Vietnam - News and Regulations

[Thank you for your interest in this topic. This communication may be considered promotional in nature.]

With Compliments

Oliver Massmann

Rechtsanwalt

General Director – Duane Morris Vietnam LLC

Hanoi Office: 13th Floor, Suite 1307/08 Pacific Place, 83B Ly Thuong Kiet, Hoan Kiem District

Ho Chi Minh City Office: 15th Floor, Suite 1503/04, Saigon Tower, 29 Le Duan Street, District 1

INVESTMENT - When localities compete to attract FDI 

Thoi bao Kinh te Vietnam

Commenting about the competition of local authorities to attract foreign direct investment (FDI), Tran Dinh Thien, Head of the Vietnam Economics Institute, noted that investors expect the improvements in the institutional environment more than the investment incentives.

What do you think about the current stiff competition among localities to attract FDI?

It is true that the competition has been going very fiercely since the decentralisation in licensing was set up. There are many "motive powers" for the competition, because all the cities and provinces want to attract investment to develop their economies.

However, the stiff competition has brought some problems. Especially, a lot of projects licensed by local authorities have broken the national programming. So, a question has been raised that what should we do to both attract FDI and ensure the consistency of the national development programme.

Another question which seeks an answer is that - is it necessary to find out for what to attract FDI, for short term or long term purposes? Short term proves to be the current tendency.

This explains why local authorities have been trying to offer best incentives in order to attract FDI most quickly. Meanwhile, as for investors, what they expect more is the reform in the business environment.

What are the consequences the stiff competition with overly high incentives can bring?

When localities lower the requirements, this means they devaluate themselves. The move can bring some short term benefits, including the increase in the local budget collection, or the higher job percentage.

However, the national economy will have to bear the consequences from the decisions by local authorities. The continued offering of incentives may lead in the fact that investors, especially big and long term ones, do not feel confident, and they may not enter Vietnam. As I said above, they expect the improvement in the business environment more.

Foreign investors now tend to negotiate directly with local authorities on the development of the projects. What would you say about that?

It is the right of investors to conduct negotiations. And I have to say that this way has been followed in the world. However, the most important thing is to ensure the harmonisation between the benefits of investors and the national benefits. It would be a danger if the national benefits cannot be ensured, while the benefits fall to the hands of someone.

A lot of investors have asked for big investment incentives. Hyundai, for example, has asked for leasing 20 hectares of land at the Chu Lai Economic Zone for 70 years at one dollar. What would you say about this?

We should find the answers to the questions: What will Vietnam get if it agrees to offer such incentives? It is a rule: you need to pay this to get that. What technologies the investors plan to use in their projects? Will the investor lead satellite investors to Vietnam?

China also offers incentives, but it asks investors to clarify when they have to transfer technologies to Chinese partners, and asks the investors to let Chinese enterprises to get involved in the production.

Will the crisis in the world affect Vietnam's FDI attraction and how?

It is true that big economies in the world are facing big difficulties. There is instability in the US economy. The European and Japanese economies are also facing difficulties. China is seeing high growth rate, but it also has a lot of problems.

However, I still believe that opportunities always exist. What Vietnam needs to do now is to create the best institutional environment to grab opportunities.

TRADE/ DISTRIBUTION - US retail company to open stores in Vietnam

VIR

U.S. retail company, the Gap, Inc. on August 23 revealed plans to expand into Vietnam as part of its effort to carve out a bigger spot in the global apparel market.

The San Francisco-based apparel retailer said its first Gap store is set to open in October and Banana Republic will make its debut in late 2012, both in Vietnam ’s largest city, Ho Chi Minh City . More locations will open in Hanoi in 2012.

According to the Gap, Inc., a global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands, Vietnam boasts a relatively young population with more than 90 per cent of its 86 million people under 65.

"Vietnam ’s rapidly growing economy provides ample opportunity to introduce the Gap and Banana Republic brands to local consumers," said Stefan Laban, managing director of strategic alliances for Gap.

The stores in Vietnam will house products from Gap, GapKids and babyGap and Banana Republic’s luxury apparel and accessories for men and women.

"These openings will mark yet another important step for the company as we accelerate our growth into international markets," Laban said.

Gap has about 3,100 company-run stores in more than 90 countries and territories. The company intends to double its franchise stores to 400 by fiscal 2014.

MERGERS AND ACQUISITIONS  - Taking a measured approach to M&As

VIR

Share.Finance always plays a crucial role in business development.

On top of that, the adjustment of its performance and direction to meet business transformation is the key factor to achieve targets. Rick Payne, head of the Finance Direction Programme, Institute of Chartered Accountants in England and Wales (ICAEW), discusses the roles of CFOs and finance functions in merger and acquisitions (M&A) and restructuring strategies in Vietnam.

The role of CFOs and the finance function have to be tailored to the unique circumstances of an organisation. It is essential to take into account a wide range of factors including industry sector, organisational size, ownership and geography.

