Vietnam intends to closely supervise FDI projects’ progress

A draft version for a new decree intended to replace the current Decree on supervising and evaluating investment (No. 113/2009/ND-CP) has been publicized by Vietnam Ministry of Planning and Investment to obtain public opinions. What’s new in the draft? The intended new decree shall not only govern state-owned investment as previously but also cover the FDI and PPP sectors also. If approved and passed, the new decree would be an import legal instrument that foreign investors in Vietnam shall have to pay attention to.

According to the draft, foreign investors shall have to regularly send reports to relevant authorities describing the status of their investment projects, including

1.  Progress of Business Registration (according to the new Law on Investment, foreign investors shall have to apply for Business Registration after obtaining an investment certificate; in another word, an investment certificate shall no longer serve also as a Business Registration as per the Investment Law promulgated in 2005 which is going to expire in the next few months),

2.  Project implementation status and project’s goal implementation status.

3.  Progress of investment capital contribution, charter capital contribution and legal capital contribution, if any,

4.  Project operation status: business operation results, labour and employment, investment for R&D, enterprise’s financial status and the status of other criteria dependent on the specific industrial sector of each enterprise,

5.  The observation of legal requirements on environmental protection, land use, and use of natural resources,

6. The observation of regulations stated in the investment certificate and letter of approval of investment policy (if any),

7. The observation of the conditions set forth for investment projects of the conditional sectors.

8.  Status of investment incentives exercise.

Meanwhile, relevant authorities shall closely supervise FDI projects in the following aspects,

a) The implementation of the provisions in the investment certificate;

b) Progress of the project, including charter capital contribution, legal capital contribution, investment  capital disbursement, loans obtaining and progress of the project objectives.

c) The observance of the regulations on environmental protection, land use, use of natural resources;

d) The fulfillment of conditions for investment, conditions to be eligible for investment incentives and the implementation of the commitments promised by the foreign investors (if any);

e) The observance of the legal provisions regarding taxes, labor, insurance, foreign exchange management, construction, fire fighting and prevention;

e) The observance of the provisions on supervision and evaluation of investment and statistical reporting regime as regulated;

g) The execution of the rulings on discovered issues.

It’s still unknown how the draft decree would be revised after obtaining the public opinions and when it will be officially promulgated. However, there is high possibility that the new decree would be issued in concurrence with the time the new Laws on investment and enterprises of Vietnam are effective in July 2015. 

The main theme of "tightening" in the decree may not be changed so much since authorities see the need to closely and strictly supervise the status of FDI projects in Vietnam, under the circumstances of many reports on long  and wasteful delayed projects after obtaining the license and the land which authorities find complicated to revoke the license and deal with the consequences. 

Dung Quat Refinery: The ball of oil rolls on the field of tax and tariffs

Vietnam Ministry of Finance has promulgate Circular No. 48/2015/TT-BTC to reduce the MFN import tariffs on some petroleum products, releasing the high-raised concerns by Binh Son Oil Refinery and Petroleum Company (BSR) over the possible profit loss and even business closure facing the Dungquat refinery.

In a simple logic, currently supplying around 30% of the domestic demand for petroleum products, if the Dungquat refinery had not faced some kind of “import tariff”, the state budget would have lost a considerable amount of revenue coming from taxes imposed on petroleum imports. Meanwhile, this refinery was initially invested by the state budget. Therefore, contrary to the thinking of many outsiders, Dungquat oil refinery despite being a domestic-based oil producer still has to pay the some  import duties imposed on its oil and gas products sold domestically under a special tax adjustment mechanism stipulated by the Vietnam prime minister under a regulatory decision promulgated since 2009 – the year this refinery was completed and put into operation.

According to the said mechanism, such import duties are lower than and based on the applicable import tariffs framed by the National Assembly and regulated in details from time to time by the Ministry of Finance. The specific rates shall be the MFN import rates deducted certain percentages dependent on each type of petroleum products (7% for petrol and diesel; 5% for LPG and 3% petrochemical products). This factor in combination with some new arising factors have stirred a intense controversy in local mas media in April 2015.

Dropping crude oil prices can lead to dropping business?

When crude oil prices started to decrease dramatically last year, the debates over the scenario of Vietnam economy, under end-users, enterprises and government perspectives, also began to get heated. Considering the fact that taxes collected from crude oil export and oil products import constitute a high percentage in the state revenue.

