Tata Steel’s plans for a $5 billion integrated steel plant in Vietnam is coming apart because of stiff competition from a Taiwan-based firm, Formosa Plastics, and unhelpful local Vietnamese authorities.
Particularly galling for the Tatas is that the Vietnamese have repeatedly overturned signed agreements for the
site of the 4.5 million tonne capacity steel plant. A recent notice for land evacuation may bring the entire project
to an end.
Tata Steel signed a memorandum of understanding (MoU) with the Vietnam Steel Corporation in 2007 for a
steel plant that would tap the Thach Khe iron ore deposits.
Tata Steel worked out technical means to commercially process the iron ore, unviable because of its high zinc content, and built a pilot plant to test the process.
The two sides converted the MoU into definitive legal joint venture agreements in August 2008. Tata Steel was assigned 60 per cent of the joint venture’s equity.
But the Vung Ang Economic Zone (VAEZ) authorities unilaterally transferred the land assigned to the plant to another investor — Formosa Plastics — in 2008. After more negotiations, the VAEZ offered a smaller area in February 2009 as an alternative.
{{/usCountry}}But the Vung Ang Economic Zone (VAEZ) authorities unilaterally transferred the land assigned to the plant to another investor — Formosa Plastics — in 2008. After more negotiations, the VAEZ offered a smaller area in February 2009 as an alternative.
{{/usCountry}}In July, the VAEZ then retracted this commitment as well.
After another site was offered in October and Tata accepted, the joint venture partners resubmitted their application for an investment license in December 2009. Though the Vietnam Ministry of Industry and Trade and other central ministries gave their approval, the VAEZ began raising objections.
Most of these, say Tata sources, are frivolous and often in violation of Vietnam’s own laws.
VAEZ has now said it will revoke Tata Steel’s land certificates by the end of this month.
India, the first country to grant Vietnam “market economy” status, has raised the issue with Hanoi on a
number of official occasions.
Commerce Minister Anand Sharma’s visit to the country on Wednesday will give New Delhi another chance.
However, with the VAEZ in effect giving Tata Steel notice, the issue is reaching a breaking point.
Sources say high-level political intervention is needed to save the investment.