In Vietnam, with an increasing number of state corporations and enterprises being equitised, the structure of these companies are changing, including within the finance function. Changes in ownership and who an organisation is accountable to have major implications for CFOs’ role.  The precise impact will depend on who the investors are, the degree to which the state maintains control and the level of competition to obtain private equity capital.  Where new investors have a wide choice they will be more attracted to corporations who have a highly respected CFOs known for his or her integrity.

Clearly CFOs will be heavily involved in the various processes required to go public.  Corporate strategy is likely to be adapted as part of the equitisation process, and CFOs need to be instrumental in the formulation of new strategies.  CFOs’ area of expertise is the financial viability of strategic proposals and ensuring corporate aspirations are realistic. Asking challenging questions that others are unwilling to answer can often fall to them.  Once there is an agreed strategy CFOs will need to play a part in communicating this well to investors in order to retain confidence. Where ownership and strategies change, CFOs will need to ensure management information and performance measurement systems are aligned to fit the new direction.

For example, if the new strategy calls for innovation then overly bureaucratic financial systems that stifle innovation will not be fit for purpose. If new financial reporting and compliance requirements result from equitisation, this will place additional demands on the financial team. All this must be achieved whilst day-to-day functions, like transaction processing, accounting and financial controls, continue to be carried out to consistently high standards. It can be easy for these to be overlooked in the midst of big changes, which can have negative consequences.

Figures show that there were almost 400 M&As in Vietnam over the past year. However, many businesses have failed to integrate. This is a big challenge. Global research suggests that the acquisitions often do not add value for investors, particularly for the acquiring company.  Perhaps first and foremost  CFOs’ role is to ensure that the price is right.

Understanding a new business’ culture is an essential part of making an M&A successful

Many of the points made in respect of equitisation are also likely to apply in the case of M&As. Often the key problem for organisations involved in M&As are uncertainties created for staff.  This can cause low morale and have a negative impact on productivity and quality of service.  There are three key things to consider. Firstly, decisions need to be made quickly in order to reduce uncertainty, such as new job roles and responsibilities should be established as soon as possible.  Secondly, prioritisation is essential. There is always too much to do in M&As and it is easy to get distracted. Thirdly, there should be constant communication with staff using multiple channels such as staff meetings, email and intranet. This should happen even if there is nothing much to communicate otherwise the vacuum will be filled by rumour.

CFOs must also be instrumental in cultural transition. Many M&As involve consolidating numbers for the two entities - where this happens communicating joint performance is critical to help staff realise they are now one team.

Performance management systems like target setting, key performance indicators and rewards are all shaped by the culture of the existing organisations. CFOs, who have a key role to play in this area, can help shape the new culture. It is important to be realistic, CFOs can only do so much. Company culture is not easy to manage and does not change overnight. Moreover, if the M&A was not right from the beginning, or if the rest of the team do not play their parts, no CFO can turn things round alone.

However, CFOs can definitely play a part in clarifying a company’s vision and direction.  As part of the executive team CFOs will contribute to discussions of company direction - and if the subject is not being discussed CFOs can take the lead in making sure it is.  CFOs  are well placed to see what is going on in the business as a whole, and what the current trajectory of the enterprise is, because most decisions and actions have financial implications.  This knowledge and in-depth understanding can be used to clarify the vision and direction.

It is also important for CFOs to be good listeners and work with other executives to formulate a consensus view.  It is not enough for this view to be understood by top management, there is a need to communicate the vision and direction to the rest of the organisation and stakeholders as well.

But, at this moment, most small- and medium-sized enterprises (SMEs) in Vietnam have not yet recognised the important role of finance departments. Part of the problem may be a lack of suitably qualified candidates, meaning that even if SMEs want to employ professionals they are unable to find them.

ICAEW’s research suggests that there are many ways in which firms organise how finance activities are carried out.  Sometimes effective strategy and financial management can be carried out by line managers, whilst drawing on external financial advice and services. This may well be the only viable solution for smaller organisations.

As organisations grow, however, there is generally an expectation that they will develop professional finance departments.  Not meeting this expectation can even reduce access to capital and create concerns for regulators.

Moreover, in locations where an accounting career attracts high-quality individuals - and where professional training is of a high standard - organisations will be missing out if they do not look to employ such talent.  High calibre, professional accountants will help organisations develop efficient capital structures, manage cash flow effectively and make better decisions. Professional accountants can also promote and uphold high ethical standards.

So, what can CFOs in Vietnam do to meet the international standards of financial practices? CFOs need to understand what is expected.  This is no easy task because of the broad range of financial practices that have to be mastered, debates about which practices are most appropriate and the constant evolution of standards and expectations.

Learning on the job, employing staff with international experience, discussions with peers and international counterparts, attending seminars led by international speakers such as those organised by ICAEW, utilising advice from international advisory firms and reading widely will all be helpful.  

