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Formosa seeks preferences for Ha Tinh city steel project
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Tuesday, 27 Jul 2010
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Vietnam Business News reported that 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 USD 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 6th 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% 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 USD 2 billion. Meanwhile, there are 12 foreign banks in Vietnam that only have chartered capital of USD 0.27 billion, which means that the group can borrow USD 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% 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 USD 2.86 billion every year, and it cannot arrange USD 1 to USD 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.

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

Formosa's claims have reminded people of a proposal made by Malaysian Lion Group, the investor in the USD 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, Mr 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 Mr Tran Dinh Trien of Vi Dan Law Office and the Hanoi Bar Association characterized the proposals as unreasonable. He argued that "When foreign investors invest in Vietnam, they can enjoy many tax incentives. However, all investors need to be treated equally, without discrimination."

(Sourced from www.vietnamnet.vn)

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