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With VN awash in “billion-dollar projects,” Gov’t may curb local approval powers

Date: 6/26/2009 9:19:47 AM

Permits for seventy two billion dollars worth of new foreign investment were granted in 2008, but only $4 billion worth of capital has been materialized over the last six months. It seems that Vietnam is dizzy with the pledges and not paying attention to the actual results of the current licensing scheme. The Government is considering taking back some of the permitting powers delegated to local authorities in 2006.

Officials of Thanh Hoa and Ha Tinh provincial authorities lost a lot of face when they were criticized by local newspapers for the ‘Eminence Case’ two years ago. Those officials rolled out the red carpet for Yang Wu Sung, the ‘Boss of the Eminence Group’, who promised to invest some $30 billion in a steel complex at the Nghi Son Industrial Zone in Thanh Hoa Province. But after all the feasting and public celebration, ‘Mr. Boss’ quietly slunk out of Vietnam, leaving behind only the empty dreams of the local officials.

Pham Chi Cuong, Chairman of the Vietnam Steel Association (VSA), said that Vietnamese officials need to learn from that lesson. Easy licensing has become worrisome, he explained. Vietnam has accepted dozens of multi-billion dollar steel project proposals from the likes of Tycoon Worldwide Group, TATA Steel, Lion Group and FRRO China. The projected capacity of steel projects newly licensed or under consideration is some 60 million tons per annum which is triple Vietnam’s 2020 requirements.

Cuong said that steel demand is eight million tons this year, while the total capacity of existing mills is three times greater. “We will suffer if we keep the current licensing scheme. A lot of steel mills are now running at just 50 percent of capacity,” he said.

The steel glut has become so serious according to Cuong that, in March, the Prime Minister instructed a freeze in the licensing process for 32 steel projects.

Since the second foreign direct investment (FDI) wave began in 2005 and a decentralized system of FDI project licensing was implemented in 2006, a lot of energy and land-intensive multibillion dollar projects have been licensed with easy conditions. Probably there are way too many resorts, steel mills, oil refineries, ports, airports, shipyards and golf courses on the drawing boards – so many that the overall development of the country is distorted.

However, it is not easy to settle the problem. After Minister of Planning and Investment Vo Hong Phuc proposed that the National Assembly consider the revoking the permits of 50 of the projects, the ministry has been put under pressure. Sources said that local authorities have been lobbying and struggling to retain the projects.

Experts also point out that government agencies have not supervised the implementation of licensed projects adequately. The $1.2 billion Lee & Man paper project in Hau Giang province was kicked off in late 2007. Today, the site for the factory is empty and deserted. A project in Hanoi’s Tay Ho Tay (‘West Lake West’) area capitalized at several hundred million dollars, though licensed in 2006, has not been implemented due to the problems in site clearance.

Thus, though a lot of investment projects have been licensed with overly easy conditions, it is impossible to settle the problem overnight.

The Foreign Investment Agency is an element of the Ministry of Planning and Investment (MPI). Its head, Phan Huu Thang, comments that the “FDI boom helps create a good image of Vietnam in the international market. We have to be selective in granting licenses, but we should not conclude there is overinvestment in one or another sector. Investors only put their money in fields where they hope to profit.”

Thang said that MPI has not proposed to revoke licenses of any FDI projects. However, the ministry is now checking up on projects that have been implemented too slowly. “Honestly speaking, this is a real coordination problem. When someone has already invested several million dollars, it is not easy to yank their permit. We should try to create conditions that enable them to continue,” he said.

Most recently, Deputy Chairman of the HCM City People’s Committee Nguyen Thanh Tai agreed to join with the Foreign Investment Agency to organize a dialogue with representatives of 38 large scale FDI projects which have been very slow in implementation. It will take place later this year. However, the dialogue will not necessarily determine the fates of the projects.

Thang admitted that it is really difficult to say ‘no’ to billion dollar projects, though the national economy can only ‘absorb’ a certain amount – currently $10 billion a year and increasing by 10 to 12 percent annually. Thang added that it would be a waste to accept too much FDI (it was $72 billion last year), because of Vietnamese economy’s limited absorptive capacity.

Vietnam considers cutting back licensing powers of local authorities

MPI is considering trimming the powers granted in 2006 to local authorities to license FDI projects. The study proceeds from an instruction by the Prime Minister’s office and with an eye on models in some foreign countries and practice in Vietnam in the last three years.

Foreign Investment Agency chief Phan Huu Thang said that MPI will take back the delegated powers based on two factors: project scale and land area.

(Source:VietNamNet/TBKTSG)

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