Implementing appropriate practices requires careful thought, weighing up the pros and cons of various approaches and perseverance. For example the approach to budgeting has been debated for many years. Some organisations prefer a fixed, annual budget with rewards for meeting it and reprimands for not. This can provide clear objectives, strong motivation and tight financial controls. However, others suggest this approach leads to gaming, sub-optimal decision-making and the rejection of profitable opportunities.  Therefore, they prefer rolling forecasts with rewards tied to relative performance which can take into account changes in circumstances throughout the year.  Changing from one system to another would have major implications for staff across the organisation concerned and is likely to be resisted. Therefore, effective implementation of new approaches takes time.

Certainly, there are no one-size-fits-all solutions, high calibre CFOs and effective finance functions will carefully analyse the unique circumstances they face, develop tailored solutions and adapt as circumstances change.

ECONOMY - Vietnam August CPI Falls to 11 Mont Low at 0.93pct: GSO 

StoxPlus

Vietnam consumer price index in August is estimated to slow down to 0.93 percent from July, the lowest level since September 2010, the general Statistical Office said on its website.

August increase led the figure to have risen by 15.68 percent from December, 23.02 percent on year and on average, CPI in the first 8 months of this year was up 17.64 percent from that of last year. The figures are based on data for the first 23 days of the month.

As many as 10 out of the 11 baskets of goods contributed to the calculation of the CPI data saw their prices rise this month. Only costs of post and telecom services continued to decrease by 0.06 percent.

Food and restaurants service costs saw the biggest increase of 1.35 percent on month, of which the prices of food and food stuffs rose 0.46 percent and 1.55 percent on month respectively while restaurant service cost rose 1.59 percent on month.

Prices of education saw second highest increase in the month of 1.13 percent as new school year is approaching, followed by prices of other goods and services rising 1.01 percent.

House and construction materials prices jumped 0.89 percent on month, garment and footwear staples prices rose 0.79 percent in the month.

Prices of drinks and cigarettes rose 0.55 percent, transportation edged up 0.21 percent, household facilities and furniture up 0.51 percent, medicine and healthcare services 0.25 percent, recreation & tourism up 0.34 percent and

Gold prices surged 8.7 percent on month in August, 15.33 percent in the first 8 months and rose by 47.63 percent on year as a result of global price hike and local gold hoarding.

US dollar prices also jumped 0.26 percent on-month, up 0.32 percent from in the first 8 months and 8.64 percent on-year.

There was a big gap between CPI in the two biggest cities in Vietnam, HCM City posted 0.68 percent CPI increase while Hanoi saw it rose by 1.06 percent

August CPI came out in line with expectation of under 1 percent by some local analysts who say Vietnam CPI is likely to see lowest MoM increase in August.

Vietnam adjusted its targets to curb inflation at 17 percent this year, credit growth below 20 percent this year.

Vietnam's trade deficit touches $270m mark in first half of Aug 

Vietbiz24

During the first 15 days of August, Vietnam's total export turnover reached over $4 billion, up 48 percent compared to nearly $2.7 billion of the same period in 2010, bringing the total figure from early this year to August 15 to $56.5 billion, rising 37 percent from over $41.2 billion of the same period last year, general Department of Vietnam Customs reported.

Also in the first half of August, the country's key export items were still seafood, rice, crude oil, wood and wooden products, garment and textile and footwear, of which, export of apparel products reached the highest export turnover of nearly $673 million, up nearly 35 percent year-on-year.

The country's export for gemstone and precious metals reached nearly $134 million, down 66 percent from the first half of July but increasing significantly from nearly $6 million in the H1 of last August.

Totally from start this year so far, the country's export turnover for gemstone and precious metals fetched nearly $2.5 billion, up nearly 67 percent compared to over $1.5 billion of the same period last year.

Vietnam's total import spending in the first half of August was $4.27 billion, rising nearly 36 percent from $3.15 billion in H1 of last August, bringing the total figure from early this year to August 15 to $62.21 billion, up nearly 27 percent over $49.19 billion of the same period last year.

Also in the first half of August, the country's import for machines, equipments, tools and components posted the highest spending with nearly $673 million, rising nearly 33 percent year-on-year.

The import spending on oil and gas, computer, electronic products and components also surged strongly, of which, in the first half of August, the import value was up to nearly $323 million for oil and gas and over $324 million for computer and spare parts, up over 30 percent y-o-y.

Thus, in the first half of August, Vietnam's trade gap was about $270 million, down nearly 33 percent against $450 million in the first half of last August. From the beginning of this year to August 15, the country's trade deficit was $5.7 billion, down nearly 28 percent compared to $7.9 billion of the same period last year.

Vietnam inflation reaches 23pct in August 

AFP

Vietnam's inflation reached an annual rate of 23 percent this month, official estimates said Wednesday, adding to a year-long price spiral that has hurt businesses and consumers alike.

It is the 12th straight month of increases in the consumer price index, the general Statistical Office (GSO) said.

Food costs were the main driver, soaring 34 percent.

