Delayed steel project has investment blown out of proportion: Inspectorate
Delayed steel project has investment blown out of proportion: Inspectorate
A long-suspended project managed by State-run Thai Nguyen Steel and Iron Corporation (TISCO) saw its total investment skyrocket from the initially approved VND3.8 trillion to over VND8.1 trillion due to poor oversight, according to the Government Inspectorate.
The Government watchdog recently released its years-long inspection results for TISCO’s phase-two production expansion project, which is among 12 loss-making megaprojects that the Ministry of Industry and Trade is struggling to manage.
Poor administration by relevant State agencies over the years has prompted the steel-and-iron project to grind to a halt despite huge investment, and the project owner still has to spend some VND40 billion a month to service bank loans, according to Thanh Nien.
Cost overrun
In late 2004, the then Prime Minister gave TISCO the go-ahead to draft a feasibility study for tripling the capacity of steel billet production from 250,000 tons to 759,000 tons.
One year later, the project was approved at an initial tally of VND3.843 trillion, or US$242.5 million given the exchange rate at that time at VND15,850 to the dollar.
The project, which was originally scheduled for completion within two and a half years, included two major bidding packages and 22 other smaller components.
The first key package involved Tien Bo iron mining, worth VND442 billion. A local contractor was chosen to build an iron ore screening plant, which was designed to handle 300,000 tons of iron ore on an annual basis. It was put into operation in May 2014.
Meanwhile, the second package was expected to develop a chain of metallurgy technology operations, worth roughly VND2.3 trillion, or US$143 million, at an annual capacity of 500,000 tons of steel billets. In 2007, TISCO signed an engineering, procurement and construction (EPC) contract worth US$160.8 million with the Metallurgical Construction Corporation of China (MCC) to complete the second package, scheduled for completion within two and a half years.
However, the two sides signed many extra appendices of adjustments, which led to various content changes in their EPC contract.
In 2012, TISCO and its holding company, Vietnam Steel Corporation, suggested the Ministry of Industry and Trade revise upward the total investment of the project to VND8.104 trillion, or VND4.261 trillion higher than the initial tally. The approval was given in mid-2013, and the project was expected to begin operations in late 2014.
Since 2013, MCC and its subcontractors have suspended work on the project. Consequently, the project is over 10 years behind schedule, and all of the major items remain incomplete, according to the Government Inspectorate.
Statistics from TISCO revealed that the total payments on the project, as of late 2016, had amounted to nearly VND4.5 trillion, including the costs of equipment and construction of some VND2.1 billion and VND1 trillion, respectively. Also, the principals and interests on the project totaled some VND3.9 trillion.
TISCO has paid on behalf of MCC an accumulated amount of taxes, worth US$11.6 million, and other costs for equipment loading, unloading and maintenance.
However, the Chinese corporation has not transferred all the machinery specified in the contract. It even supplied substandard equipment and failed to comply with the agreed countries of origin for such equipment and technical specifications.
Disciplinary actions proposed
According to the Government watchdog, the upward capital adjustment of the project lacked a legal foundation. Following the instructions of the then prime minister in 2012, some ministries and the State Bank of Vietnam pointed out that the adjustment was baseless and illogical, but the Ministry of Industry and Trade still went ahead with its proposal.
Given these violations, the Government Inspectorate proposed Prime Minister Nguyen Xuan Phuc impose financial sanctions and take measures to recover US$13 million worth of payments for MCC, and some VND876 billion worth of other improper payments to its subcontractors among other monies.
The watchdog also recommended the prime minister ask TISCO, Vietnam Steel Corporation, the Ministry of Industry and Trade and other Government agencies to pinpoint the liabilities of the involved individuals and groups. It has already transferred four cases with signs of criminal offenses to the Ministry of Public Security for investigation.
The watchdog sent its inspection results to the Inspection Commission of the Party Central Committee for consideration so that some related officials and Party members under the management of the Politburo and the Secretariat could be subject to disciplinary measures.
