Posted on 09 Apr 2015
Experts have cast doubt on the recent massive capital increase of the Formosa steel project in the central province of Ha Tinh to a hefty US$22 billion, saying this might be a tactic to lengthen the depreciation period and thus pay little or no tax.
The project developer, Hung Nghiep Formosa Ha Tinh Steel Co., has decided to revise up the project’s capital from the original US$15 billion of which US$7 billion would be used in the first phase and US$8 billion in the second phase, according to a report by the Vietnam Steel Association (VSA).
Speaking to the Daily, an expert from Formosa explained the capital demand for the first phase of the project had been pushed up to an estimated US$10 billion. The capital for the first phase is for site clearance and development of a port to handle 30,000-DWT ships, a steel plant with annual output 6.5 million tons, and a 650-MW thermal power plant.
However, Do Duy Thai, general director of Viet Steel Co., said that even when modern technology was used, the investment capital for the first phase of the Formosa project could only reach a maximum of US$3 billion.
He said Viet Steel had spent only US$300 million building a port with annual throughput of three million tons a year, a steel ingot plant and a steel rolling mill with an annual capacity of one million tons each in Ba Ria-Vung Tau Province, with site clearance costs already included.
“A furnace steel plant with output of 6.5 million tons per year only requires a maximum of US$800 million,” said Thai.
While local steel firms have to pay taxes, foreign investors usually pledge huge capital amounts for their steel projects, which allow them to prolong the depreciation period and report losses to avoid corporate income tax when the projects are operational.
“There is currently an unfair competition in the steel industry between domestic and foreign-invested steel companies,” said Thai.
He noted Ha Tinh might be unable to assess the Formosa steel project. For such a megaproject, groups of specialists should be needed to look into the actual value of investment in the first place.
Pham Chi Cuong, chairman of VSA, told the Daily that the Ministry of Planning and Investment once said contributions by foreign direct investment (FDI) projects to the national economy had been haphazard. Many foreign investors have constantly reported losses but continuously expanded their operations, he noted.
“Ha Tinh should reconsider the capital spike to US$22 billion of the Formosa project. If the province cannot do it, it should hire consultants,” Cuong suggested.