The United Nations in May said communist Vietnam has one of the world's five highest inflation rates. However, it remains below a recent peak of 28.3 percent seen in August 2008, and far from the triple-digit figures of the 1980s.

Inflation was reported at 22 percent year-on-year in July.

Long focused on growth, the government this year shifted towards economic stabilisation of numerous imbalances that include a large trade deficit, weak currency, and inefficient state spending as well as inflation.

It raised key interest rates, vowed to cut state spending, and ordered that growth in credit, or loans, stays below 20 percent. Authorities are also trying to control the gold trade and reduce the prevalence of US dollars in the economy.

But a Vietnamese banker expressed doubt the efforts are succeeding.

"I have the impression that our economic situation is getting worse," the official from a major private bank said, refusing to be named.

On Monday the government announced that minimum wages would rise by up to almost half in its major cities from October 1 in a bid to help workers cope with rising prices.

Businesses in Hanoi and the southern economic hub of HCM City will have to pay their employees at least two million dong ($95) a month.

But there are doubts about whether the higher wages will be enough to help workers cope, while businesses complain that increased salary costs will add to their burden.

The government aims to keep inflation at about 15 percent this year.

"For the time being it is necessary to concentrate on efforts to see through firmly and effectively the task of controlling inflation," and reducing difficulties for low-income earners, prime minister Nguyen Tan Dung said in a speech at his swearing-in for a second term early this month.

Vietnam's economic growth eased slightly to 5.6 percent year-on-year in the first half of 2011, a little below the country's end of the year target of around six percent.

Labour moves spooking investors

VIR

The Vietnam-based foreign business community is against more foreign worker restrictions.

Many expats possess skill sets which are hard to find in Vietnam

The French Chamber of Commerce and Industry, Canadian Chamber of Commerce, German Business Association, Swiss Business Association, Hong Kong Business Association, British Business Group and Nordic Chamber of Commerce have voiced their displeasure at a new decree set to be rolled out. The groups have petitioned Prime Minister Nguyen Tan Dung and ministries against the implementation of Decree 46/2011/ND-CP dated June 17, 2011. It makes a number of major changes to Decree 34/2008/ND-CP dated March 25, 2008 on recruitment and management of foreigners working in Vietnam.

Matthias Dühn, executive director of European Chamber of Commerce in Vietnam, told VIR that these business associations and chambers believed Decree 46 might discourage investment in Vietnam.

“If Vietnam wants to attract high-quality investment in the added-value industries, laws to hire foreign experts should be relaxed rather than made tougher. Decree 46 puts more burdens on foreign investors to hire qualified foreign staff and imposes training requirements for Vietnamese expat replacements that are unreasonable,” Dühn said.

According to the petition, Decree 46, which will come into force on August 1, 2011, imposed irrational conditions for recruitment and work permit extension of foreigners working in Vietnam, especially with regard to foreign managers, executives and specialists.

“These regulations do not only contradict to the Labour Code of Vietnam, but also constitute violations of Vietnam’s international commitments, particularly the World Trade Organization Agreements,” the petition reads.

For example, Article 1.3 of Decree 46 provides that at least 30 days prior to any recruitment of foreigners, Vietnam-based companies must publicly announce recruitment demands to Vietnamese about positions that they expect to employ foreigners in at least one national newspaper and one regional newspaper. Article 1.9 requires companies to present documents evidencing that they have advertised recruitment demands for Vietnamese to these positions to apply for work permits of foreign employees.

Also under the decree’s Article 1.13, to extend work permits for a foreign employee, a company must now enter into an apprenticeship contract with a Vietnamese employee expected to substitute that relevant foreign employee.

The above regulations have been met with a large outcry.

The foreign business associations and chambers said the first rule would prolong companies’ recruitment process because it applied to recruitment of all foreign employees, including top managerial positions.

“It will increase administrative burdens for foreign companies doing business in Vietnam,” said Winnie Lam, chairwoman of Canadian Chamber of Commerce in Vietnam.

They were also of the opinion that the second rule was “in fact a prohibition of hiring experienced and capable foreign employees where a company does not sign apprenticeship contracts with Vietnamese employees.”

Dühn said some expat positions might be specialised positions that might not need replacements for. Secondly, even if there was a replacement, it was unreasonable to train a Vietnamese national in a potentially short space of time.

“Decree 34 was sufficient and Decree 46 is not necessary. We think that Decree 46 should not be implemented by August 1 and further consultations should be held with the business community,” he said.

“We would like to seek a solution that satisfies both Vietnam’s need to control the labour market as well as foreigners’ freedom to hire their preferred staff without additional administrative burdens,” said Patrick Regis, chairman of British Business Group in Vietnam.

According to the Ministry of Labour, Invalids and Social Affairs (MoLISA), Decree 46 came as Vietnam was home to many illegal foreign workers.

Its Employment Department’s vice head Le Quang Trung said the decree would help “close” loopholes in the management of foreign workers in Vietnam.

