Government offers cost-saving solutions to Formosa steel project

Deputy Prime Minister Hoang Trung Hai has agreed to provide Formosa Ha Tinh Steel Corporation (FHS) with an import tax exemption on a range of products and machines needed to build the firm’s steel plant. FHS has also been exempted from the royalty tax, particularly aimed at its sand collection and materials needed for the plant’s foundation.

FHS will also enjoy an environmental protection fee of only 60 per cent of the standard for the aforementioned activities.

Additionally, the government has agreed to waive the contractor’s tax for imported goods and equipment, as long as they are ensured to be used only for FHS, and not for any other projects.

Early this May, the Ministry of Construction clarified the availability of refractory materials in Vietnam at FHS’ request. Those materials not available in the country included clay bricks, heated bricks and many others. Formosa started construction on its project in 2011, after three years waiting for site clearance to be completed.

The project has the total registered investment capital of approximately $10 billion, with an annual production capacity of 7.5 million tonnes of steel. Formosa holds a 95 per cent stake in the project, and China Steel – the largest steel maker in Taiwan – has 5 per cent. Construction started in April this year with products and equipment to be sourced between May and September.

According to its plans, FHS will import around 922,000 tonnes of equipment, however, the current receiving port – Vung Ang – is overloaded with some vessels spending up to four weeks offloading.

Originally, under the law, Formosa’s imports of materials for the project would have been reviewed against those materials which are available in the country. Local customs would have required it to pay tax on refractory bricks, power line cables, and other equipment.

According to FHS’ calculation, the tax on these imports would increase the project investment capital by VND1 trillion ($50 million).

A representative for FHS argued that some of the refractory bricks were made in Vietnam, but that those needed for the blast furnaces were of a higher quality than those available locally. He added that the plant’s safety relied on using higher quality imports.

According to FHS, the project will take 20 years to recover its investment, and therefore any increased expense would impact the competitiveness of the products.