Reducing export tariffs when Vietnam is poised to import coal could make a bad situation worse
Mining equipment at work at a mine of Vinacomin group's Cao Son Coal Company in northern Vietnam
State-owned mining group Vinacomin wants the government to revoke a July hike in export tariffs saying it has had a disastrous impact on business.
The group has proposed that export tariffs be reduced by three percentage points to bring them back to 10 percent.
Vinacomin, or the Vietnam National Coal Mineral Industries Group, said the hike in tariffs meant that export prices had to increase by between US$3 and dozens of dollars per ton.
Taxes and fees now make up up to 30 percent of the production cost of export coal, and 20 percent of coal sold to domestic customers, it said.
Deputy CEO Nguyen Van Bien said the group had exported on average between 1.2 million and 1.3 million tons of coal every month before the tax raise, but these volumes plunged to around 200,000 tons per month immediately after.
Vinacomin did not provide more comparable data, but a report from the Industry and Trade Ministry last week said coal exports in July reduced by 91 percent in volume and 80 percent in value compared to June.
Coal export in the first seven months of this year reached 7.8 million tons, grossing $561.4 million, the report said.
Vinacomin reported selling a total of 23.7 million tons for about $1.6 billion during the same period.
The group has also proposed that the government allows it to sell coal to power stations at cost instead of 85-87 percent of production costs as mandated by the government, which would force it to suffer losses of up to VND6 trillion this year alone.
The export tax cut proposal has generated some debate, with some industry experts deeming it irrational, especially as the overseas market for Vietnamese coal is dwindling and the country will soon need to import coal for domestic use.
Tran Viet Ngai, chairman of the Vietnam Energy Association, said there are other factors that have hurt coal export than just tariffs.
A major factor is that China, the biggest buyer, has reduced imports of low quality coal, which makes up a large part of Vinacomin's exports to this market, Ngai said.
China spent $367 million to buy 6.1 million tons of coal from Vietnam in the first seven months, the trade ministry reported.
A Chinese proposal in June to ban import of low-quality coal, which refers to coal with low heat value used mainly for power production, also threatens a cut of up to 70-80 percent of Vinacomin's low quality coal exports, experts have said.
Nguyen Thanh Son, director of the Red River Coal Projects Management, said the tax cuts may help Vinacomin in the short term, but is not a stable and rational solution in the long run.
"It makes sense that the government imposes higher export tariffs on non-renewable resources like coal," Son said. Vinacomin should instead adjust its export target for the next two years, as well as its business model so as not to rely too much on exports, Son said.
Vinacomin has itself admitted that higher mining costs and poor management have hurt its competitiveness in the global market.
Cong Thuong, a publication of the Ministry of Industry and Trade, reported in July that for the same grade of coal, export prices from Australia are between $76.6 and $79 per ton while that of Vinacomin were between $105 and $115. For another grade of coal, the prices offered in Guangzhou was about $55-56 per ton, while Vinacomin offered $69 per ton.
The report quoted Vinacomin CEO Le Minh Chuan as saying that production cost was marginally lower than selling prices, which greatly affected the group's profit. He attributed the increase in cost to the fact that they now have to dig deeper for coal. Besides, poor management resulted in coal being stolen and smuggled abroad, Chuan said.
As the sole supplier of coal, Vinacomin recorded coal exports to China to be 4.8 million in the first five months of this year. Chinese customs statistics, however, showed that imports of coal from Vietnam reached 6.9 million tons in the same period.
Ngai of the Vietnam Energy Association said Vinacomin is capable of producing 40 million of coal. According to the government's electricity plan, local thermal power plants will have produce 76 million tons of power per year by 2020. As it takes a lot of money and time to expand existing mines or develop new mines, the company should start planning for coal imports, Ngai said.
The government had at the end of the last decade envisaged that Vinacomin would build 28 new mines and expand 61 existing mines between 2011 and 2015. "This is really tough," Ngai said. "Opening a new mine takes 6-7 years and costs between $300 million and $400 million. Expanding an existing one also costs around VND3-4 trillion."
Vinacomin piloted importing about 10,000 tons of coal each year since 2011, a report in the Petro Times newspaper in April said.
The group estimates coal exports to reach 10.5 million tons for this year. It plans to reduce exports to 10 million tons next year and to 4-5 million tons in 2015.
It also plans to issue bonds to raise VND5 trillion for its coal mining projects.
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