The decree states that Vietnamese workers must be given high priority by foreign employers where the work is within their capacity.

If a project needs foreign workers with professional knowledge suitable to the project, the investors’ bidding documents must include a detailed plan on foreigners to be employed. This plan must include information on the positions involved, how many foreigners will be employed and details of their qualifications, as well as their experience and the length of their contract in Vietnam.

The decree also states that for projects needing 500 labourers or more, foreign employers have 60 days to recruit local workers.

For projects requiring less than 500 labourers, foreign employers have 30 days for this recruitment.

If they cannot recruit enough Vietnamese workers in the given timeframe, provincial and municipal people’s committee’s chairmen can allow them to recruit foreign labourers for those positions they could not fill with Vietnamese employees.

Foreign labourers in Vietnam come from 65 countries, with the majority coming from China, South Korea, Thailand and Indonesia. Up to May 2011, there were over 74,000 foreign workers in Vietnam.

FINANCE - Vietnam's bad property debt surges amid market slump 

Thanh Nien

The amount of bad debt in the real estate sector increased by 37 percent from the end of last year until June due to an ongoing slump in the market, an official said.

Bank loans made against property reached 245 trillion dong in June, accounting for 10 percent of total credit in Vietnam, said Le Xuan Nghia, vice-chair of the National Financial Supervisory Commission.

Property loans in trouble represented 3 percent of total outstanding debt in the sector, he said. Around 40 percent of the bad property debt was loans likely to default, Nghia said at a meeting Thursday.

"It's a concern that property lending accounted for 30-40 percent, or even 50 percent of total credit at many small banks, whose risk management is weak," he said.

More attention should be paid to credit activities at small banks, especially those with property developers as major shareholders, Nghia said.

However, he said the government needs to be flexible when restricting lending to the real estate sector. Many people are in need of loans to buy or repair homes, he said.

Bad debt in Vietnam's banking system could rise to 5 percent of total loans by the end of this year under a worst-case scenario, the Vietnam Economic Times newspaper reported in late July, citing a central bank official.

SBV to work with commercial banks on lowering interest rates 

SGTT

The State Bank of Vietnam (SBV) today Friday August 26 is to work with leaders of 12 Hanoi-based large commercial banks on lowering the interest rates, the local newswire Saigon Tiep Thi said.

According to the newspaper, most large and medium-sized banks are in surplus of money but they can not lend because enterprises and individuals are not borrowing due to too high interest rate. Meanwhile, banks still have to raise capital with the saving rate of 17.5 percent per year for 1-month term and 15-16 percent per year for 2-3 month terms to keep their longstanding customers.

Lowering the deposit interest rate as a premise for reducing the lending interest rate should be based on the interest of businesses, depositors and the economy but not merely the interest of bankers. In this problem, the role of the central bank is very important.

Earlier, SBV's governor, Nguyen Van Binh had said that the central bank and commercial banks will work together to lower the lending interest rate to 17-19 percent per year in September.

Recently, many banks have launched incentive programmes with preferential lending interest rate for businesses. At many banks, the preferential lending interest rate for businesses stands at only about 17-19.5 percent per year.

SBV asked to take flexible monetary policy

VIR

Deputy Prime Minister Vu Van Ninh urged the State Bank of Vietnam (SBV) to take a proactive and flexible monetary policy while working with the bank on August 25.

The Deputy PM spoke highly of the outcomes of the SBV’s move to manage the monetary policy over the past time and gradually reduce gold price and stabilise foreign exchange rate.

He also recorded positive changes in the credit structure with banks prioritising capital for agriculture and rural areas.

From now to the year-end, the central bank should focus on analysing difficulties facing businesses to put forth specific levels of priority for each of them while urgently completing a system of its mechanisms and policies and strengthening inspection and examination in the banking sector, Ninh said.

Regarding the gold issue, the SBV needs to promptly take specific long-term measures to stabilise the foreign currency market to gradually narrow the gap between domestic and international gold prices, he added.

The Deputy PM also asked the bank to continue keeping the deposit interest rate ceiling at 14 percent per year, creating conditions for credit organisations to lower lending interest rates.

The central bank will meet with commercial banks to seek a consensus on decreasing the lending interest rate to 17-19 percent per year, he said.

According to Ninh, to control VND credits, the SBV should inspect credit organisations which recorded high credit growths and had their non-production lending rates higher than the regulated level.

The bank needs to keep a close watch on developments of the gold and foreign currency markets to take suitable management measures. It also needs to build programmes to stabilise gold price and mobilise gold in the economy as well as prepare a decree on gold production and trading management and submit them to the Government, Ninh said.

RESOURCES - How many oil refinery projects will survive? 

vietnambusiness.asia

Vietnam is believed to be a good place for setting up oil refineries, as the country still has to import petroleum products to meet the increasingly high demand. However, investors have been advised to think carefully before making investment decisions in Vietnam.

