FORMING DEVELOPMENT STRATEGY FOR VIETNAM ENVIRONMENT PROTECTION FUND IN 2010 2020

Chiến lược Hình thành và phát triển Quỹ Bảo vệ môi trường Việt Nam giai đoạn 2020FORMING DEVELOPMENT STRATEGY FORVIETNAM ENVIRONMENT PROTECTION FUND IN 2010 2020 THEORETIC PROBLEMS OF STRATEGIC MANAGEMENTANALYZING THE SITUATION OF STRATEGIC MANAGEMENT IN VEPF

PROJECT

FORMING DEVELOPMENT STRATEGY

FORVIETNAM ENVIRONMENT PROTECTION

FUND IN 2010-2020

ACKNOWLEDGEMENT

We, would like to extend our gratitude to all the professors and university staff for their guidance and support through which we know the way to practice the theories and improve our awareness Let our thanks also go to Vietnam Environment Protection Fund for their assistance in our collection of data and relevant support for the timely completion of this capstone project

TABLE OF CONTENTS

ACKNOWLEDGEMENT

INTRODUCTION: RESEARCH CONTEXT 1

1 Reason to choose this topic 1

2 Research objective: 2

3 Research object and scope 3

4 Research method 3

CHAPTER 1 – THEORETIC PROBLEMS OF STRATEGIC MANAGEMENT 5

1.1 Concept of strategic management 5

1.1.1 Definition of strategic management 5

1.1.2 Strategic management process 5

1.2 Strategy commitment 9

1.2.1 Strategy vision 9

1.2.2 Strategy mission 10

1.2.3 Values 11

1.3 Strategy analysis 12

1.3.1 Macro-environmental analysis 12

1.3.2 Sectorial environmental analysis 12

1.3.3 Internal environmental analysis 13

1.3.4 SWOT matrix analysis 13

1.4 Strategy establishment and selection 15

1.4.1 General strategy 15

1.4.2 Strategy selection 16

1.5 Strategy implementation – check, evaluation 16

1.5.1 Organizational structure 16

1.5.2 Strategy implementation 18

1.5.3 Strategy implementation’s check and evaluation 19

CHAPTER TWO - ANALYZING THE SITUATION OF STRATEGIC

MANAGEMENT IN VEPF 20

2.1 An overview of VEPF – Vietnam’s Environmental Protection 20

2.1.1 Overview of the establishing process and the legal basis of operation of VEPF 20

2.1.2 Organization system 22

2.1.4 Professional activities: 24

2.2 Analyze and evaluate the strategic development management of VEPF 31 2.2.1 Commitment 31

2.2.2 Analysis of impacts on development strategies of VEPF – Challenge, Risk and Opportunity 31

2.2.2.4 Reasons for the limitations 45

2.2.3 Analysis of rivalry and core competencies 47

2.2.4 Present developing strategies of VEPF 48

2.2.5 Current organizational structure and supervisory system 48

2.2.6 Evaluation of the implementation of VEPF strategies- advantages and disadvantages 48

CHAPTER 3 - MEASURES TO IMPROVE VEPF DEVELOPMENT STRATEGIES 2010-2020 50

3.1 VEPF development orientation 50

3.1.1 SWOT analysis 50

3.2.2 Development orientation 52

3.2 Development strategy commitments 52

3.2.1 Vision 53

3.2.2 Mission 53

3.2.3 Objectives 53

3.3 VEPF development strategies for 2010-2020 54

3.3.1 Strategies on policies and regulations 54

3.3.2 Strategy on capital mobilization 54

3.3.3 Strategies on banking operations 55

3.3.4 Strategies on human resources 55

3.3.5 Strategy on international cooperation 55

3.4 Strategic solutions 55

3.4.1 Strategic solutions for policies and regulations 55

3.4.2 Strategic solutions for capital mobilization 57

3.4.3 Strategies on banking operations 64

3.4.4 Strategic solutions for human resources management 66

3.4.5 Strategic solutions on development cooperation 73

3.4.6 Facilitating conditions for strategy implementation 74

3.5 Improving the organizational structure for strategy implementation, strategy inspection, monitoring and evaluation 75

3.6 Strategy implementation roadmap 76

3.6.1 Steps to follow in strategy implementation 76

3.6.2 VEPF development strategy implementation roadmap 76

CONCLUSION

REFERENCES

INTRODUCTION: RESEARCH CONTEXT

1 Reason to choose this topic

In the past, activities aiming at protecting environment, preventing environmental deterioration and pollution, enhancing environmental quality, protecting biodiversity and improving awareness on environmental protection are important goals in the National Strategy on Environment of Vietnam To partially cater the capital need for these goals, the Prime Minister has issued Decision No 82/2002/QDD-TTg on 26/6/2002 on establishment, organization and operation of Vietnam Environment Protection Fund

Vietnam Environment Protection Fund (VEPF) was founded with an initial chartered capital of 200 billion dongs, then increased to 500 billion dongs (2008) Operating goals of Vietnam Environment Protection Fund is to mobilize capital from organizations, individuals in the country and overseas; to receive investment capital from the State in order to support programs, projects, activities and tasks on evironment protection in the whole country" VEPF operates not-for-profit but it has

to compensate its expenses and preserves the chartered capital

After six years, VEPF has many contributions in environmental protection, invest to resolve problems in some polluted areas and overcome environmental incidences All projects which are loaned or financially supported by VEPF have achieved goals relating to environmental treatment so as to gradually achieve international standards on environmental protection Through funding activities, VEPF has made a contributiion to reduce damages caused by natural disasters such

as flood in some provinces in the Central and the North of Vietnam, overcome oil overflows, pollution caused by floods in some provinces in some provinces in Northern Vietnam VEPF also initially funded awards, publicity campaigns aiming

at enhancing people's awareness on environmental protection such as: Hochiminh City Green enterprise awards, National Press award for environment

