July 26, 2014
During a talk late last week, Pham Chi Cuong, former chairman of the Vietnam Steel Association (VSA), told a shocking story. At a VSA meeting reviewing operations in the first half of the year in Hanoi, the audience was taken by surprise when being briefed on the incentives offered to the Ha Tinh-based Formosa steel project covered by the local press. According to Cuong, many incentives have been kept in secret. In other words, as Cuong put it, they lack transparency. “Local steel companies do not dare to dream of such incentives,” he said. “For instance, the 10% corporate income tax ensured to last throughout the project’s lifespan. These unfair treatments may brush aside domestic enterprises”.
Do Duy Thai, general director of Thep Viet, said what domestic steel companies wish for is a fair treatment regarding investment incentives on the same level with foreign investors. However, the unfair game may distort the development of Vietnam’s steel industry, stripping it of its motivation.
The current total designed capacity of domestic steel enterprises, including joint ventures with foreign partners, is some six million tons a year. Compared with that of foreign-invested steel companies which have been licensed, such production is way smaller. If Formosa’s annual 22.5 million tons of steel is incorporated, domestic steel industry would be totally cornered by wholly foreign-owned rivals.
Thai admitted that foreign investment attraction is a justifiable policy. He argued nonetheless that considering the steel sector which he deemed a key industry, domestic enterprises should be prioritized. Citing China as an example, Thai said although the Chinese steel industry has boosted its annual capacity from 30 million tons to 700 million tons, only less than 30% of that amount is produced by wholly foreign-owned steel mills in China.
In the steel business, land rent and corporate income tax are the two important input factors which constitute costs of products. Advantages in the same may help an enterprise prevail. Some domestic steel makers contended that their projects have received no incentives whatsoever – land had to be bought or rent in line with market prices while corporate income tax rate has been regulated universally.
The incumbent VSA vice chairman, Nguyen Van Sua, said according to his members, VSA would petition the Prime Minister for a steel industry policy in which domestic enterprises are to play the key role. “But I don’t know if such a petition is realistic or not because at this point in time, the capacity of foreign-invested enterprises is too big to be challenged,” said Sua.
Aside from Formosa which pledges capital worth dozens of billions of U.S dollars, another steel project, Guang Lian Dung Quat, has been given a 10% corporate tax rate guarantee lasting for 15 years. This project has been developed sluggishly and has experienced four changes to its investment certificate. Press sources recently reported that Hoa Phat, a local group with steel production in its scope of business, intends to buy this project worth US$4.5 billion based in Dung Quat economic zone.
In 2012, E-United from Taiwan in collaboration with JFE, a Japanese steel maker, indicated its interest in the above project. JFE then submitted to the Government a proposal for a series of additional incentives – such as adding 210 hectares of land to the existing area to raise it to 714 hectares, raising the number of seaports from 11 to 25, and enjoying the existing tax preferences, not to mention a host of other suggestions about water and power and site clearance.
What would become of this Guang Lian Dung Quat remains unknown at the moment. One thing is for sure, nevertheless: if this project is implemented with all the previous incentives kept intact, the competition between domestic and foreign steel rivals would be even stiffer, with the home side being the underdog.
(By Van Nam)