The Khang Thong Group has reportedly signed with STFE group and Thai PTTES - a contract on technical designing for an oil refinery with the expected capacity of 12 million tonnes per annum, expected to be located in Nhon Hoi Economic Zone in Binh Dinh province.

As such, the list of the oil refinery projects has been extended.

Partners for joint ventures - where to find?

According to Nguyen Van Thuyet of the Nghi Son Oil Refinery Complex project management board, Vietnam's oil and gas industry remains a fledgling; therefore, setting up joint ventures with foreign partners is always the thing Vietnamese investors want

However, it is not easy to find out foreign partners to form up joint ventures which can run oil refineries. The foreign partners need to satisfy the requirements set by the Vietnamese side: they need to have experiences in running oil refineries, have the capability to arrange capital, and seek the crude oil sources which can ensure the supply for the projects' lifespan. Vietnam does not intend to use domestically sourced oil because of the decreasing reserves.

To date, only the Nghi Son oil refinery project in Thanh Hoa has found the foreign partners who can meet the above said requirements. Of the three partners which have teamed up with PetroVietnam to set up the joint venture, Japanese IKC is running four oil refineries in Japan and it can arrange the capital of four billion dollars for the project. Kuwaiti KPI, which provides crude oil to the world market, can ensure the oil supply for the whole life span of the project. Mitsui (MCI) can be responsible for the outlet of the products.

Meanwhile, other oil refinery projects have not succeeded in seeking foreign partners for the joint ventures. Dung Quat project, for example, failed to find foreign partners after tens years of seeking, and it is now running as 100 percent Vietnamese owned enterprise.

The Vien Dong Investment and Trade Corporation once found a foreign partner - the US-based Semtech Limited B.V.I. However, the US company finally decided to withdraw from the project. To date, Vien Dong still has not found new partners.

Since 2009, the Hai Phong-based Hapaco Company has been calling for foreign investment in the 5 million-tonne oil refinery which is expected to be located in Nam Dinh Vu Industrial Zone, capitalised at 1.8 billion dollars. Hapaco plans to contribute 20 percent of total capital, while the remaining 80 percent will be contributed by foreign partners. However, no such foreign investor has been found.

Meanwhile, Petrolimex is also seeking investors for the 4 billion dollar- project on Nam Van Phong oil refinery.

According to Thuyet, international investors keep indifferent to oil refinery projects in Vietnam because the expected profits in the field are low, while the investment costs are very high. They understand well that the oil refineries in Vietnam will have to compete fiercely with regional oil refineries, especially the ones in Singapore.

Which one will survive?

Experts have pointed out that two million tonne oil refineries will not bring high efficiency, and that it would be better to build the oil refineries with the capacity of ten million tonnes per annum. Big refineries will require huge capital, which far exceeds the Vietnamese enterprises' capability.

Except for the 3 billion dollar Dung Quat project, which is considered as national project which gets support from the State budget, other projects' investors have to seek capital themselves.

As for Nghi Son, the joint venture contract on building Nghi Son oil refinery was signed in April 2008 already, but the construction of the main factory of the complex has not kicked off yet because the involved parties have not arranged enough capital for the 7 billion dollar project.

Besides the capital, investors will also have to deal with a lot of other problems, including the crude oil supply sources.

In general, oil projects need to have the IRR (internal rate of return) at 13-17 percent to bring efficiency, but the actual IRR is just 6-8 percent. Therefore, most of investors ask the government to give certain preference packages to ensure minimum efficiency of the projects.

However, it is clear that preference packages are not reserved for all projects, except the ones invested by PetroVietnam.

With so many difficulties, it is still unclear if the oil refineries can survive and develop in Vietnam.

First Vietnam-made oil rig to be launched September

VIR

The Vietnam National Oil and Gas Group (PetroVietnam) says it will inaugurate the first locally manufactured jack-up rig on September 9 in Ba Ria-Vung Tau Province, where the mobile platform was built.

A jack-up rig is a type of mobile platform that is able to stand still on the sea floor, resting on a number of supporting legs.

PV Shipyard in the southern province has been building the platform for 26 months. The PetroVietnam member said Wednesday that it would start the test-run of putting the 90-meter rig into the sea on August 31 before delivering it to PetroVietnam.

The first made-in-Vietnam platform, 12,000 tons in weight, would be put onto a barge from the construction site and tugged to the test position four kilometers off the coast. Then it would be tugged back to the coast.

The rig includes blocks, cantilevers, living quarters, the pipe system and a helicopter deck.

Building rigs at home is part of Vietnam policy on shifting core mechanical engineering in oil and gas to Vietnamese companies.

Prime Minister Nguyen Tan Dung, during his working trip to Ba Ria-Vung Tau Province in July, came to visit PV Shipyard and examined the building of the first locally made rig.

Petrol imports drop during first seven months

VNS

Petrol imports totalled 6.5 million tonnes and reached a cost of US$5.9 billion in the first seven months of the year, accounting for 10.2 per cent of the nation’s total imports, according to the General Department of Customs.