However, besides achievements, mechanisms, policies for VEPF's operations are incomplete and unsystematic; thus managemetn mechanisms of VEPF have not been clearly defined, human resources of VEPF have not satisfy the needs of a new area and a wide scope of operations in the whole country Besides, VEPF has neither fully promoted its available resources nor mobilized financial sources that according to the law, can be operating capital of VEPF, the implementation of VEPF's operations is not really effective in terms of soft loan, interest rate support

as well as funding, co-fungding and international cooperation Until now, VEPF only satisfies a small part of capital need for environmental protection activities of Vietnam in general and of enterprises, project owners in particular

Based on the objectives at the establishment of VEPF and real operating resutls after 6 years, the study and evaluation of all aspects of VEPF's current activities including achieving results, drawbacks, limitations and reasons, from that, proposing solutions for the sustainable development of VEPF is an important element for building a model and operating orientation for VEPF in the future in order to promote to the highest VEPF's role as a tool of the Government to mobilize domestic and overseas resources for environmental protection of Vietnam in the coming period Therefore, in order to apply knowledge of the MBA course in real life, the research group choose the topic: "Building development strategy of Vietnam Environment Protection Fund during the period 2010-2020" for the graduation assignment of the Master of Business Administration course (GaMBA)

2 Research objective:

The topic: "Building development strategy of Vietnam Environment Protection Fund during the period 2010-2020" aims to achieve 3 objectives as follow:

- Systemizing fundamental issues about strategic management in general and corporate strategic management in particular;

- Through carrying out this topic, analyzing and evaluating current implementation of the development strategy at VEPF from the establishment day (2002) until now;

- Based on the analysis of current situation, proposing solutions for the development strategy of VEPF during the period 2010 -2020

3 Research object and scope

This topic mentions the study of a specific unit, Vietnam Environment Protection Fund This is a newly established State financial organization, under the Ministry of Natural Resources and Environment, financially managed by the Ministry of Finance

Time frame of the research: from 2002 (the establishment year) until the period 2020

5 Expected results

The topic: "Building development strategy of Vietnam Environment Protection Fund during the period 2010-2020" aims to achieve 3 expected results when the assignment finishes They are:

- Completely mastering theories of strategic managemetn;

- Practising, completing a scientific and effective working method when applying technological advances in real economic activities;

- Making a contribution to build and develop VEPF in the coming period The specific results of the topic: Building the deveopment strategy of Vietnam Environment Protection Fund during the period 2010-2020 and the process for implementing this strategy

6 Topic structure

The topic: "Building development strategy of Vietnam Environment Protection Fund during the period 2010-2020" beside the Introduction and Conclusion, the content consists of 3 chapters:

CHAPTER 1 - THEORETICAL ISSUES ABOUT STRATEGIC MANAGEMENT

CHAPTER 2: ANALYZING CURRENT STRATEGIC MANAGEMENT

AT VIETNAM ENVIRONMENT PROTECTION FUND

CHAPTER 3: BUILDING THE DEVELOPMENT STRATEGY OF VIETNAM ENVIRONMENT PROTECTION FUND DURING THE PERIOD 2010-2020

CHAPTER 1 – THEORETIC PROBLEMS OF STRATEGIC

MANAGEMENT 1.1 Concept of strategic management

1.1.1 Definition of strategic management

Strategic management is a combination of decisions, actions leading to repeated strategy planning, implementation, evaluation and adjustment according

or not to time’s development process; it aims at ensuring that businesses take advantagesof opportunities as well as evade risks from the business environment in order to achieve given objectives

It can be infered from the above definition that:

- Strategic management is a combination of decisions, actions leading to strategy planning, implementation, and evaluation, in order to perform successfully strategic objectives of the business

- Strategic management is the process in which businesses research environment to establish, organize and carry out strategies, aim at achieving strategic objectives in current and future business environment (This is the foundation for strategy establishment)

- Strategic management is not only a science but also an art of forming, organising, carrying out, verifying and assessing general decisions which help the business obtain its long-term objectives

1.1.2 Strategic management process

The below diagram illustrates ordinary stages of strategic management process:

1.1.2.1 Strategy planning

Strategy planning is the very stage in which companies establishes and selects strategic projects to organize and deploy in fact; this stage follows 4 steps:

Step 1:

- Defining functions of company (Define company’s mission)

- Defining business field and industry

- Defining vision (objectives) of company

- Defining business philosophy, i.e the way company often uses to carry out business production, show its cutural features

Step2: External business environment analysis and evaluation

Strategic management processExternal

environment

Internal environment

Strategy intention

Strategy mission

Strategy establishment Strategy enforcement

Business-level

strategy

Active competition

level strategy

Corporation-International strategy

Cooperative strategy

Mergence &

re structuralization

Business management

Structure and control

Leadership strategy

Business setting and innovation

The nature of external business environment assessment is that evaluating factors which influence on company’s business process, beyond the scope of the company, in order to specify factors having advantageous influence (opportunity) and disadvantageous one (risk and challenge); thereby strategic projects are taken shape

Step 3: Internal business environment analysis and evaluation

- Nature: Evaluating aspects of operations, the relationship among divisions to indicate strengths and weaknesses in company’s business production operation

- Internal business environment’s factors are often assessed according to each function or each field of operation such as research and development, marketing, demonstrative production, human resources, finance - accounting

- Analytical sequence of the internal business environment is similar to external one However, components involved can be extended to certain employees, in order that they are well aware that how their work affects to other work in company; therefore, they are more and more aware and responsible for their work

Step 4: Strategy analysis and selection: include 2 types of work:

- Forming different strategic projects based on the mastery of leadership’s business viewpoint, philosophy and the use of internal, external business environment’s results

- Use the appropriate tools (matrix) such as: BCG Matrix, McKinsey, product life cycle and prepare for deploying in practice

