Regulations throttle engine plant

Vietnam’s first automobile engine manufacturing plant may be forced offline
by heightened emission standards

According to a Quang Nam Provincial People’s Committee report sent to the government last month, the Truong Hai engine factory “is facing difficulty” because it “has not yet met the roadmap’s emission standards regulated by the prime minister in 2011”.

According to the Decision 49/2011/QD-TTg dated September 1, 2011 signed by Prime Minister Nguyen Tan Dung, all cars and motorbikes manufactured in, or imported to Vietnam have to meet Euro 4 emissions standards from January 1, 2017 instead of the current Euro 2 and 3 standards.

Truong Hai broke ground on its engine factory in June 2012 with the total investment capital of $182 million. As the country’s first automobile engine factory, it is expected to increase the localisation ratio in Vietnam’s automobile industry. According to Truong Hai, it signed a technology transferring contract with South Korea’s Hyundai Motor Company to produce approximately 20,000 engines at Euro 2 and Euro 3 emissions standards each year.

In accordance with the Vietnamese government’s roadmap, Truong Hai will have to stop manufacturing engines at Euro 2 and Euro 3 standards in January 2017. Even if Truong Hai begins production in 2014 as scheduled, it will still only be able to manufacture Euro 2 and Euro 3 engines for three years.

Critically, the Quang Nam Provincial People’s Committee report stated that updating the engines from Euro 2 to Euro 4 standards would not be easy for Truong Hai.

“In addition, the changing to the manufacturing of Euro 4 engines over a short period will be very costly,” said the report.

If Truong Hai fails to upgrade the factory to one capable of manufacturing Euro 4 engines within next three years, the production at the plant will be forced to cease.

In the report, Quang Nam asked the government to allow Truong Hai to continue manufacturing Euro 2 and Euro 3 engines even when the Euro 4 standards are applied.

Previously, Truong Hai obtained preferential incentives from the Vietnamese government as it is considered a key national project.  This means the investor could borrow money, equal to 85 per cent of project’s total investment capital from the Vietnam Development Bank with a preferential interest rate over 12 years. Furthermore, Truong Hai will be backed by the government when borrowing capital from foreign bankers. The company can also enjoy import and export taxes of zero or the lowest possible levels in international agreements that Vietnam has joined with other countries.