enterprises, nearly all of which have recorded losses over many years.

“There are very few state enterprises that make a profit,” the PM told lawmakers last week in response to questions raised at the ongoing 3rd Ordinary Session of the Assembly’s 9th legislature.

State enterprises should be the drivers of the nation’s economy, but instead they have become a heavy burden, he added. Enterprises that are fully state-owned hardly ever make profit and have had to be heavily subsidised in order to sustain them.

Administration of these enterprises typically did not follow a sound business plan. In addition, the recruitment of executives and staff was largely based on nepotism, with these factors being the main reason for deep-seated management failure.

Companies that were thought likely to generate (remarkable) revenue through the participation of their children or other relatives provided the main source of recruitment, the prime minister told the televised broadcast of the session, referring to the children and relatives of influential individuals.

In some cases, the management of state enterprises invented projects and allocated budgets for them, but put the money in their own pockets.

The prime minister admitted that these issues had arisen because of neglect on the part of the government.

However, the government has embarked on a deep reform of the enterprises it owns, pledging to no longer tolerate damaging practices.

Under the reform programme, the government will retain full ownership of enterprises of extreme strategic importance. It will sell stakes of various sizes in other enterprises to private investors, depending on their importance.

Under the reform agenda, two banks that were previously state-owned and suffered chronic losses have begun to turn a profit after the government sold a 70 percent stake in the banks to local investors.

Since being restructured in October last year, by the end of December the Lao Development Bank had generated a profit of 87.91 billion kip. The bank has also paid 58.85 billion kip to the government in fees and taxes.

In addition, the Agriculture Promotion Bank had turned a profit of 7.56 billion kip as of the end of May this year, after restructuring began in December.

The top executive posts of these joint venture businesses are held by individuals who have a large stake in the banks, with the management system based on accepted business models.

PM Phankham said civil-servant-like officials who previously headed up state enterprises could no longer do whatever they wanted as was the case before the joint ventures were formed.

Under the reform programme, the government has also sold a 51 percent in the Lao State Postal Enterprise, according to a report from the Ministry of Finance.

Meanwhile, the sale of a 49 per cent stake in the Lao Logistics State Enterprise and MSIG Insurance (Lao) Co., Ltd. is currently being processed.

Given its significant importance, the government will retain full ownership of Electricite du Laos, but comprehensive reform will be undertaken.

The government will retain at least a 51 percent stake in Lao Airlines, the Agro-industrial Development Company, Lao Export-Import Trading Company, and the Lao State Fuel Enterprise. EDL-Generation Public Company will remain a public company, but comprehensive reform will be carried out, according to the finance ministry.

The state-owned Inter Lao Tourism has been dissolved and two others - DAFI and the Lao Cotton State Enterprise - will also be disbanded after being considered incapable of reform for efficient operation.