*Strategy planning methods

- Critical method

+ Companies can form strategic projects and move to divisions or individuals

to do strategic counter-statements Critical divisions are supposed to analyze, criticize established strategies, and point out challenges that enable strategies not to

be implemented If critical divisions see that it is necessary to modify and supplement, they must explain why and how to modify and supplement

+ Critical groups must be experts at strategy planning (For example: West Lake dredging project)

- Dialectical verification method

Companies can set up from two or more expert groups working independently to form the independent strategic projects and then hold discussions for them (analyzing each project to select a preferred one or to form a new project based on the combination of groups’ strategic projects)

Often performed with functional-level strategy

1.1.2.2 Strategy implementation

Be the stage in which strategic ideas are turn into reality; this is the most

difficult stage in the whole strategic management process It follows 2 steps:

Step 1: Putting forward administrative decisions and carrying out according to 5

Accept Project 1 or Project 2

Discuss

- Setting up, adjusting organizational structure

- Allocating and using human resource: this is the major content of strategic management

- Establishing business policies

- Setting up company’s culture

Step 2: Delpoying strategy in fields of operation (performed with functional level) 1.1.2.3 Strategy evaluation

This is an important function of business management; thus, strategic management must certainly perform it

Contents of strategy evaluation contain:

- Considering factors of both internal and external business environment used as the basis for strategy establishment

- Checking the level of strategy implementation in fact (i.e checking both organization and implementation stage)

- Assessing the level of strategy implementation in fact is to examize the feasible level of objectives and solutions; it is necessary or not to change deloyment

in reality if the environment changed

- If the strategy need be changed, it should be pointed out that the content of modification is in terms of objectives or solutions, or set up a new strategy for replacement

1.2 Strategy commitment

1.2.1 Strategy vision

Strategy vision : “Orientation for the future, a desire about the things the

business longes to reach” Basic values for unshakeable development

The most important factor of strategy establishment and selection is just the vision of individuals or teams participating in strategy planning, this factor is

dependent upon intuition of individuals or teams Analysis and intuition are the bases for giving decisions in forming strategy in accordance with business environment In the face of such a changeable business environment, leadership’s good intuition and accurate vision help companies analyze and approach business environment generally; find out the real advantages and difficulties affecting company’s business production operation Moreover, it will help companies take shape high-feasible strategies in accordance with environment and mission given

1.2.2 Strategy mission

Mission: Used to show business purpose, reasons and meanings of company’s establishment, existence and social responsibility

Mission describes organization in its business condition, customers who it

serve, essential skills need developing to satisfy perspective Perspective is naturally

a concentration of organization’s ideas and purposes, but mission describes less abstract and more veritable perspective Mission, in which sets up large orientation about the way organization will achieve or satisfy the perspective in a certain period, is more specific than perspective Organization will deduce the perspective into mission reports in which plan its limit and provide a directional meaning Mission report expresses overall company’s customers, major products and services, company’s orientation in a period

What you can realize from mission declararions is that all attaches company

to ambitious objectives: “To be number one”, “the best”, “to reach to one billion computers having global connection” and “become the leading supplier” All of these mission declarations are examples about strategy intention

Strategy intention is basically the concept indicating what administrators set

an overall ambitious goal to challenge one organization Normally, mission declaration or perspective presents company’s strategy intention

1.2.3 Values

Values of a company clearly confirmed how administrators intent to control, how they conduct business, and properties they want to create for the organization Values of controlling behaviors within an organization, regarded as the company’s organizational cultural foundation, and a leader of competitive advantage

self-There are many definitions of company’s core value such as:

- Core values are all what the company deems it unable to pay or change These core values create a foundation to form the company regulations

- The core values are a belief system affecting people’s behaviors among themselves, or among groups of people The core values are "soul" of the organization; be the effective values have been deeply impregnated into the organization Core values help form the organization psychology from which can support or remove individual’s psychology

- The core values are the indispensable and long-term guiding principles: To help orient the decisions and actions of an organization; not to be cultural actions or specific activities; not be built up for financial objective or other benefits in the short term Organizations will want to keep core values even when the task has changed

Core value is disregardful of public opinion; it has intrinsic value and big importance to people inside the organization Core value is one of very rare guiding rules which have ability of extremely large affection, is organization’s soul; it is values which lead every action

Core values have very depth, and they are greatly important values These values are rarely changed by the change of market On the other hand, organizations will often change the market if necessary, to maintain their core values

Therefore, company’s values are:

 Affirming methods of managers

– Self-control

– Business conduct

– Organization’s property forming

 Controlling behaviors in organization

 Being company’s organizational cultural basis

 Being as a leader of competitive advantage

1.3 Strategy analysis

1.3.1 Macro-environmental analysis

Macro-environmental analysis gives answer to the question: What are enterprises dealing with? There are 5 factors of macro-environment that businesses have to deal: natural, social, economic, political - legal, technical – technological factors These factors impact independently on organizations or in combination with other factors

1.3.2 Sectorial environmental analysis

Strategies have to be planned on the basis of expected environmental conditions, so good strategic management depends greatly on the thorough understanding of the environmental conditions that organizations have to confront General environment that organizations often encounter can be divided into three levels: the macro environment, working environment and internal environment Macro environment affects all industries, but unnecessarily in a fixed way The working environment is determined for a specific industry; with all companies in industry affected by the working environment in that industry, in this case the macro environment and working environment co-ordinate together and called the external environment or company’s peripheral environment External environmental

analysis helps companies partly answer the question “What companies are facing,

also recognize the opportunities and risks threatening the business operations”

There are many elements of the external environment may directly or indirectly affect company’s operation or competitors For analysis of external environmental factors influencing at direct level on company’s operation, Michael Porter’s five-force model is the most effective tool

