Steel market oversupplied, multi-billion dollar projects shrink back

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VietnamNet English - 71 month(s) ago 11 readings

Steel market oversupplied, multi-billion dollar projects shrink back

VietNamNet Bridge – The majority of the licensed steel projects have been going very slowly, some of them have not made a move, and the others have seen the licenses revoked as the investors step back.

The years from 2006 to 2008 were considered the golden age in the development of foreign invested steel projects. A lot of mammoth projects capitalized tens of billions of dollars were registered during the period. Analysts once commented that foreign steel manufacturers flocked to Vietnam to take full advantage of the low electricity price and cheap labor force.

The mammoth projects included the 9.8 billion dollar Ca Na – Ninh Thuan steel complex, run by the joint venture between Vinashin and Malaysian Lion Group, the 7.8 billion dollar Son Duong Steel Complex and Port by Taiwanese Formosa in Vung Ang economic zone in Ha Tinh province.

These also included Tata project, capitalized at 5 billion dollars in Vung Ang economic zone, Guang Lian project by Taiwanese Tycoons Steel International in Dung Quat economic zone, capitalized at 4.5 billion dong.

However, according to the Vietnam Steel Association (VSA), the Son Duong project of Taiwanese Formosa Group has been the only project, licensed in the last six years which, has started. The other projects either have been eliminated, or left idle.

Meanwhile, the joint venture between Indian Tata group, which contributes 65 percent of capital, Vietnamese Steel Corporation and the Vietnam Cement Corporation, which both contribute 35 percent of capital, has been delayed since 2007.

According to Pham Chi Cuong, Chair of the Vietnam Steel Association, one of the reasons behind the delay, is that Tata group has not reached an agreement on the expenses for site clearance and water system building. The Ha Tinh provincial authorities have demanded a big sum of money for the site clearance, which is higher than the initial level.

As the project covers a large land area of 900 hectares, nearly 3000 households would have to leave, while the expenses on the site clearance were estimated to reach 4 trillion dong, which is unaffordable to the Ha Tinh provincial budget.

Meanwhile, Tata only agrees to advance 30 million dollars, or 600 billion dong for the site clearance, the same level applied for the Formosa’s project which is also located in the Vung Ang economic zone.

Tata has been insisting on the fair treatment among foreign investors. If Taiwanese Formosa only has to pay 30 million dollars in advance, Tata will not pay higher.

The Ha Tinh provincial authorities then asked for the support from the State budget. Meanwhile, the Ministry of Planning and Investment has answered that it is impossible to arrange such a big capital for the site clearance, since Vietnam now has to cut down public investment in the context of economic difficulties.

Meanwhile, the project by Taiwanese Tycoons Steel International, licensed in 2006, has been going at a snail’s pace. As the investor could not mobilize capital, while lacking experiences to build big scale steel mills, Tycoons then invited E-United Group to form up a joint venture, in which E-United contributes 90 percent of capital.

The Dung Quat Economic Zone has allocated nearly 300 hectares of land to the investors, but the project has been going very slowly. The local authorities have adjusted the investment license four times, while the investor is now awaiting the approval for the capital increase from 3 billion dollars to 4.5 billion dollars.

VSA once asked the Ministry of Industry and Trade and the Quang Ngai provincial authorities to consider the financial capability of the investors carefully before deciding to adjust the license.

The Dung Quat Economic Zone’s board of management has requested the investors to prove the capability to arrange capital for the project. However, Guang Lian still cannot do that.

The 600 million dollar joint venture between Essar Steel, VSC, and Vietnam Rubber Group was licensed. However, Essar Steel gave up the project, selling the stakes to VSC. To date, VSC has completed the transfer of 19.5 percent of its stakes in the project to Industrielle Beteilingungs SA, a subsidiary of Italian Danieli.

Tran Thuy

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