The figure represents a decrease of 42 per cent in volume and 8.6 per cent in value, however, in comparison with the same period last year.

In July alone, Viet Nam imported about 533,500 tonnes of petrol, valued at $512 million – a decline of 39.2 per cent in volume and 37 per cent in value compared to the previous month.

Kuwait became a new petrol exporter to Viet Nam, shipping 393,600 tonnes during the month. Meanwhile, exports fell from traditional suppliers such as Malaysia, Russia and China.

Global crude oil prices have dropped significantly this month, with experts predicting the price would continue to decline as global traders anticipated another recession that would restrain demand.

Since the beginning of August, crude oil prices have dropped 9.93 per cent, while jet fuel prices have fallen by 1.68 per cent and diesel oil by 2 per cent, according to the Viet Nam National Petroleum Corporation (Petrolimex).

US-based Merrill Lynch has forecast that oil prices could fall to as low as $50 a barrel this year.

Petrolimex expected that the price it would pay for refined petroleum products on the Singapore market would decline with the world price. In the first half of August, the price of these commodities fell by 1.14-3.11 per cent. The decrease in the price of petrol and other refined petroleum products would continue to lag behind crude oil prices, expected to fall 5.8-9.9 per cent.

Petrolimex was looking to buy 31,000 tonnes of petrol RON 92 for shipment in the first week of next month. Last week, meanwhile, Petrolimex’s representative in Singapore signed a long-term contract with Bangladesh Petroleum Corporation, under which the Vietnamese corporation would supply fuel oil to Bangladesh.

Nguyen Tien Thoa, director of the price management department under the Ministry of Finance, said there would be no immediate change in petrol prices.

“Viet Nam has not imported crude oil so changes in global crude oil prices won’t affect local prices,” Thoa said.

Earlier last week, the ministry announced that the computed average cost of petrol between July 12 and August 10 was higher than the existing domestic retail price by VND342 to VND530 per litre. Therefore, the ministries of Finance and of Industry and Trade decided jointly to leave retail petrol prices unchanged. Domestic petrol prices averaging VND21,300 per litre remained VND3,822 to VND13,056 lower than those in neighbouring countries like Laos, Cambodia, Singapore and China, Petrolimex said.

ENERGY - EVN given power to raise electricity prices on quarterly basis

VIR

The Ministry of Industry and Trade will allow the adjustment of power prices once per every quarter beginning from September 1, instead of the annual changes as current.

EVN will be allowed to adjust power prices once every quarter

According to the ministry’s recent circular, any price adjustment should be made public.

State-owned Electricity of Vietnam (EVN) should check production costs that affect power prices 10 days prior to the end of every month.

EVN could be allowed to increase power price by a maximum of 5 per cent if power production costs rise. Any increase of over 5 per cent in prices must seek government approval.

If production costs decrease, EVN will be compelled to lower power prices by a maximum of 5 per cent.

The ministry has also given the nod to a power price stabilisation fund.

The government may use the fund to maintain power prices in urgent cases in order to prevent a negative impact to the country’s economy and living standards.

RENEWEABLES­-Delta has wind power in its sails

VIR

The Mekong Delta has great potential for wind power development.

Following on from Ca Mau-based Cong Ly Tourism-Trading-Construction Company Limited building the region’s first wind power plant, at 99 megawatts at a cost of VND4.5 trillion ($217.4 million) in Bac Lieu city last year, last month United States-based GE Group inked a deal to supply the developer with 10 wind turbines with a combined capacity of 16MW.

The first turbine group would be commissioned on September 9, 2011, according to Bac Lieu Province Department of Planning and Investment head Luu Hoang Ly.

Ly added the provincial Planning and Investment Department had proposed Bac Lieu People’s Committee embark on wind power survey and planning in the province to serve as a footing for investment certificate licencing.

Soc Trang reportedly hosted several dozen investors searching for wind power investment opportunities.

The Mekong Delta province agreed in principle for four wind power projects with a total accumulative capacity of 300MW in the first phase. Such projects are in the survey and feasibility study stage.

Vinh Phuoc and Vinh Tan communes are the best sites for building a ‘wind power farms’, according to German-based EAB Group.

“Soc Trang can leverage on the [wind power] potential to promote renewable industry development, clean energy supply and appeal to visitors,” said the German group.

In a recent meeting with the provincial authorities, Kien Giang Radio and Television Station proposed building a wind power-solar energy plant with a combined capacity of 90KVA to serve the station.

According to German partner Nord Energy calculations, it would take around 10 years for the VND11 billion ($531,000) project to recoup investment over its 20 year duration, said the station deputy director Le Thanh Phuong.

The Mekong Delta is home to 13 provinces and municipalities with eight of them having coastlines spanning over 700 kilometres and hundreds of islands. Industry experts assume the Vietnamese government needed to support the delta region in wind power survey and assessment to help it woo investors.

City to increase renewable energy sources

VNS

HCM City plans to promote strongly the development of renewable energy over the next decade.