1.3.3 Internal environmental analysis

If Michael Porter’s five-force model analysis helps strategy planners recognize opportunities, risks of the company under the influential aspect of the actions, the value chain model will help strategy planners classify companies’ valuable resources, in order to identify their competitive advantages In other words,

Michael Porter exposed the concept of value chain to evaluate enterprises’

competitive ability, more exactly let enterprises self-locate in the market, the relationship with suppliers, customers and other competitors

Value chain will assist companies choose the methods of creating competitive advantages by answering two basic questions: 1) how to supply customers with a product (goods and services) having equivalent value to their competitors but with a lower cost (low-cost strategy), or 2) how to create the products that customers want to buy with a higher price (differentiating strategy)

As a consequence, the value chain analysis will have particularly important meaning, as the key to finding out companies’ competitive advantage on the way to create value

1.3.4 SWOT matrix analysis

SWOT matrix is used to generalize researches on the internal and external

environment of the economic subjects External environmental analysis is to discover opportunities and threats to enterprises Internal environmental analysis is

to determine strengths and weaknesses of the subject

SWOT matrix is formed by 4 factors: S = Strengths; W = Weaknesses; O = Opportunities; T = Threats

Strengths: Abilities to help businesses or industries perform well points that need

promoting

Weaknesses: Points to overcome because they prevent businesses or industries

from achieving good effects when doing jobs

Opportunities: Trends, forces, events and ideas that businesses or industry can take

advantage

Threats: Events or pressures may occur beyond the control that businesses or

industry should consider or decide how to limit their effects

Four factors are divided into two groups:

 Group 1: Strengths (S) and Weaknesses (W) - are the inside factors

controlled by the business itself such as the work of management, finance - accounting, product and production The goal of business is trying to take advantage of strengths and defeat weaknesses

 Group 2: Opportunities (O) and Threats (T): refers to matters of economy,

politics, society, government, technologies, competitive trends and events that can bring about benefits or risks for business Opportunities and threats exceed the control of the business concept; therefore, they are called as factors affected from the outside

In consequence, with the use of SWOT, the economy may plan strategies to capture opportunities, avoid or reduce the outside threats, take advantage of strengths while overcome the inside weaknesses This is a powerful tool to help us identify and analyze influential trends in the near future when quantitative data are not enough to conduct quantitative regression analysis

On the basis of the analysis of factors’ SWOT, based on goals, directions of business and resource development, it can be given out predictions based on 4 types

matching in Table 1.1

Table 1.1: SWOT analysis model

1.4 Strategy establishment and selection

1.4.1 General strategy

Business strategy includes decisions about: what are products and services customers need? Who are customers to be satisfied? How to satisfy customers? These three decisions are expressed particularly in strategies: product strategy, investment strategy…

1.4.1.1 Product strategy

Product strategy is an effective business method on the basis of ensuring satisfaction of market demand and tastes of customers in each period of enterprise’s business operations

1.4.1.2 Investment strategy

For a company, there are many different operations means that it has many different business units The company must make decisions to invest in any business unit, and avoid any business unit This action causes effects:

- Avoid usless waste of over-concentration on hopeless activivties

- Avoid missing opportunities unfortunately because of no investment or too little investment in hopeful activities

The issue here is how to let companies identify hopeful activities, if there are

a lot of hopeful activities, companies should specify which ones are more hopeful

In fact, it depends on:

+ Business attration

+ Company’s competitive position

1.4.2 Strategy selection

The objective of the strategy analysis and selection is just the establishment

of long-term goals and creating replacement strategies, selecting some of such strategies to pursue Strategy analysis and selection are to determine the series of actions that can help companies reach to the mission and goals set out

1.5 Strategy implementation – check, evaluation

1.5.1 Organizational structure

Company’s organizational structure in general and organizational structure

of managerial machinery in particular is one of the essential conditions to implement the strategic goals If enterprises which trade in mono-industry move to poly-industry or they trade in few types of services, transfer to a wide range of services, or expanding (narrowing) or changing the market all asking enterprises

to review the old organizational structure whether it is still appropriate or should be changed and how it can be changed For that reason, when implementing strategies, companies often have to review the structure and may adjust accordingly

* Dialectical relationship between strategies and organizational structure

Nowadays, one common acceptance is that strategy and organizational structure are the two inseparable aspects of company’s administrative operations The successful strategy implementation depends on the way organization’s

operations are divided, arranged and coordinated, i.e depending on the specific organizational structure

Relationship between organizational structure and strategies are presented:

- Organization structure must be suitable for strategic: business structure is designed or adjusted as to facilitate strategy objectives’ implementation of a certain period

- Structure affects strategy Undeniably, structure can and will affect strategy Outlined strategies have to develop their effects; so if any new strategy’s

structure needs a lot of changes that will reduce attraction of the strategy

* Process of organizational structure establishment and adjustment

An appropriate organizational model is that ensures efficiency in the process of implementing strategy objectives To have an appropriate organizational structure, when constructed or adjusted it needs to follow a reasonable process The possible process of six steps as following:

- Step 1: to clarify the important strategy objectives (tasks) and the core partial strategies (functional strategy) of the company Of all strategy objectives (tasks) of a specific period, there will be more important ones (tasks) To implement the objectives (tasks) identified, of all core partial strategies, there will

be more essential ones The problem is that companies have to analyze to determine clearly important strategy objectives (tasks) and the core partial strategies (strategic function) of the company

- Step 2: to research the important strategic operation and the normal strategic operations, and the relationship between them This will be the basis for determining the activities that need to be noticed

- Step 3: to select the suitable organizational structure This step must be based on analysis of factors affecting enterprises’ structure (from production system to the organizational structure of administrative machinery), especially the results of analysis in the two above steps; based on selecting principles of focal or dispersive power to decide which type of organizational structure to build company’s administrative machinery? Selection of appropriate organizational

structure is a very important condition in order that the administrative machinery can complete the task of implementing the strategy effectively

