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Ha Tinh province decisions jeapordize $5 billion steel project
Ha Tinh provincial authorities have shifted their support from one steel project to another, inspiring questions about their judgment and the overall trend of decentralization policies in Vietnam.
Investors suddenly ‘lost’ premises for steel complex
In May and June 2007, when agreements were signed, the Tata-VNSteel steel complex was touted by newspapers as a huge project and a coup for Ha Tinh province in north-central Vietnam. The proposed steel complex would help to develop Vietnam’s steel industry and the local economic development of a relatively poor province. Tata is the leading steel group in India, recognized for three consecutive years as the most profitable steel group in the world.
Now, it seems the land for the steel complex has ‘fallen into the hands’ of another investor, the Taiwanese promotors of a different, larger steel project. Analysts are trying to understand why the Ha Tinh People’s Committee has pulled the rug from under the Tata-VNSteel plant, allocating the land reserved for it instead to Formosa-Sunsco.
The Chairman of the Vietnam Steel Association, Pham Chi Cuong, says that Formosa, which specializes in plastics and petrochemicals, is a new comer in the steel industry. Sunsco has some experience in making steel, but holds only 5 percent of the Taiwanese project’s capital.
The Tata-VNSteel project
The $5 billion Tata-VNSteel project is a joint venture between India’s Tata Group (contributing 65 percent of the capital), and Vietnam Steel Corporation (VSC) and Vietnam Cement Corporation (a combined contribution of 35 percent of the capital). According to the plans approved in 2007, the complex is to be developed in Vung Ang Economic Zone in Ha Tinh province.
The project documents say the steel complex is designed to have an annual capacity of 4.5 million tons per annum. It will produce sheet steel as well as hot and cold rolled coil with iron ore extracted from Thach Khe mine in Ha Tinh province, one of the largest reserves in Vietnam.
Feasibility studies were completed in June 2008, three months prior to the deadline, after which the investors applied to local authorities for an investment license. At this point, they learned that the Ha Tinh authorities and Vung Ang Economic Zone’s Management Board had ‘given away’ the promised site.
The local government promised to provide an alternate site to Tata-VNSteel.
The Taiwanese-owned project is clearly larger in scale than that of Tata-VNSteel. Its total investment capital is $7.9 billion and the steel complex is planned to cover an area of 3,035 hectares with a capacity of 15 million tons per annum.
The power of local authorities
Since local authorities made their decision, hope for the $5 billion joint venture with Tata has all but disappeared.
In its latest letter to the Tata group, the Vung Ang Economic Zone Management Board said that it will provide only 725 hectares of land for the Tata-VNSteel complex. This means that the service area of the complex will be 37 hectares, reduced from 50 hectares. The complex will be 1.8 kilometers in length along the seafront, 400 meters less than previously planned.
The management board argues that if the Tata project were allotted the 2.2 kilometers of seafront land originally promised, it will damage the zone’s construction program. There will be no land left to be allocated to an oil refinery.
The short story is that to satisfy Formosa-Sunsco, the Ha Tinh authorities had to take land promised to Tata-VNSteel.
Tata Group, in a letter sent to the Ministry of Industry and Trade (MOIT) in early August, insisted that 2.2 kilometers is the minimum length needed to run the steel complex, allowing a reduction in investment costs and making the shipment of products efficient.
On August 12, MOIT asked local authorities to fulfill the original promise it gave to the Tata-VNSteel investors. However, the ministry is not sure that its request will be respected, since under the current decentralized regime, local authorities have the power to make final decisions.
A Test Case
Ha Tinh’s erratic ambitions for its industrial complex, comments VietNamNet, exemplify the problems of Vietnam’s decentralization plan, i.e., that qualified investors still cannot rely on projects based in Vietnam and, more importantly, many questions will be raised about the transparency and consistency in Vietnam’s investment policies.
Pham Huyen
vietnamnet
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