In reaction to that circumstance, Vietnam Ministry of Finance in late 2004 decided to raise the import tariffs on petroleum products. A decision by the Ministry clearly defined that import tax on petroleum products would be based on the price of crude oil, in the principle that the lower crude oil price is, the higher import duties are. Accordingly, if the Platt's crude oil price is below $60 per barrel, the import duty of petrol, kerosene, diesel, fuel oil shall be at the maximum rate of 40%. For example, if the price of crude oil is at around $ 52 per barrel as recently, the import duty for fuels and oil products can be raised to the rate of 40%; when crude is priced at 60-75USD per barrel, the import duty on kerosene, gasoline and diesel fuel would be at 35%, fuel oil at 30%.

Meanwhile, earlier this year, it was estimated that Petro Vietnam Group’s total revenues in 2015 could drop to 434.5 trillion VND (20.2 billion USD) and remittance to the State budget would be only 79.8 trillion VND (3.7 billion USD) in case the oil price was 40 USD per barrel compared to 33.4 billion USD and 7.4 billion USD, respectively, if the price was 100 USD per barrel.

The two factors including the decreasing crude prices and increasing duties seemed to put Dungquat refinery at an hard time of business, and warnings of possible business loss were widely circulated.

The coming “threats” from ASEAN petroleum products?

In application of the ASEAN Trade in Goods Agreement (ATIGA), Ministry of Finance in Nov 2014 , specified the tariffs for imported goods from the ASEAN member countries, of which the rate imposed on petroleum products  have been significantly lower than those applied by the MFN tariffs (normal rate) to which Dungquat refinery’s products are subject to. For example, the ATIGA import rate for petrol (HS 2710) shall be only 20% in 2015-2018; meanwhile, the MFN rate for the same goods at that time was at a high level of 35%.

Sensing the possible threats coming from ASEAN petroleum products because they are enjoying lower tax rates, PVN and BSR raised their voices of concerns and petitions in early April 2015 to Ministry of Finance and some other ministries. They said that such tax situations would make their petroleum products less competitive in the local market and the closure of the young and first refinery in Vietnam may happen, and petitioned to the Ministry to lower the MFN rates on petroleum to the same rates as per ATIGA.

 Some observers commented that the said spoken concerns by BSR were groundless; however Ministry of Finance on 13^th April 2015 issued Circular No. 48/2015/TT-BTC cutting the MFN import tariffs for petrol from 35% down to 20%, diesel from 30% down to 20%, jet fuel from 25% to 10%. These rates are largely similar to these of ATIGA and the concerns by BSR are said to be released.

 Upon issuing that new circular, a representative from Ministry of Finance did not forget to note in a news conference that the cut taxes would make the state revenue reduced by VND 13,000 billion (~ USD 600 million). However, consumers in Vietnam shall not benefit so much from this tax cut because the environmental protection levy imposed on petrol will be tripled from the current 1.000 VND (~4.62 cent) per liter to 3.000 VND (~14 cent)/liter since May 2015.

At this point of time, the situations seem to be harmonized somehow, however, another issue relating to the above-mentioned “special tax adjustment mechanism” may arise when the MFN import tariffs are lower than the “deducted rates”, and shall be analyzed in another article.

I4G

What's new in Vietnam's Law on Enterprises 2014

The new Law on Enterprises (2014) was passed by the National Assembly in November 2014 and shall be effective as of 1^st July 2015. New and existing foreign investors in Vietnam may be curious to have a look at what’s new in the Law and how the regulatory changes shall affect their business operations in Vietnam. A news article from VCCI has noted major legal updates to come into effect in the next few months.

The new law is said to provide just a general frame governing the operations of enterprises; meanwhile it seems to let enterprises to decide many details of how to organize themselves and operate accordingly.

The new Law seems to make room for information technology to take a much bigger role in the business life; the National  Business Registration Portal (currently at http://dangkykinhdoanh.gov.vn), for instance, is assigned to be place where enterprises must publicize their business establishment announcement or their dissolution decision. Another example is the legal recognition of electronic, audio minutes of meeting instead of requiring minute book as the sole recognized form.  According to the law, general meeting of shareholders can be organized under the form of video conference (involving many locations, and the place of the meeting chairperson shall be recorded as the meeting’s location) and shareholders may cast their electronic or email votes legitimately.

The format of business registration certificate is regulated to incorporate only 4 items, namely (1) the name and code of an enterprise, (2) its location, (3) information about the legal representative and (3) charter capital instead of 10 items as regulated in the past law (scope of business, list of founding shareholders, name of representative office, branch, business location have been removed from the format).  Enterprises’ operations shall be no longer restricted within certain scopes of business indicated in the business registration certificate as before, so companies seem to able to do whatever businesses which are not prohibited under the National Constitution.

