Formosa’s FX fears

According to Chu Xuan Pham,  representative of the Formosa Ha Tinh Steel Corp. (FHS), the Taiwanese firm would need $2.8 billion a year to import iron ore, coke coal and other materials for its Vung Ang Industrial Park-based steel plant in Ha Tinh province, to produce 7.5 million tonnes of steel in the first phase of operation.

The first phase, which has a total investment capital of $8.9 billion for building a port, a steel plant and a power plant, is projected to be commissioned from 2013.

Pham said that after putting the plant into operation, the company would be able to get around $1.4 billion a year, or a half of the required working capital, from selling steel products abroad.

“We will also sell our steel products, including steel shape, plate and billets, in the Vietnamese market, through which we will earn a lot in Vietnamese dong,” Pham said.

FHS is projected to sell a half of its 7.5 million tonnes of steel a year in the first phase abroad and the remaining half in the Vietnamese market.

“The problem here is that we need to turn our earnings in Vietnamese dong into forex currencies [via banks in Vietnam] to import raw materials from overseas, mostly from Brazil and South Africa,” Pham told VIR.

Under Decree 108/2006/ND-CP dated September, 2006 to guide the implementation of Investment Law 2005, the Vietnamese government shall support foreign exchange balancing in cases where authorised credit institutions are not able to satisfy the demand for foreign currency with respect to a number of important investment projects in energy, waste treatment or construction of traffic infrastructure.

The Son Duong port is capable to handle 300,000 dead weight tonnage ships, while the power plant will have a total capacity of 1,500 megawatts, which is specially to supply electricity to run the steel mill.

According to a document that FHS sent to the Ministry of Planning and Investment (MPI) last week, the firm stressed that the steel complex was an important project in Vietnam.

“Since the foreign currency amount we need is very big [for Vietnamese banks’ forex reserves], we are worried about some sudden shortage of forex reserves in local banks in the future,” Pham said.

“Foreign currency shortages will hinder us from ensuring sufficient imported raw material for our steel plant, which cannot operate interruptedly,” he said.

FHS was also waiting for a “particular mechanism” from the Vietnamese government to guarantee stable foreign exchange balancing in cases where authorised credit institutions were not able to satisfy the company’s demand, said Pham.

A senior MPI official said it was FHS’ requirement was understandable.

“However, it will be difficult [for the government] to guarantee foreign exchange balancing support for FHS in the future if the central bank lacks forex reserves.

“It is not mention that how the government and central bank can make the same guarantee for other foreign investors if they ask for the same special treatment,” the official stressed.

FHS received an investment licence for the steel complex project in June, 2008. The investor got site transfer from Ha Tinh province on October 1, 2010 and is knocking the 2,146 hectares site into shape.

The investor planned to start the building of Son Duong port’s damp and water pipe for the steel plant in the next February.