- Step 4: Based on the activities defined for the strategy period, enterprises identify specific tasks On the basis of tasks’ analysis and synthesis, there will be groups of activities according to expected organizational unit

- Step 5: to define (control) functions, duties and competences of each partial unit Each partial unit must take over specific functions and tasks Functions and duties are conditional basis for each partial unit to complete its role satisfactorily Functions and duties of each unit depend on selection of organizational structure model also decentralization principles and the identification of the number of partial units in the company

- Step 6: Coordinating among units in an organization The main purpose of this step is to identify partial units’ correct position in the competence system, basing on the defined functions, tasks and competence to specify the coordinative relationship among partial units This combination should give out the duties and define responsibilities for each partial unit Relationships inside full system are described through the organizational chart

The last matter is setting up the system of regulations and rules fixing enterprise’s inside relationships The system of regulations and rules must pay attention to working relations during strategy control and implementation When deploying strategy, in principle, enterprises should not make big organizational changes unless they are really necessary If there is any change, just repair the structure so as to adjust the work in the above steps, not new construction from the beginning

1.5.2 Strategy implementation

This is very important stage to turn planned strategies into specific actions Strategy implementation has wide and deep influence throughout the enterprise, affecting both departments and functional units To strategy implementation, each individual's skills are extremely necessary Strategy

implementation includes the strategy development as supporting budget, culture programs, and connection to encouragement and reward system for employees

That strategy implementation is successful or not depends both on strategy quality and on the ability of promoting administrators’ employees

1.5.3 Strategy implementation’s check and evaluation

In the process of strategy implementation, it is necessary to check regularly whether those strategies are carried out as planned or not? There are many reasons which enable such a strategy not to achieve proposed objectives These causes are due to the changes in environment or not attracting human resources Therefore, company needs to pass the feedback information system and checking methods to monitor and evaluate implementation Thus, the strategy establishment and implementation process is performed through 7 following steps:

Defining missions and objectives

Analyzing external environment

Analyzing internal business

Establishing strategic projects

Analyzing and selecting strategy

Implementing strategy

Checking and evaluating strategy implementation

CHAPTER TWO - ANALYZING THE SITUATION OF STRATEGIC

MANAGEMENT IN VEPF

2.1 An overview of VEPF – Vietnam’s Environmental Protection

2.1.1 Overview of the establishing process and the legal basis of operation

of VEPF

According to the report of State management agencies, environment pollution in Vietnam has become more and more serious: environmental incidents occur more regularly at a larger scale with larger impact One of the major reasons

is low investment expenditure for protecting environment and mobilizing capital is difficult and not timely

Approved by the Congress dated November 29th, 2005, Environmental Protection Law (the revised) which took place of the Protecting Environment Law (the former) dated December 27th, 1993, has figured out clearly the responsibilities

of the government in setting up potentials for environmental protection activities at the central and local levels, encouraging and defending the legitimate interests of organizations and individuals at home and abroad in investment in various forms, applying science and technology advance to environmental protection

Immediately after guiding implementation for Environmental Protection Law (the former), the government promulgated Decree No 175/1994/ND-CP dated October 18th, 1994 which prescribes: “The government shall found a national reserve fund to deal with the environment depression, environment pollution and environment incidents in order to cope with them initiatively The financial source for establishing this fund includes the capital extracted from State budget, contribution from enterprises (including joint-venture enterprises) and contribution from individuals and organizations at home and abroad to environment protection activities in Vietnam On September 8th, 2006, the government also promulgated Decree No 80/2006/NĐ-CP, instructing the Environmental Protection Law (the

revised) in which emphasized the important role of capital at home and abroad toward environmental protection and conservation activities in Vietnam

Additionally, Instruction No 36/CT-TW dated June 6th 1998 of Politburo about reinforcing environmental protection in the period of industrialization and modernization highlighted the important part of environment protection toward the development of country The instruction also proposed solutions for implementing organization including strengthening and diversifying investment for environmental protection

Due to the urgent demands for protecting environment, sustainable development and global integration, on June 26th, 2002 the Prime Minister released Decision No 82/2002/QD-TTg about the foundation, organization and operation of VEPF

On November 15th, 2004 the government issued Resolution No

41/2004/NQ-TW about environmental protection in the period of industrialization and modernization, providing solutions those impulse environment protection activities

To implement this resolution, the Prime Minister also released decision No 34/2005/QD-TTg dated February 22nd 2005 to deploy the government action plan

Environmental protection was paid special attention by leadership at all levels, heightening the solution to mobilize maximum domestic and abroad sources supporting the environmental protection projects, programs and activities through VEPF

Although VEPF was determined to establish at the end of June 2002, it officially started running in July, 2003 It was due to the tardiness in promulgating the regulations related to the organization and specialist activities of VEPF as well

as financial mechanism towards its operation

After more than 6 years officially running, VEPF has began attaining a number of certain results, contributing to environmental conservation and protection

as well as national economy innovation in the direction of industrialization and modernization

2.1.2 Organization system

In accordance with Decision No 82/2002/QD-TTg by the Prime Minister, VEPF is a State financial organization directly under Ministry of Science, Environment and Technology ( Ministry of Natural Resources and Environment today), being administered financially by Ministry of Finance and playing the role

of the principle sponsor in environmental protection VEPF’s management apparatus consists of Management Council, Supervisory Board, Specialist Operation Agency (Board of managers and Specialist departments), and Professional Advisory Board

2.1.2.1 Management Council:

The Management Council of Vietnam Environment Protection Fund comprises of seven (7) members, working concurrently, including representatives Departmental-level heads from Ministries such as Ministry of Natural Resources and Environment, Ministry of Finance, Ministry of Planning and Investment and State Bank of Vietnam The Chairman is a Vice Minister of Ministry of Natural Resources and Environment Depending on requirements of the real work, there could be a change in members of Management Council from Ministry of Finance, State Bank and Ministry of Resource and Environment

