The Vietnamese steel industry, among others, will no longer be governed by planning but by other related laws, kick-starting the necessity to tighten licensing of new steel ventures in order to avoid slipping into past mistakes. 

A decade ago, poor decision-making led to a huge surplus in steel projects across the country 

Steel makers were on edge after hearing that a new overseas investor submitted plans to invest in a cold-rolled stainless steel project in the southern province of Ba Ria-Vung Tau, but the proposal was rejected after governmental agencies carefully evaluated the ­supply and demand, along with ­environmental issues in relate to the project.

The move has swept away ­concerns that steel projects can be approved easily, even it is not named in the master plan as a whole for the industry, as it moves back from how it has originally been ­governed.

The Law on Planning that took effect in January 1, 2019 abolishes master plans on specific industries and products. It is expected to reduce state intervention in the market through sectoral and product planning, and unify and increase transparency of spatial planning.

Previously, in order to do business, enterprises would have to prepare investment projects compatible with many master plans in land use, construction, or local socio-economic development. When these master plans contradict one another, the business activities of the enterprises can be risky.

In the case of the stainless steel scheme in Ba Ria-Vung Tau, local authorities pointed out reasonable evidence for the rejection saying that the local demand for stainless steel reached 490,000 tonnes, while the country’s total designed capacity hit more than 700,000 tonnes, making local makers run only about one-half of their designed capacity. Thus, continuing to attract investment into cold-rolled stainless steel will create fierce competition among enterprises and reduce efficiency of domestic enterprises and exports.

Pham Chi Cuong, former chairman of the Vietnam Steel Association (VSA) said, “The explanations and clear instruction, not only for this case, promote environmental-friendly business as well as remove concerns on licensing steel projects. It is because for most other industries, including steel, the Ministry of Industry and Trade (MoIT) is no longer responsible for carrying out the planning.”

Before the Law on Planning took effect on January 1, 2019, the MoIT was in charge of asssessing and appraising the planning of the sectors under its management.

Licence tightening

The VSA suggested that foreign investors should not be invited onto projects to create standard steel products where the supply is redundant. Instead, they should be encouraged to invest in production of alloy and high-quality steel.

With the government’s view that Vietnam will not trade off environmental integrity for economic growth, many localities are being cautious about licensing steel projects, some even refusing permission for new plants.

“If Vietnam is as determined to protect the environment as it claims, clean projects will come. After tightening the licensing, the quantity may be lower, but the quality will be higher,” economic expert Pham Chi Lan said.

The steel industry is a particularly energy-intensive sector, thus any new steel venture must avoid having significant negative impacts on the transmission system.

In 2010, the steel sector witnessed a grievous surplus due to its failure to conform to planning, with over 30 steel ventures licensed beyond official plans for the industry. Together, these projects have injected an additional 60 million tonnes per year of extra capacity into the industry, with inadequate regulation and lax local authorities to blame.

In 2007 and 2008 alone, dozens of steel investment projects, both domestic and foreign, were licensed and included the $1 billion Tycoon-E United Dung Quat steel complex in the central province of Quang Ngai, the $4 billion Van Phong steel complex, and a joint venture between South Korea’s Posco group and Vinashin in the central province of Khanh Hoa, among many more.

An inspection by the MoIT later found that of the country’s 65 steel projects with annual capacity of 100,000 tonnes or higher each, only 17 were under planning and 16 approved by the MoIT, while the remaining projects were licensed by localities outside planning, with as many as 24 of them ­licensed out with their authority.

The surplus crisis led to supply 50 per cent higher than the demand. Since then, the surplus has become worse despite an annual 10 per cent growth of domestic demand.

The market chaos at that time was attributed to the industry’s unplanned development and lax management of steel investment licensing by state agencies, given localities’ eagerness to attract foreign investment.

Licensing of unplanned projects also resulted from overlapping management among local agencies, analysts pointed out, citing Ba Ria-Vung Tau as an example. Because of this inconsistency, many localities were free to license steel projects valued at less than VND 1.5 trillion ($65.21 million) even though they were outside the industry planning scope.

Learning from the past

On past lessons, Cuong from the VSA said, “The surplus crisis was taking a toll on the steel industry, which suffered falling prices and sluggish sales for months amid the construction season. As a result, the industry was operating at around 50-60 per cent of capacity, costing investors huge capital and wastefulness. But that was not all. Environmental pollution, power shortages, and lack of human resources were other challenges facing the industry.”

Rampant development of power-hungry steel plants also triggered an electricity shortage. In Ba Ria-Vung Tau, nine operating steel projects alone were consuming some 60 per cent of the province’s total electricity output. The government followed up by reviewing steel schemes, especially large and foreign-invested ones which were delayed due to financial difficulties, and revoked licences of those without sufficient explanations.

A steel investor, who declined to be named, said, “To ensure ­sustainable development for the steel ­industry, the appraisal and ­licensing of metallurgy complexes should not rest only on the local authorities but be consulted on by experts to properly select financially-viable and ­technologically-viable investors to ensure their feasibility.”

VIR