Vietnam injects caution into bauxite mining plans

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With its first two bauxite mines set to run at a loss, the country aims to scale down its grand plans for the mineral, which is a principle source of aluminum


The Tan Rai processing plant in Lam Dong Province saw a rise of 30 percent in investment costs due to hikes in foreign currency exchange rates, changes in taxes and raw materials price hikes, according to the industry ministry

A 2007 government plan aims to produce 6-8.5 million tons of alumina, or refined bauxite, annually by 2015 by building six processing plants in the Central Highlands.

Vietnam has some 5.5 billion tons of bauxite reserves, considered the world's third largest after Guinea and Australia, according to a report by the US Geological Survey in 2009.

Construction began on the Tan Rai Plant in Lam Dong Province in 2008, and on the Nhan Co Plant two years later, despite opposition from scientists who deemed the plans unsafe and ineffective.

Plans to build Binh Thuan Province's Ke Ga Port, which was supposed to be the country's main port from which to export bauxite goods by 2015, were also approved.

But the port project was suspended by the government last month for being "ineffective" after its investor, the Vietnam National Coal and Mining Industries Group (Vinacomin), failed to begin work five years after conception.

In the meantime, Tan Rai and Nhan Co, both owned by Vinacomin and worth nearly $1.3 billion in total, are now facing the risk of running big losses when they officially open later this year and next year, respectively.

At a press conference on Monday, Nguyen Manh Quan, chief of the Heavy Industry Department at the Ministry of Industry and Trade, said recent studies of the plants' cost-effectiveness showed that they are "big risks" and "ineffective" due to overspending and dropping alumina prices.

Tan Rai, which had its soft opening late last year, saw a rise of 30 percent in investment costs due to hikes in foreign currency exchange rates, changes in taxes and raw materials price hikes, he said.

Last December alumina cost $326.5 billion per ton, while it was some $365 when the project was approved, Quan said, blaming it on the world economic downturn.

Even so, activists' wishes to shut down the plants will go unfulfilled, at least for now.

But the government has amended its plans, delaying the remaining four plants to until after 2020 and reducing targeted output.

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Quan said Vietnam's new yet-to-be-approved official bauxite mining plan through 2020 has the Tan Rai and Nhan Co projects running at low capacity for studies and trials from now until 2015.

Then, if the tests show positive results and suitable infrastructure is completed, the plants will begin increasing their capacity by 2020, according to the plan.

Each plant's annual output is designed to be 650,000 tons of alumina.

The plan then envisions a system of railways to transport the alumina after 2020, when other plans will be built to eventually boost output to 2-3 million tons every year.

Vietnam will develop the bauxite industry "carefully" and "step by step" to guarantee benefits for socio-economy and national defense, Quan said.

The new plan will be submitted to the Politburo, the Communist Party's central committee, and then the Prime Minister for approval.

For its part, Vinacomin is currently evaluating the Tan Rai and Nhan Co projects, and will submit a plan for "suitable adjustments" to the government soon, Quan said.

It has so far gained approval from the ministry on several proposals to support the projects, according to Quan.

Compensation paid for locals affected by mining activities, for example, will be decreased to some VND250 million ($11,845) per hectare.

The current rate VND800-1 billion ($37,905-47,381) per hectare is "unreasonable," because it is applied under a permanent compensation policy, while it takes just 2-3 years to restore lands for cultivation at bauxite mining sites, according to the group.

Vinacomin also proposed adjusting environment fees from VND30,000 per ton of crude ores to VND5,000, saying that it has already invested a lot into environmental works like red mud reservoirs and observation stations.

"With such reviews and proposed adjustments, the projects will be effective, even with the current market price of alumina," Quan said, adding that Vinacomin had recently signed a deal with a local business to sell alumina for $340 per ton.

It is expected that alumina's international price will be some $450 on average once the world economy recovers, he said.

The forecast, according to Quan, is "a basis to believe that the projects will be effective in the future."

Asked if the ministry takes responsibility for approving the refinery plants, Quan said they were not "projects of national importance" and they didn't use public money, so Vinacomin was in charge of drafting and assessing the projects, and will be responsible for them on its own.

However, he admitted that the ministry was ordered by the government to assess Nhan Co Plant, because bauxite is a "sensitive" matter and Vinacomin is a state-owned business.

An assessment council was established in September 2010 with 40 experts from different agencies who at that time approved of the project's plans, said Quan.

In trouble

Since the government announced the closedown of Ke Ga Port, economists have called for the suspension of both the Tan Rai and Nhan Co plants.

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Speaking to Vietweek, Dr. Le Dang Doanh, former head of the Central Institute for Economic Management, said it would be a good move to halt work at Tan Rai.

He said a lot of things had been in need of clarification for a long time and that a suspension would not cause any immediate economic consequences, because the plant was only running on minimal capacity anyway.

Economist Pham Chi Lan, former vice chairwoman of Vietnam Chamber of Commerce and Industry, also approved of stopping works at Tan Rai Plant, given Vietnam's current economic situation and the fact that Vinacomin does not have enough resources to undertake the project.

The state-owned group did not calculate the project's effectiveness "honestly," Lan said. She said Vinacomin's calculations did not include money spent on infrastructure in order to make the project look profitable.

When it started the project, Vinacomin asked the state to invest in transport infrastructure, Lan said.

She also said there are not enough markets to export bauxite to these days.

"In short, the project cannot bring economic efficiency," the economist said, adding that the project needs to be suspended to make way for capacity building until the suspension is lifted.

Even Nguyen Thanh Son, director of Vinacomin's Red River Coal Projects management board, also voiced his concern.

"With Ke Ga Port the cheapest means of transport canceled, the effectiveness of the whole alumina production line is impossible to achieve in the way that  Vinacomin initially estimated," he said, adding that the projects need to be reconsidered, especially Nhan Co, which has yet to produce anything.

Vinh Tan Port, which is under construction in Binh Thuan province and slated to open next year, could be an alternative to Ke Ga. But, the Ministry of Transport's road department estimated that it will take massive spending and a long time to build roads to and from the port that can carry alumina trucks as heavy as 40 tons each.

Some VND2.840 trillion ($135.56 million) will be needed to upgrade roads on the route, the department said.

At the moment, alumina from Tan Rai is being transported to Go Dau Port in the southern province of Dong Nai, and local authorities have continuously complained that the heavy trucks have damaged roads and bridges.

Provincial infrastructure will not be able to withstand more when the plant operates at full capacity, they said.

Experts estimate that over VND2 trillion ($95.46 million) will be needed for upgrading roads on the Dong Nai route.

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