$16 billion steel super-project investor clamors for preferences

Taiwanese Formosa Group, investor of a mammoth Ha Tinh city steel project, has asked the Government for preferences. If the Government agrees, experts argue that it must also amend current laws.

With total estimated investment capital of $16 billion, the Son Duong Steel Complex and Deep Water Seaport project in Vung Ang Economic Zone in Ha Tinh city is considered to be the largest foreign-invested project thus far.

Two years after the ground-breaking ceremony on July 6, 2008, the project has not made considerable progress, as authorities have been slow to clear the site.

Formosa, the Taiwanese investor, has contacted the Ministries of Industry and Trade, Planning and Investment, Finance, the State Bank of Vietnam and the Ha Tinh People’s Committee, asking for a ‘special mechanism’ for the project.

Under current laws, a foreign bank branch can provide credit to one client not higher than 15 percent of stockholder equity of the bank branch in Vietnam (not the stockholder equity of the parent bank group). Formosa has asked for exemption from this regulation.

According to the group, every year, the group needs to borrow $2 billion. Meanwhile, there are 12 foreign banks in Vietnam that only have chartered capital of $0.27 billion, which means that the group can borrow $0.04 billion at maximum from all the banks.

If the investment group cannot borrow the capital it needs, the project may not be implemented.

Formosa has also asked for exemption from the 10 percent contractor tax and exemption from import tax on project materials. They also asked the Government to give support in possessing foreign currencies. In the first three years of the project, the company explained, they will need $2.86 billion every year, and it cannot arrange $1-1.5 billion.

According to Formosa, this is a key national project that deserves preferences.

A Ministry of Industry and Trade official observed that Formosa is the first foreign-invested enterprise to make such a big claim. He reasoned that, while it is a big project, it is not a key national project as Formosa suggested.

“It is the right of investors to make proposals to help settle difficulties, however, not all proposals can be accepted,” the official stated. “Currently, Vietnam allows preferential taxes of zero percent on iron ore and coal imports.”

The Ministry official added that they will give an official answer in two days.

Formosa’s claims have reminded people of a proposal made by Malaysian Lion Group, the investor in the $9.8 billion Ca Na steel project. The company asked the Government of Vietnam to protect its products because it feared stiff competition from China’s steel. The proposal was denied because it violated WTO rules.

Commenting on Formosa’s claims, Nguyen Tien Nghi, Deputy Chair of the Vietnam Steel Association, warned that, if the Government agrees to provide Formosa with such preferences, then it must satisfy claims of other investors.

Meanwhile, Lawyer Tran Dinh Trien of Vi Dan Law Office and the Hanoi Bar Association, characterized the proposals as unreasonable.

“When foreign investors invest in Vietnam, they can enjoy many tax incentives. However, all investors need to be treated equally, without discrimination,” he argued.

Vietnamnet

Tags: Formosa Group, Vietnam steel industry, Vietnam steel market