Mining Industry of Vietnam

1. Mining Industry with SOE Equitization in Vietnam
By: Oliver Massmann
Vietnam has a huge potential for developing the mining industry since Vietnam is one of the
fastest-growing and most stable markets in Asia in relation to execution, construction and
mining. During the recent years, the exploitation of solid minerals and fossil coal has grown
rapidly while Vietnam has very rich reserves of bauxite, gold, vonfram and rare earth
elements which are yet to be widely exploited. The mining industry in Vietnam plays a very
important role in this country’s economy as mineral trade accounts for a large share of the
country’s overall trade, between 11% and 15% of the gross domestic product. This industry
now is exploiting about 38 kinds of minerals used for production of more than 54
commodities.
With respect to regulatory framework, Vietnam promulgated a new Law on Minerals in 2010
which took effect on 1 July 2011 and later issued the Decree 15/2012/ND-CP in March 2012
effect from late April 2012 to guide the implementation of this Law. In December 2011,
Vietnam also adopted a new Minerals Strategy for the period 2011 to 2020 with the target of
economical, effective and sustainable management, protection and exploitation of minerals to
harmonize with this country’s modernization and industrialization. The passing of regulatory
framework on Mining industry have brought the interest to foreign investors and the
multinational mining groups and also the assurance in the long-term prospective development
of Vietnam in this industry.
At present, the mining industry of Vietnam is being dominated by Vinacomin, the State-
owned Coal & Minerals Industries Corporation playing the key role in two main divisions –
coal and minerals. Back to its’ history, Vinacomin was founded by the basis of a merge of the
Vietnam Coal Corporation and the Vietnam Mineral Corporation in 2005. Vinacomin now
accounts for about 95% of Vietnam’s coal production with 54 operating mines of which
underground 30 mines. Meanwhile this industry also witness the involvement of another
State-owned company, Vinachem - Vietnam Chemical National Corporation which operates
in the exploitations of phosphate rock.
Recently, Vietnam has to urgently boost the equitization (privatization) process of state-
owned enterprises (SOE) due to the Government’s restructure on the economy toward more
effective and sustainable development and the inefficient operation of those SOEs which hold
70% of the total real property in Vietnam’s economy but just account for 20% of investment

2. capital throughout society, and notably those SOEs devour a 60% credit in the commercial
banking system, 50% of state investment capital and 70% of official development aid capital.
As outlined above, the SOEs have been treated more favorably in terms of policies and access
to credit compared to the private sector that creates an unfair playground between the two,
hampers the development of the private sector, while the public sector is inefficient and does
not offer good products or services. This also further impairs the competitiveness of
Vietnamese companies’ goods and services as a whole when they entering regional and
global markets.
Moreover, Vietnam has been engaging into international free trade agreements, such as on
the negotiation process of the Free Trade Agreement with the European Union and the Trans-
Pacific Partnership agreement, and also participated in the establishment of economic
community, such as ASEAN Economic Community that request Vietnam for more SOEs
equitization and also less priority for those SOEs to equalize the playing field between the
private and state sectors. As a side effect the privatization of SOEs would remove the
impairment as described above.
Another reason for boosting the SOE’s equitization is the increase of the State budget deficit
of Vietnam to rise from 4.8% to 5.3% of GDP in the previous year (in the 4Pth quarter 2013),
therefore selling part of the State-owned shares in these SOEs could easily resolve the state
budget deficit. Currently, the gross market value of the 12 top SOEs among the top 20 largest
companies listed on the Ho Chi Minh City Stock Exchange is said to be US$ 18.5 billion in
market capitalization, approximately, accounting for 41% of the value of the entire HCMC
Stock Exchange (as at 23 May 2014) and accordingly the ownership of 50% alone in these 12
companies is worth US$ 6.3 billion.
Under the SOEs equitization plan, Vietnam targets to restructure 432 SOEs by 2015 and as of
July 2014, the Government of Vietnam approved 20 restructure projects of Stated-owned
groups and corporations under the authority of the Prime Minister. With respect to the
restructuring of the mining industry in general and Vinacomin in particular, Vinacomin’s
equitization is highly important to the overall national restructuring plan of the Government
and the Prime Minister issued the Decision 314/QD-TTg dated 7 February 2013 Approving
Vinacomin’s restructuring project for the period of 2012-2015. Under this Decision,
Vinacomin will restructure its’ business activities and only focus on four main business lines,
including the coal industry, mineral- metallurgy industry, industrial explosives, and electrical
industry and this groups will operate under the form of a parent company with 16 dependent
entities.

3. However, according to recent report of the National Steering Committee for Enterprise
Reform and Development of Vietnam, Vinacomin is listed in the group of SOEs with the
slowest equitization progress and this group has not yet carried out a single initial public
offerings (IPOs) of eight of its’ entities supposed to complete in the 2012-2015 period.
Meanwhile Vinacomin have not even published their equitization plans while having only
less than a year to carry out the restructuring under this Decision. It is likely that Vinacomin
is delaying restructuring.
As outlined above, SOEs’ privatization could significantly boost Vietnam’s economy and
prove that Vietnam is performing its’ commitment during the international trade integration.
However, we also have seen that the privatization process of not only Vinacomin but also
other SOEs is being slow down that create more negative impact on this country’s economy
and make Vietnam become less attractive in the eye of the foreign investors.
Should you have any questions, please contact omassmann@duanemorris.com;