2.1.2.2 Supervisory Board

The board has three members, working in concurrent status Vice-Head of Finance Plan Department – Ministry of Natural Resources and Environment is currently the head of the Board of Control, appointed by VEPF’s Management Council Other members are appointed by the Management Council, basing on proposal of manager of Board of Control However, VEPF only has Manager of the Supervisory Board but no members in it according to regulations

2.1.2.3 Executive Board

The current VEPF’s Operating Agency includes Director, Deputy Director, Chief accountant and 30 staffs working in three specialized departments: Office(12 staff), Department of Planning and Finance (4 staff) and Department of Assessment

(14 staff) Deputy Director is also the Chief of Secretariat and Manager of Department of Assessment

2.1.2.4 Professional Advisory Board

In order to help Supervisory Board evaluates and determines the programs and projects proposing financial support, VEPF was allowed to build up Professional Advisory Board This advisory board operates according to a specific regulation, promulgated by Board of Control

2.1.2.5 Other organizations

Together with stabilizing organization, VEPF also set up Party and Communist organization according to regulation such as: Party cell, Branch of the Youth Union, Labor Union These organizations operate actively and help VEPF improve the influence of their operation by means of co-ordination with specialist sections of fund

2.1.2.6 Human resource

At present, the VEPF’s mechanism of compensation is implemented according to regulation concerning state-owned enterprise However, it is still rather low in comparison with general payment mechanism of financial organization in the market As a result, attracting human resource with high qualification for VEPF has encountered many difficulties

In conclusion, the organization of VEPF is being completed Nevertheless, there are still shortcomings and limitations in deployment, especially those related

to human resource and management and coordination among levels

2.1.3 Source of capital for operation

According to Decision 82/2002/QD-TTg June 6th 2002 of Prime Minister, adjusted by Decision 35/2008 QD TTg March 3rd 2008, capital for operation of VEPF is contributed from:

• Chartered capital of VND 500 billion from the State Budget; Modification of chartered capital of VEPF shall be determined by the Prime Minister at the proposal

of the Ministry of Natural Resources and Environment, Ministry of Finance and Ministry of Planning and Investment

• Additional operation capital from other sources includes environmental protection fees

• Compensations for environmental damages by the organizations and individuals paid to State budget in accordance with the law

• 50% of Environmental protection fees in compliance with the law

• 10% of expenditure used for state management activities in protecting environment annually

• Donations, contributions, investment capital entrusted by domestic and overseas organizations and individuals;

• And other additional capital sources pursuant to law regulations

2.1.4 Professional activities:

The specific capital activities of VEPF are assigned in Decision of promulgating Charter on organization and operation of VEPF, specifically to loan with preferential interest rate, to provide interest subsidy for loans from other credit organizations and to sponsor for the environmental projects After six years operating, the results are:

2.1.4.1 Loan projects with preferential interest rate

Up to September 2009, there have been 200 enterprises submitting documents of borrowing capital with preferential interest rate to VEPF with about nearly VND 1000 billion loans application

VEPF lent 80 projects approximately VND 260 billion, in which there were

15 projects being in the list mentioned in Decision No 64/2003/QĐ-TTg dated 22/4/2003 by Prime Minister about ratifying “Plan for handling absolutely the enterprises causing serious environment pollution” These projects mainly focus on such fields as distributing waste water treatment station at industrial zones and factories, dust purifying system at cement factories and textile mills, investing in

spending on specialized equipments for collecting and transporting garbage in localities, and applying environment-friendly and energy-saving technology

Table 1: Projects loaned by VEPF annually from 2004- Sept.2009

Số tiền cho vay

Năm

Biểu đồ thể hiện số tiền cho vay của Quỹ BVMTVN

qua các năm từ 2004-2009

Số tiền cho vay (VND)

Loans provided by VEPF from 2004-2009

Loans(VND)

Amount

Loaning with preferential interest rate is the major activity of VEPF recently, taking possession nearly 97% of the total operating capital All the projects loaned

by VEPF are urgent, most of which have a great impact on environment and require capital for processing pollution according to operating goal/target of the fund

Studies show that VEPF’s loaning activity recently has the following basic characteristics:

- These projects are all environmental protection ones, solving urgent

environment pollution problems that are paid attention by public Several projects are in the List of enterprises causing serious environment pollution in accordance with Decision 64/2003/QĐ-TTg dated 22/4/2003

by the Prime Minister

- Area for loaning is large The projects come from more than 20 provinces

and cities of Vietnam

- The objectives of loaning belong to all five sectors of economy, from

family-based to cooperation More than 80% of them belong to private economy sector

- The loan level fluctuates widely, from hundred VND to ten billion

- Medium interest rate for projects is about 42% to average interest rate of

commercial banks ( as prescribed in decision promulgating VEPF’s operating Regulations and Charters, its maximum interest rate does not exceed 50% of normal interest rate of credit organization.)

- Loan capital projects are used on the right purpose; the debts are paid

timely

- Normally, lending period for loan capital projects is five years based on

balancing the fund’s capital, enterprise’s capacity of paying debt

- Lending objectives are mainly those of waste water treatment station at

industrial zones and factories (more than 45% of the total projects), dust purifying system at cement factories and textile mills (more than 22%)

The rest are projects on equipment procurements for collecting and transporting garbage in localities

- After more than six year of operation, lending activity basically achieves

some certain results: loan capital is reported using on the right purpose and disbursed on schedule of the projects; assessment of loan capital’s utilization is effective; until now there is no bad debt, debt recovery is implemented as committed in the contract

By evaluating the practical situation of loan projects of VEPF, enterprises with loan capital highly appreciate and emphasize the essential and importance of this capital source towards processing projects that cause environment pollution, especially Small and medium-sized businesses with backward technology, financial capacity and ability to approach to bank’s capital source is poor and difficult

