VSA sinks teeth into Guang Lian

Big questions hang over the long-delayed giant Guang Lian steel complex.

The Vietnam Steel Association (VSA) just sent a document to Prime Minister Nguyen Tan Dung opposing a proposal to raise production capacity at the $3 billion project in central Quang Ngai province’s Dung Quat Economic Zone.

The VSA claimed the capacity adjustment “is just aimed at occupying land but not showing implementation intention”.

VSA’s opposition came as Guang Lian’s investors asked for government approval to raise the project’s annual production capacity from five million tonnes to seven million tonnes, and increase total investment capital to $4.5 billion.

In a document sent to PM Dung last June, the Ministry of Industry and Trade (MoIT) said it agreed to allow the investors to raise capacity and investment capital because “improve the efficiency of the project”.

Guang Lian, firstly invested by Thailand’s Tycoons Worldwide Group and Chinese Jian Steel and Iron Group, was licenced in 2006 with total investment capital of around $1 billion.

A year later, Taiwan’s E-United Group replaced Jian Steel and Iron Group and took a 90 per cent stake in the project, establishing Guang Lian Steel Company. It also raised the investment capital to $3 billion.

Guang Lian said it would complete the project’s first stage in mid 2010 and the entire factory would be completed in 2012. However, the project only kicked-off in March.

The long-delayed project has raised doubt over the investor’s financial capacity, while Guang Lian Steel blamed the delay on the  global financial crisis.

The MoIT said the proposal for capacity adjustment, if approved by Dung, would allow the investor to complete the project construction four years later than initially scheduled. That means time for the project construction will be 10 years since it was licenced.

Based on the investors’ technical explanations, the VSA said the adjustment was to “make an illusion about a capital-intensive project, but it is a measure to extend time”.

According to the VSA, it would be difficult to raise the project’s  capital due to the global economic recession.

Furthermore, the VSA pointed out the technical design of manufacturing facilities such as smelting furnace and electricity transformer stations are not suitable for manufacturing seven million tonnes of steel per year.

Guang Lian is the third largest foreign invested steel maker in Vietnam after the $9 billion Cana steel complex in Ninh Thuan province, invested in by Malaysian Lion Group and Vietnam Shipbuilding Industry Group and Taiwanese Formosa Group’s $7.8 billion steel complex in Ha Tinh province.

Like the Guang Lian project, the Cana and Formosa projects are also in trouble. Formosa is slowly constructing its project and asking for tax reductions from the government, while Ninh Thuan People’s Committee announced that it was looking for other investors to replace Lion Group at  the Cana project.