Vietnam ministry seeks more incentives for bauxite plants

By Mai Ha, Thanh Nien News

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Tan Rai bauxite refinery in the Central Highlands province of Lam Dong

The Ministry of Industry and Trade has once again called for more incentives for the country’s first two bauxite refineries, which are expected to make losses for the next few years.

The ministry made the recommendation in a recent report to the National Assembly’s Standing Committee about the National Coal-Mineral Industries Group (Vinacomin)’s plants that have drawn widespread criticism for years for the threat they pose to the environment and inefficiency.

The Tan Rai Plant opened last October in the Central Highlands province of Lam Dong, while the Nhan Co Plant is being built in nearby Dak Nong, with construction slated to be completed this June.

According to the ministry, Vinacomin’s environmental fees and compensation for site clearance should be much reduced since bauxite, the principle source of aluminum, is not toxic.

It said it is unreasonable for bauxite to be subject to environmental fees of VND30,000-50,000 (US$1.4-2.4) per square meter of crude ore since it takes only three or four years to restore the lands at mining sites, and the lands can become even better for cultivation.

The ministry suggested reducing the fee at VND4,000 (18 cents) per ton or VND7,000 (32 cents) per square meter.

It also proposed changes to the compensation rate Vinacomin is supposed to pay affected people for site clearance, saying that the investor should be allowed to recompense for trees and houses pulled down instead of the land.

After the mines are worked, the lands would be returned to their owners, it said, adding that affected people are provided support during and after mining.

Vinacomin currently pays compensation of VND800 million-1 billion ($37,600-47,000) per hectare of land.

Since Vietnam boasts a “very large” reserve of bauxite, mineral tax on it should also be reduced, according to the ministry.

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

Downstream, alumina should be exempted from value-added tax, the ministry said.

Last November the ministry had asked the Ministry of Finance to reduce environmental fees for Vinacomin after the company had twice appealed unsuccessfully for it, but its demand was turned down too.

But Vinacomin enjoys reduced land tax and import duty waiver on machine parts for the Tan Rai plant.

Saving cost

In the report, the ministry also suggested changes to the design of the reservoirs to contain red mud – a waste product in the process of refining bauxite – at Nhan Co.

It said the current design is based on “excessive” safety demands, causing “unnecessary” wastage of money.

Due to the lack of experience in the country and public pressure, the design of the reservoirs was tweaked, increasing construction costs by VND238.5 billion ($11.2 million), according to the ministry.

The reservoirs accounted for 2.5 percent of Tan Rai’s total cost and over 3.2 percent of Nhan Co’s, which are “quite high” and can affect the projects’ effectiveness, it said.

Speaking to Tuoi Tre (Youth) newspaper Saturday, Nguyen Tien Chinh, head of Vinacomin’s science, technology and development strategies department, said fearing the possibility of a red mud spill similar to the one in Hungary in 2010, Vinacomin built the reservoirs at Tan Rai so that they can withstand earthquakes.

However, the red mud at Tan Rai would solidify [and not flow], and so spending on reservoirs at future plants should be reduced, he said.

He assured that the reduction of safety standards through design adjustments would not affect the reservoirs’ safety since they take into account all threats like torrential rains and floods.

Inflated capital, continued losses

According to the report, the Tan Rai plant suffered a loss of VND258 billion ($12.1 million) last year and will continue to lose until 2016 when it will first make a profit estimated at VND9.3 billion ($437,000).

The Nhan Co plant will suffer losses of VND237-671 billion ($11.1-31.5 million) a year from 2015 to 2020.

A Vinacomin executive told Thanh Nien that the estimated losses are “acceptable” considering the trillions each plant would earn.

He also said it would take Tan Rai 12 years and Nhan Co at least 13 years to recover their investment.

Tan Rai cost VND14.8 trillion ($696.3 million) to set up and Nhan Co, over VND15.6 trillion.

Tuoi Tre (Youth) newspaper quoted a report released by Vinacomin in February as saying that the company had borrowed 70 percent of the capital, or nearly VND10.8 trillion ($508.1 million), required for Tan Rai and would have to pay around VND600 billion ($28.2 million) by next year to service the loans.


The ministry also called for supplying the plants power at 5.3-5.4 cents per kWh to ensure their effectiveness instead of the 6.5 cents now, which is higher than the average price paid by similar plants in Southeast Asia.

The country’s average power price now is VND1,508.85 (7 cents) per kWh.

But the ministry’s demands have drawn flak from economists.

Le Dang Doanh, former head of the Central Institute for Economic Management, pointed out that in the past the ministry has often called for hiking the price of electricity sold to cement, iron, and steel producers saying they wasted power otherwise, but now it wants prices cut for the aluminum producers.

“The world is now facing an energy crisis, and so the proposal is unacceptable,” he said.

Nguyen Thanh Son, an expert on bauxite, told Tuoi Tre that it is up to a company to make sure it functions effectively, adding that if the government cuts power prices for the two plants, other users would have to pay more to make up for it.

Dr Nguyen Van Ban, former chief of Vinacomin’s bauxite-aluminum department, said since it requires 13,000 kWh of electricity to produce a ton of aluminum, the two plants would need nearly eight billion kWh a year.

An executive at the state monopoly Electricity of Vietnam said even though his company can meet it, this demand would put pressure on the country’s power supply.

The ministry’s other proposals also drew criticism from experts.

Tran Van Tan, head of the Vietnam Institute of Geosciences and Mineral Resources, told Thanh Nien that the incentives demanded are “unreasonable” and the explanation for them is “unconvincing.”

The bauxite refineries are just two among many mining-related projects, and any preferences given to them would be “unfair” on others, he said.

The ministry contradicted itself by recommending changes to the design of the red mud reservoirs, he said. Previously, under public pressure, it and Vinacomin had sought to improve their safety, but now they want to reduce it, he said.

But since the reservoirs at Tan Rai have been operational for just one year, the amount of discharged mud already takes up 50 percent of its capacity, and it is still under maintenance, it is too soon to say it is “excessively safe,” he said.

He also rejected with the ministry’s demand for reducing compensation for the site. Trial efforts to restore land after mining in Tan Rai more than three years ago found that almost no tree can grow there, he said, warning that it takes decades for the land to recover.

He was also skeptical of the bauxite plants' capability to contribute to the country’s social and economic development, something the investor had pledged in the past.

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