Besides, loaning the projects on the principle of capital guarantee and withdraw capital for other projects has reduced capital burden for state budget for environmental protection projects, supervised more closely based on a particular monitoring mechanism

re-2.1.4.2 Interest rate subsidy

As a new fund with poor and limited capital as well as no annual additional capital, VEPF has not implemented the deployment of interest rate support VEPF is coordinating with some related agencies such as Ministry of Finance, Ministry of Planning and Investment, Ministry of Natural Resource and Environment to distribute the preparation process in order to officially deploy when they receive additional capital source and the requirements from enterprises

2.1.4.3 Sponsorship and co-sponsorship activities

At the end of September 2009, VEPF sponsored capital for more than 100 environmental protection projects and missions with total capital of about VND eight billion This indicates that VEPF’s sponsorship activity mainly aims at

performing unscheduled and urgent missions which require immediate capital to converse and protect environment in some areas

Sponsoring activity have attained some certain results: distributing to the improvement of local environment standard, attracting the active participation of community and related agencies, enhancing awareness and participation of organizations by means of delivering information, education and training

However, the limited additional capital has affected the fund’s sponsoring activity VEPF need promote sponsoring and co-sponsoring more when the problem

of lacking capital is solved;

Biểu đồ thể hiện số tiền tài trợ của Quỹ BVMTVN

qua các năm từ 2005-2009

0 500.000.000 1.000.000.000 1.500.000.000 2.000.000.000 2.500.000.000 3.000.000.000 3.500.000.000 4.000.000.000 4.500.000.000

Năm

Số tiền tài trợ

Số tiền tài trợ (VND)

Table 4: Proportion of VEPF’s capital usage by Apr 2007

VEPF’s sponsorship from 2005-2009

Amount

Amount (VND)

Biểu đồ thể hiện tỷ trọng giữa tổng số tiền cho vay

và số tiền tài trợ

97%

3%

Cho vay Tài trợ

`

Source: VEPF

To sum up, VEPF’s capital usage have gained some certain achievements and begun to approach projects and activities that need supporting resource However, it does not meet the aim of the fund because most of activities are lending activity (97%) Meanwhile, sponsoring and supporting activities seize 3% and no supporting interest rate lending activity for financial and credit organizations was carried on

2.1.4.4 Further developing cooperation

Based on initiatively extending relation and finding international partners, coordinating with general cooperation programs of Ministry of Natural Resources and Environment, together with making contact with at home banks such as Foreign Trade Bank, Agribank, Vietnam Development Bank, VEPF also appointed some staff to study abroad such as Poland, Japan, Korea in order to investigate and cultivate knowledge, improving professional skill in some countries experienced in environmental protection

VEPF also contacted and interrogated with international organizations like UNIDO and SECO (Switzerland) to exchange ideas on cooperation program among parties Typically, the parties also exchanged and shares experiences about the

Proportion of VEPF’s sponsoring amount and lending

Lending

Sponsorshi p

mechanism of credit system establishment and environment-friendly technology in Vietnam

In addition, VEPF was entrusted by a Korean Natural Resources and Environment Company ENVICO to execute the mission of researching the recycling solid waste activity in Hanoi VEPF also coordinates with some other international organizations such as UFU (Germany), VEPF Rosa Luxemburg, Development Worldwide (DWW) (Czech) to survey Czech’s environmental protection activity

Together with coordinating process with international organizations to implement programs, VEPF also combined with Department of International cooperation, Department of Environmental Protection (Ministry of Natural Resources and Environment) and participate in workshop with World Bank(WB), DANIDA, Denmark and Holland Embassy, JICA (Japan) At present, according to fund’s report, program of DANIDA agrees on the plan of supporting improvement operating ability of VEPF in stage 2006-2010, creating advantages and improve the operating influence of VEPF in the near future

2.1.4.5 Communicating the support activities

Since VEPF was founded and operated, propaganda for its support activities has some initial result/success

VEPF cooperated closely with national and local environmental management organizations such as Environmental Protection Agency (Ministry of Natural Resources and Environment), Departments of Natural Resources and Environment, Department of Planning and Investment, Department of Industry, Department of Trade in propagandizing and disseminating policies on VEPF’s supportive activities Nevertheless, the actual results gained still need more investment

However, basically, thanks to those propagandizing and disseminating programs, VEPF has successfully guided enterprises who need to settle thoroughly environmental pollution or those who have environmental impacts, etc to build capital loan profiles, project appraisal procedures, lending decisions, capital

borrowing supervisions, or loans payments In fact, by April, 2007, more than 100 enterprises have set up profiles and sent capital borrowing proposals to VEPF to implement environmental protection projects mentioned above

Additionally, in the last six years, VEPF have tried their best to promote their images and activities through mass media, especially written and televised newspapers, specialist magazines, and electronic newspapers with environment columns

Moreover, VEPF also edited and published some documents presenting VEPF’s activities in both English and Vietnamese with an aim at those who concern and wish to contribute to a process of enhancing the image of VEPF in Vietnam and around the world

2.2 Analyze and evaluate the strategic development management of VEPF

2.2.1 Commitment

VEPF was founded in the local background of a vigorous transition from the central planning mechanism to the market one with a robust production growth Together with developing production is an increase on environmental degradation, VEPF was established and based on two commitments:

- Be one of state resources investing in Vietnam’s environmental

protection programs

- Be an organization receiving the capital contribution of both individuals

and organizations at home and abroad for environmental protection program

- Be a state tool in state management on environment

2.2.2 Analysis of impacts on development strategies of VEPF – Challenge, Risk and Opportunity

2.2.2.1 External impacts

* Inconsistent and overlapped mechanisms/policies

There exists overlapping contents of mechanisms and policies related to the operation of VEPF, creating difficulties in the process of implementation

