Taiwanese firm keeps demanding more despite huge incentives from Vietnam

Taiwanese firm keeps demanding more despite huge incentives from Vietnam

Formosa Ha Tinh Steel Corporation had been unknown to most people outside of the business sector before it first grabbed media attention in early May, when protests, followed by riots, erupted in some Vietnamese localities after China stationed its illegal oil rig in Vietnamese waters.

Sixteen individuals were arrested and placed under investigation on May 18 for igniting riots and lootings targeting the construction site of Formosa Ha Tinh at the Vung Ang Economic Zone in central-northern Ha Tinh Province on May 14.

The protests against China, involving around 5,000 Vietnamese nationals, turned violent and many assets of the company were stolen, according to Ha Tinh police.

The company, backed by Taiwanese-based Formosa Plastics Corporation, however, continued to make national headlines with requests to be allowed to set up a special zone inside Vung Ang, and to establish a shrine at the same location.

While Formosa Ha Tinh was granted permission to build the shrine on July 3, the other request was deemed unreasonable, and was eventually rejected.

As a proverb says, “give an inch and he'll take a yard,” Formosa Ha Tinh has been blasted as being over-demanding, given the huge number of incentives it is already enjoying from the Vietnamese government.

Megaproject

The Formosa Ha Tinh project has a registered investment of nearly $10 billion, and has been allocated a huge land plot of 2,025 hectares at the Vung Ang Economic Zone, which is now an enormous, busy construction site.

Ngo Dinh Van, deputy head of the management board of the economic zones in Ha Tinh, said the Taiwanese company has disbursed more than $4 billion into the Vung Ang project.

“This has enabled the investors to complete around 65 percent of construction,” he said.

Van added the project consists of three main constructions: a thermal-power plant, a deepwater port, and a steel-making complex.

The first thermal-power plant will begin generating electricity as early as this September, while 11 docks of the port have already been finished, Van informed.

“The basic construction units of the steel-making complex are also complete,” he added.

The first batch of steel is scheduled to be produced in May 2015 during the first operation phase of the project, which will require some 6,000 employees.

“Taiwanese laborers will account for 1,000 of the total, and the remaining will be recruited from the local workforce,” Van said.

Noticeably, most of the equipment and machinery imported by Formosa to serve the project is from China.

The company started importing machinery in 2010, and more than 90 percent of the imports were from Taiwan and China, according to Vung An customs. Others are from Belgium, Germany, and Australia.

Huge incentives

Formosa Ha Tinh obtained the investment license in 2007, accompanied by a number of preferential treatments.

The company is subject to a preferential 10 percent corporate income tax for the whole life of its operation in Vietnam, while the normal tax rate is 22 percent.

In the first four years since it begins making profits, Formosa Ha Tinh will be exempted from corporate income tax, and will only have to pay 50 percent of the taxes in the next nine years.

In case of losses, it will be allowed to transfer the losses to the following years and deducted into its taxable incomes.

The company is also exempt from paying import duties for its equipment and machinery, as well as natural resource taxes.

“The incentives granted to Formosa Ha Tinh are unprecedented, whether it is about land leasing or taxes,” Pham Chi Cuong, former chairman of the Vietnam Steel Association, remarked.

Cuong also expressed his concern that once operational, the steel-making complex of Formosa Ha Tinh will affect other local steel-makers.

“Formosa Ha Tinh’s complex is capable of producing 22.5 million tons of steel a year, while Vietnam’s total steel consumption is only around 10 million tons,” he said.

In a document made public to investors, Formosa Ha Tinh said its steel products will mainly be exported to other Southeast Asian countries.

But Cuong expressed his doubt, saying these countries “can hardly consume all of Formosa Ha Tinh’s products, given their own steel-making industries.”

“So it’s likely that Formosa will focus on the Vietnamese market instead of exporting its products, and the local steel-makers could be sent to bankruptcy,” he warned.

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