Vietnam ministry seeks more incentives for bauxite plants

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.

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.

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.

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. 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.

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). 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.

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.

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.

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