The municipal Department of Industry and Trade has completed a power development plan up to 2015 with a vision to 2020, in which particular focus is given to the wind and solar power generation, as well as generating power from waste processing.

A plant to generate electricity by burning waste will be built in the city’s Southwestern solid waste management complex in Cu Chi District by 2015. The plant will have a capacity of 40MW.

The plan estimates total investment for the city’s power development until 2015 at more than VND20.9 trillion (over US$1 billion), in which more than VND1 trillion (nearly $52 million) will be spent on developing renewable energy.

The plan aims to keep pace with the city’s power needs as it grows at a rate of 12 per cent in the 2011-15 period and at 11 per cent in the next five years (2016-20).

The city generates more than 7,000 tonnes of waste every day and it costs over VND235 billion ($11.4 million) to treat it, according to the department.

The department is conducting a feasibility study for building plants to incinerate organic waste collected from the three wholesale markets in Thu Duc, Hoc Mon and Binh Dien.

Each day, the wholesale markets in the city discharge around 50 tonnes of waste which costs the management board about VND300 million ($14,500) a month to collect and deliver to the waste treatment centres.

As much as 95 per cent of the waste discharged from the wholesale markets is organic, which is very suitable for producing gas to generate power; and the project is expected to help cut the cost of collecting waste from these markets.

The estimated cost for building a power plant for each market is about $3-4 million, the Thoi Bao Kinh Te Sai Gon (Sai Gon Economic Times) reported. The plan is to build plants for the three wholesale markets first and if they are successful, replicate them in other markets in the city.

The city also plans to use solar energy to operate its entire public lighting system, which will allow it to save more than 73 million kWh of electricity each year and, at the same time, reduce considerably the amount of carbon dioxide emissions by using less fossil fuels to generate power.

A VND1.2 billion ($58,200) project is underway to build wind-measuring stations from which data will be collected over the next two years. This will serve as the basis for planning wind power production in the coastal district of Can Gio.

The district’s Can Thanh, Ly Nhon and Thanh An towns have been identified as having good potential for renewable energy development.

Thanh An Island, which is not connected to the national power grid, is seen as the area with the highest potential for developing wind power, given its stable wind speeds, according to the Thoi Bao Kinh Te Sai Gon.

Wind power is expected to generate 3.5 million kWh a year through a minimum of eight 1.5MW turbines that will be installed in Can Gio.

Wind energy is expected to play an important part in the Government’s plan to increase the share of renewable energy from 2.5 per cent in 2009 to 5 per cent in 2020.

Viet Nam has a total potential wind power of 1 million MW and it is expected to develop 12,000MW of wind power by 2020, equivalent to 3 per cent of the country’s total output, according to the Country Manager of GE Energy Viet Nam, Nguyen Xuan Thang.

To promote the use of solar power in Can Gio, the HCM City Power Corporation has installed solar panels in Thanh An’s Thieng Lieng Village that provide power to more than 200 households. Each household gets an average of 50kWh from solar power each month.

Solar power is getting easier to generate the cost of equipment and installation has decreased considerably. Each kW of solar power costs $3,000 to generate compared to $10,000 three years ago.

Despite the city’s efforts to promote energy efficiency and the use of green power, the notion is yet to become popular because of poor knowledge and awareness of its importance.

There is no State-owned office in HCM City that uses solar power. There are very few private companies and individuals who have invested in the solar power technology, according the city’s Department of Industry and Trade.

The biggest challenge in implementing the policy on power saving and energy efficiency was the low public awareness, said the head of HCM City Institute of Physics’ Solar Power Technology Office, Trinh Quang Dung.

Business owners were not willing to practise energy efficiency despite the savings involved and consumers did not have much choice when it came to energy-efficient products. The Ministry of Industry and Trade had been labelling products that are energy-efficient, but these were a handful, reported the Sai Gon Giai Phong (Liberated Sai Gon) newspaper.

LEGAL NEWS - 25pct-income tax on land, property transfers 

VOVNews

People who transfer land use rights to ownership of houses and apartments will be subject to a tax of 25 percent on their income from the transactions, said the Ministry of Finance.

The new tax rate was stipulated in Circular 113/2011/TT-BTC, recently issued by the Ministry of Finance. The circular also outlines ways to calculate personal income tax including income tax on real estate transactions.

Under the new circular, organisations and individuals paying commissions, salaries, wages and other service charges valued at more than 1 million VND per transaction will have the tax deducted before paying their general income tax. Deductions are applied at a rate of 10 percent for individuals who have tax file numbers and 20 percent for those without tax file numbers.

Purchasing contracts for houses or apartments signed before Decree 71/2010/ND-CP on the implementation of the Law on Housing came into effect on 23 June, 2010, have to pay 25 percent of their personal income tax.

For the transfer of purchasing contracts on housing to be built in the future, people making tax declarations will be subject to a tax of 25 percent on their income. 

 

Oliver Massmann

Rechtsanwalt