Showing posts with label Guang Lian. Show all posts
Showing posts with label Guang Lian. Show all posts

Friday, September 19, 2014

JFE discontinues plan for steelworks in Vietnam

In  a press release made on its website, JFE has officially announced its decision to quit involvement in the Guang Lian Steel project located in Dung Quat Economic Zone, Quang Ngai province, leaving E-United Group alone with the project.

The press release did not reveal the reasons for JFE Steel’s discontinuing the participation in the project; however, insiders tend to link this leaving decision to the fact of unapproved investment incentives and the fierce competitions from giant steel mills under construction in Vietnam and in the region.  The situation raises the questions over whether E-United Group would go on with the project and how it would arrange the finance to feed this big steelwork.

Source from Dungquat Economic Zone Authority was quoted as saying that if the investor wants to move on, it has to pledge to follow a clear construction road map otherwise the province would consider revoke the investment certificate, recover the allocated land, and pay back to the investor what it has spent legitimately.

In a report by local authority addressed to the government late 2012, the disbursed investment capital of the project was said to be valued at around $ 50 million then as declared by the investor.


While the 9.9 billion Formosa steel project is on its good progress in north central Ha Tinh province, it’s not clear to outsiders which path  the Guang Lian project is heading to.

Related News:
Guang Lian Steel Project in Dung Quat: in the balancing art of "give-and-take"

Tuesday, September 9, 2014

Guang Lian Steel Project in Dung Quat: in the balancing art of "give-and-take"

Various news sources recently reported that authorities allowed corporate income tax rate of 10% to be applicable for only 15 years, instead of for the project's whole lifetime (nearly 69 years) as petitioned by by JFE Steel Corporation (Japan) regarding their tentative investment in the current Guang Lian steel mill project located in Dungquat Economic Zone in Quang Ngai province. This is one of petitioned-but-rejected incentive proposals made by the investor who is found to be in the dilemma of whether to going ahead with the project.

A rescuing hand for a steel mill in stagnancy?

Licensed in 2006, the sole investor for that giant project had been initially Tycoons Group (Taiwan), later joined another Taiwanese investor - E-United who became the majority stakeholder then, resulting in the increase of registered capital to $3 billion and changing the project name into Guang Lian Steel Mill. A commencement ceremony was organized in October 2007, followed by the construction of some civil works and ground piping, then all execution started to suspend since 2010 end until now. After 7 years of commencement, the project remains in a stagnant situation which has been raising much debates among related parties.

Early 2012, JFE expressed its intention to participating in the project, in the form of purchasing controlling stakes in the owners-fluctuating project to become the majority stakeholder (or the real owner), then raising the mill's capacity, changing the configurations to manufacture other types of steel products, and raising the project capital to $4.5 billion. According to its initial plan, the final decision on investment would be made in early 2013, to be followed by application for investment certificate amendment and construction kick-off in July 2013. However, this plan has not been materialized. A new plan was proposed for July 2014, and seems to be missed again.

Give-and-take dilemma

The JFE's participation is expected by local authorities to be the rescuing hand for the long stagnant steel mill project which is now leaving hundreds hectares of land in waste in dim hope. That's what JFE really means to the local community. However, the investor as normal is also keen on benefiting something from the local investment environment. "If, by the end of this year [2012], the study reaches a favorable conclusion, including the feasibility of developing required infrastructure and the availability of incentives, JFE Steel expects to partner with the E United Group to launch a steel-production operation in Vietnam", read a press release announced by JFE Steel in March 2012. 

After great efforts to make a pre-feasibility study available, in 2013, JFE wrote to the authorities to ask for additional incentives such as the allocation of 210 hectares of land and waters to increase the total project area to more than 700 hectares. The Japanese investor also insisted to ensure adequate water supply of 200,000 m3 per day, connecting  its electricity system to the national power grid, and especially the very preferential enterprise income tax for the entire project ..., stated by various reports by local government.

Most of the requirements on infrastructure seemed to get nod from the local government (Dung Quat Economic Zone Authority and Quang Ngai Provincial People's Committee). Quang Ngai Authorities was said to agree in principle to allocate additional 185 hectares of land, adjusting the master plan of Dungquat port complex No. 1 to arrange water area for extra terminals serving the steel mill, coordinating with water and power suppliers (both private and state-owned) to secure the utilities for this power-consuming project. 


Balancing art needs the balance.


However, the financial incentives prospects have been reportedly cashed dim light over the fate of the project. The investor petitioned to enjoy the preferable corporate income tax (CIT) rate of 10% applicable for the whole project lifetime (including for the expanded capacity when raising the investment capital from $3 billion to $ 4.5 billion); however, CIT rate of 10% was tentatively  approved to be applied for only the first 15 years for the expanded capacity, VOV quoted a representative from Quang Ngai authority as saying in July 2014. The source also revealed that the proposals of state budget covering the expenses of additional land compensation and port channel dredging was also turned down by the government, that means, the investor would have to handle these works at their own cost, if he wished to proceed with.


Which or what way to go?

Under such circumstances, it's not difficult to imagine how JFE is in the dilema of "give-and-take" when setting up their presence in Vietnam. At the end of 2012, Eiji Hayashida, president of JFE Steel was quoted as saying about JFE's plan for pouring capital to steel mill project in Dung Quat, “Things won’t go smoothly until we make sure that we’ll beat the competition as many projects are being lined up to build new mills in southern China and Vietnam.”, and “We initially said a conclusion will be reached by the end of this year [2012], but we’ll need a bit more time,” said in an interview 05 Dec 2012 at the company’s Tokyo headquarters. And it seems to outsiders that it's now late 2014 and even more time shall be needed.

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