Under the new regulations, enterprises may determine the format, the quantity and the indicated information of their seal at their discretion (but the seal must at least indicate the name and code of company) enterprises shall only be required to report their seal’s shape to the business registration office for the purpose of publicizing the seal shape in national business registration portal. This approach was of much debate during the law drafting process and treated with contradictory opinions among the lawmakers. But eventually the new law regulates a flexible approach to the matters relating to company seal. According to the past regulations, Vietnamese enterprise seals was in a standard shape regulated by Ministry of Public Security (Police) and “being stamped” was widely recognized as the condition for a document issued by the enterprises to be valid and effective, even it was signed by the legal representative.

Enterprises may determine the format, the quantity and the indicated information of their seal at their discretion

In coherence with the Investment Law 2014, the new enterprise law also officially abolishes the past regulation defining that an Investment Certificate served also as the Business Registration Certificate (2 in 1) for the case of companies established by foreign investors. Thereby, under the new legal regime, the foreign investors wishing to establish enterprises in Vietnam must obtain an investment certificate for their project first in accordance with Investment Law 2014 and after that shall register to establish their enterprise under the provisions of the Law on Enterprises 2014.

Compiled by I4G

[VNA] Falling oil price and impacts on Vietnam’s economy

VietNamNet Bridge – The sharp decrease in world oil price over the past three months is expected to affect Vietnam’s oil export earnings as well as a wide range of socio-economic aspects.

  

As the budget revenue estimate for 2015 was calculated based on the oil price of around 100 USD per barrel, the Government recently had to convene a meeting to discuss ways to respond to this trend.

The meeting agreed that with the low world price, it is inevitable that the country would have to reduce output and even suspend production at some wells where pumping cost is high.

According to the Industry and Trade Ministry, when the price falls to 40 USD per barrel, crude oil output and export would be cut by between 1.8-2 million tonnes. As a result, the production target of 14.74 million tonnes of oil equivalent this year would not be met, not to mention adverse impacts on oil exploitation and refinery projects both at home and abroad.

Nguyen Xuan Son, Chairman of PetroVietnam Member Council, said the group has developed its own scenarios for 2015. Accordingly, the group’s total revenues would drop to 434.5 trillion VND (20.2 billion USD) and remittance to the State budget would be only 79.8 trillion VND (3.7 billion USD) in case the oil price is 40 USD per barrel compared to 718 trillion VND and 159 trillion VND, respectively, if the price is 100 USD per barrel.

Minister of Planning and Investment Bui Quang Vinh noted that every 1 USD reduction in oil price means a loss of nearly 1 trillion VND (46.5 million USD) for the country, and if the world price falls to 40 USD per barrel, Vietnam’s earnings from oil will be slashed by nearly 70 trillion VND (3.25 billion USD).

He nevertheless said that the losses can be made up with increases in economic growth and tax collections. According to the ministry’s calculation, budget revenues will be reduced by 1.5 trillion VND when the oil price stands at 60 USD per barrel, 9.5 trillion VND when the price drops to 50 USD and 11.5 trillion VND when oil is at 40 USD per barrel.

The economic growth is also expected to suffer from the oil price fall, and in the worst scenario with oil price at 40 USD per barrel, the growth for this year would be only 5.2 percent instead of the targeted 6.2 percent, according to Minister Vinh.

He was quick to add that even then, there would be good things for the economy such as less dependency on oil export and more economical spending.

However, many economic experts said the falling world oil price is not that worrying, as the public and society has benefited greatly from it. As petrol price has reduced by more than one third, from 25,000 VND per litre to nearly 16,000 VND, transport costs have begun to decrease, helping businesses cut costs and increase profit.

According to statistics experts, a 20 percent reduction in petrol price could bring about a GDP growth of between 1.8 and 2 percent.

VNA

Dung Quat Refinery expansion plan fixed at 8.5 mln tons of crude and investment of USD 1.82 billion

After much study and calibration, the ambitious plan to expand and upgrade the Dung Quat oil refinery based in Dung Quat Economic Zone of central coastal Quang Ngai province has been eventually fixed and ratified by an Investment Certificate issued by the local government. The target capacity is announced to be 8.5 million tons of crude per year (192,000 barrels per day),  lower than the figure of 10 million tons as tentatively publicized previously. The total cost for this plan is said to be roughly 1.81 billion USD, 30% of which shall be contributed by the involved partner(s) and the remaining 70% shall comes from loans, according to a news article from PVN/BSR.

A ceremony was organized on 23rd Jan 2015 at Dungquat EZ to officially announce the expansion project.

