Vietnam Assigns Government Team to Solve Tata Plant Deadlock

By Bloomberg News
Aug 31, 2011

Vietnam set up a group of central and provincial officials to help resolve land clearance and compensation issues that have delayed the construction of Tata Steel Ltd. (TATA)’s $5 billion project in the country.

The group aims to work with officials at Tata Steel, India’s largest producer of the alloy, to come up with a solution within a month, Vice Minister of Planning and Investment Dang Huy Dong said in an interview in Hanoi.

“It’s still a priority project,” Dong said yesterday. “Both parties have to come up with a realistic solution.”

The case highlights the difficulties some projects that would rank among Vietnam’s biggest by investment capital may encounter due to land-clearance laws. Most projects in Vietnam also require approval by multiple government agencies.

“It’s difficult to reach the level of consensus in Vietnam that is required for these large-scale projects, even for small- scale trading projects, where many ministries have to be consulted for their ‘opinions,’” said Fred Burke, Ho Chi Minh City-based managing partner at Baker McKenzie in Vietnam.

Under Vietnamese law, the government pays for land clearance. In practice, the local government is expected to cover the cost and “they would make the investors somehow pay for it,” Burke said. “It’s kind of an impractical law in the first place. And those impractical laws sometimes just end up frustrating the implementation of projects.”

Awaiting Approval

Tata Steel first signed an agreement with Vietnam Steel Corp. in May 2007 to develop a plant with an output capacity of about 4.5 million metric tons a year in coastal Ha Tinh province. The Indian company, which operates in Africa, Europe and Australia, estimated the first phase of the project would be completed by the end of 2010, according to a 2008 press release.

The Mumbai-based steelmaker is still awaiting Vietnam’s approval for the plant, spokesman Prabhat Sharma said on Aug. 22. Tata didn’t immediately respond to questions today from Bloomberg News.

Construction of the complex has been repeatedly delayed over land allocation and after a site previously earmarked for Tata was handed to a rival steel mill project, India’s Business Standard reported in September 2009. The site clearance costs total about 4 trillion dong ($192 million) and the provincial authority wants Tata to cover some of that, according to a Vietnam Investment Review story that cited Nguyen Dinh Van, director of the region’s economic zone management authority.

Financial Constraints

Dong, the vice minister, said the government has told Tata that it faces financial constraints over the land clearance issue. Tata “complained that they were not equally treated like other rival companies,” Dong said. “It’s simply first come, first serve.”

“If the first investor comes in with ready, quick decisions and they’re disbursing hundreds of millions of dollars in a matter of a year, then we have to have money to make things happen,” Dong said. “And by doing that, we ended up having no more resources.”

Tata would have a minimum 65 percent stake in the complex, with Vietnam Steel Corp. and Vietnam Cement Industries Corp. the remainder, according to the 2008 press release. Tata would also hold a 30 percent stake in Thach Khe Iron Ore Joint Stock Company, which would undertake mining in the Thach Khe iron ore mine, according to details on Tata Steel’s website.

The government is working with Tata Steel to push forward the project, Deputy Prime Minister Hoang Trung Hai said May 3.

“This is a project that Vietnam really wants,” the deputy prime minister said at the May news conference during a meeting of the Asian Development Bank in Hanoi. “However, the preparations have been slow.”

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net.