Decision No.82/2002/QD-TTg dated June 26th, 2002 by Prime Minister on establishment, organization and operation of VEPF includes specific regulations on sources of working capital and capital mobilization mechanism However, the actual development of this decision still faces many difficulties and is inconsistent with related regulations in the State Budget Law, Environmental Protection Law, Decree 60/2003/NND-CP of the Government on the implementation of Charges and Fees Ordinance, Decree 67/2003/ND-CP on environmental protection fees for sewage

According to the regulations in Decision 82/2002/QD-TTg, annually, VEPF’s capital source is added 50% cash charges of environmental protection However, Decree 60/2003/ND-CP regulates that 100% of the revenues from all charges and fees of different organizations in the area will be left to local budgets Section c, Clause 2, Article 6 of Decision 82/2002/QD-TTg prescribes extracting 10% funding for state management activities on annual environmental protection However, this regulation contrast with the State Budget Law which states that budgets are not allowed to be re-extracted It, hence, has exerted a big influence on the operation of VEPF

Article 5 of Decree 137/2005/ND-CP dated on November 9, 2005 of the

Government on environmental protection fees for mineral exploitation defines: “

Environmental protection fees for mineral exploitation are one kind of budget revenues that locals use 100% (one hundred percent) to support for the environmental protection at local levels where the mineral exploitations occur” Therefore, all the environmental protection fees for mineral exploitation are sent to

local budgets without adjusting 50% to VEPF as promulgated by Decision 82/2002/QD-TTg

* Unstable and unsustainable capital source development

As regulated, legal capital of VEPF is funded by the State budget with VND

500 (five hundred) billion and the State is transferring all the capital to VEPF for its

operation However, this figure is at a very low level in relation to the capital demand from proposed projects As VEPF’s operation principle is aimed at capital adequacy, the appraisal procedure also meets certain difficulties For instance, most

of the environmental projects are normally poor in economic performance and expose to relatively high risks

The capital demand for relevant projects is rapidly increasing because of the severe pollution and grave environmental problems Meanwhile, in addition to the charter capital funded by the State budget, the annual additional budget is not clear-cut due to obstacles on mechanisms and policies mentioned above

In addition, attracting other sources of capital (voluntary contributions, aids, funding, entrusted capital, etc.) from the organizations and individuals at home and abroad is limited so fulfilling the market demand for capital support is not guaranteed

* It is hard to diversify professional activities in accordance with the demand of the market economy

VEPF, a state financial organization, operating without the aim of profits and capital guarantee, has met difficulties in diversifying professional activities It only focuses on three basic forms: soft loans, interest rate support from credit institutions and capital funding Meanwhile, the financial market is more and more developing Financial and credit institutions are competing fiercely in order to increase the ability to attract capital for projects This situation has created obstacles on VEPF’s capital mobilization from the market If no breakthrough solution is taken, VEPF will lag behind, unable to promote the strength of a state financial institution to exploit all the resources for protecting and preserving the environment

* Society’s support

It is urgent to have a specific method of social capital mobilization to satisfy

a huge demand on invested capital for environmental protection

According to general rules, demand on invested capital for environmental protection is getting bigger and bigger, along with the socio-economic development

The unceasing tension in balancing the State budget revenues for public aims (including environmental protection), increases the demand for mobilization of FDI capital This situation creates favorable social advantages for VEPF’s activities such

as the advocacy of the State, organizations and individuals at home and abroad This support can be illustrated by the state fund of VND 200 billion as the legal capital for VEPF and an annual commitment to giving full compensations for environmental damages to State budget revenues, (extracting 50% of cash charge of environmental protection and 10% of funding for State management activities on environmental protection) as well as the good signals from some international organizations such as WB, GEF, etc with available assistance, and soft loans If VEPF uses mobilized capitals effectively, this advantage will be definitely expanded and more donors are going to support for the activities

* Support from international organizations

VEPF has established a network of environment protection agencies in the country, the region and around the world The commitment to an appropriate strategy will bring about noticeable opportunities and advantages for attracting capital for the Fund

Around the world today, many countries have set up their own VEPF environment at the local, industrial and national levels Internationally, there are also some multilateral VEPF’s such as Global Environmental Fund (GEF) or International Multilateral Organizations funding for activities as projects, programs, etc on environmental protection (World Bank, Asian Development Bank, etc.) These environmental funds, international donors for environmental protection will

be mentioned again in the section of international experiences in mobilizing capital for VEPF

The presence and effective performance of environmental funds in many countries all over the world have created a fund network Not only learning valuable experience in mobilizing capital is allowed but also as mentioned above, if well-

connected with an appropriate operation strategy of VEPF, opportunities and advantages will remarkably emerge to attract international capital for the fund For example, the UNDP and the Ministry of Planning and Investment have put forward a proposal of several pilot environmental funds and refinancing strategies, which defines “co-donors shall test one or many environment funds so as to have a sound supporting level in line with relevant preferential in a long term Such funds can be in form of capital contribution, i.e entrusted funds or revolving funds supporting production procedures” “Groups of donors or individual donors shall work out a strategy with the Government to implement the refinancing programs for natural protection”

2.2.2.2 Sectoral impacts

* Management methods

- At the present, VEPF’s administrative management is in the model of

three levels:

Management Board -> VEPF’s Executive Board -> Units under the Fund

- In terms of finance, VEPF is under the management of Ministry of

Finance In fact, VEPF is also under the management of financial institutions of the Ministry of Natural Resources and Environment

- The members of the management board change variously (up to now 4

Chairmen of the Fund has been in charge and there are no old members)

* The awareness of residential communities and environmental investors

In spite of many changes, the awareness of businesses about environmental protection in general and investment in environmental protection in particular is poor The big demand is in the opposite position to the limited ability to satisfy the demand Many reasons can explain for this situation but the main ones are described

as follows

- Producers do not recognize their responsibility in environmental

protection Especially, they do not have any plan to deal with the environmental pollution issues caused by their own companies