The expansion plan will involve the construction of some new technological units, upgrade the capacity of existing units, building more crude oil tanks, product tanks, upgrading the existing loading jetties ... so that more crude can be processed, a wider variety of crude input types can be handled by the refinery, and the products can meet the environment standard of Euro V. Besides the current single point mooring (SPM) accessible for  150,000 DWT crude vessels, another SPM for vessels up to 300,000 DWT will also be built.

Layout of the Dung Quat Refinery expansion area.

It’s projected that the work for FEED contract and license contract shall finish in Q. II 2015, EPC contract shall be executed since Q.IV 2017 until Q.III 2021 and the expanded refinery shall be put into operation before 2022.

The investment certificate came after an announcement on the Prime Minister’s approval for this expansion plan. Accordingly, the Prime Minister agreed to let Petrovietnam invest this project on its own in parallel with negotiating with Gazpromnheft (Russia) about the [possibility/options of] transferring. Considering the dropping oil price, it seems that Petrovietnam will still maintain its role as the sole owner of Dungquat refinery until there is an official announcement on when and how the Russian oil giant will become a stakeholder in this project.

According to PVN yearly review for 2014, the operator of Dungquat refinery being Binh Son Refining and Petrochemical Company (BSR) under PetroVietnam  processed 6.4 million tons of crude into 5.81 million tons of oil products and reached a revenue of approximately USD 6 billion, contributed to the state budget more than USD 1 billion.

The revenue targeted for 2015 was announced to be lower than last year, at roughly USD 5.75 billion. 

Dungquat’s refinery upgrade and expansion plan estimated to cost $2 billion

PetroVietnam Deputy General Director Le Manh Hung acknowledged during a recent meeting with the Authority of Quang Ngai, where the Dungquat refinery is located, that the plan to upgrade and expand this refinery shall be kicked off in Q.1 2015, clear site should be available in Q2 2016, and construction will commence in Q.3 2017 and expectedly complete in 2021.

The upgrade and expansion plan is estimated to cost between 1.8 to 2 billion USD and shall raise the refinery’s annual capacity from the current 6.5 million tons of crude oil to 10 million tons.

Surroundings of the current refinery

Much hope is being casted on the formation of a giant refining-petrochemical center in the Dung Quat area where there would be many petrochemical plants to follow, not just an alone oil refinery because after upgrade and expansion, the refinery can handle more diversified types of crude oil, with more types of by-products to be used as input materials for downstream petrochemical plants. 

Research and preparation work for this project started since 2009 - the time when the Dungquat oil refinery was completed and put into operation. According to the latest study, two options are now under consideration: the project shall be invested solely by Vietnam or it shall be joined by a foreign partner, possibly Russian Gazprom group.

The necessary area for the upgrade and expansion of the refinery area is 108.2 hectares, of which 94 hectares shall be used for construction works, the safety corridor is around 14.2 hectares. In order to get such space for expansion, it’s projected to relocate around 400 families away from the area and remove some existing civil facilities.

In the latest event, Deputy Prime Minister has ordered PetroVietnam to complete the investment Project and submit to the Industry and Trade Ministry in November this year for evaluation. The project shall be evaluated by a Council to be set up by Ministry of Industry and Trade, with the participation of related Ministries and Quang Ngai province People’s Committee, and then be reported to Prime Minister by the end of 2014.

JFE discontinues plan for steelworks in Vietnam

In  a press release made on its website, JFE has officially announced its decision to quit involvement in the Guang Lian Steel project located in Dung Quat Economic Zone, Quang Ngai province, leaving E-United Group alone with the project.

The press release did not reveal the reasons for JFE Steel’s discontinuing the participation in the project; however, insiders tend to link this leaving decision to the fact of unapproved investment incentives and the fierce competitions from giant steel mills under construction in Vietnam and in the region.  The situation raises the questions over whether E-United Group would go on with the project and how it would arrange the finance to feed this big steelwork.

Source from Dungquat Economic Zone Authority was quoted as saying that if the investor wants to move on, it has to pledge to follow a clear construction road map otherwise the province would consider revoke the investment certificate, recover the allocated land, and pay back to the investor what it has spent legitimately.

In a report by local authority addressed to the government late 2012, the disbursed investment capital of the project was said to be valued at around $ 50 million then as declared by the investor.

While the 9.9 billion Formosa steel project is on its good progress in north central Ha Tinh province, it’s not clear to outsiders which path  the Guang Lian project is heading to.

Related News:

Guang Lian Steel Project in Dung Quat: in the balancing art of "give-and-take"