Vietnam - Multi-billion dollars slip out of hands ‘cause of weak supporting industries

VietNamNet Bridge – Billions of dollars’ worth of revenue from providing equipments, machines and accessories for industrial projects have been falling into the hands of the Chinese contractors because Vietnamese enterprises remain uncooperative.

Vietnamese enterprises choosy and uncooperative

Phan Tu Giang, General Director of PV Shipyard, an oil rig manufacture corporation, said that he recently had a working session with Cuu Long Vinashin steel mill to discuss the purchase of steel for making oil rigs, but the enterprise kept indifferent to the order.

According to Giang, the products of Cuu Long Vinashin still do not have any registration certificates in accordance with international standards. PV Shipyard then suggested two solutions to the problem. However, to date, the steel manufacturer has not taken any move, reasoning a lot of difficulties.

Meanwhile, Cuu Long Vinashin has not given the final answer so far.

Ryu Hangha, General Director of Doosan Vina, a heavy industry enterprise, said he identifies with Giang.

He said that when negotiating with PetroVietnam on the contract to supply auxiliary equipments for boilers, the oil and gas group said that it would only accept to buy Doosan Vina’s products, if the prices are 10 percent lower than the import prices.

“Could you find any enterprise in the supporting industries which can make the products cheaper by 10 percent than the imports?” he questioned.

And then he answered “no.” It’s simply because all the input materials for making products need to be imported from other countries, because they cannot be made domestically. Meanwhile, China proves to be a reasonable supply source with existing materials, experiences and higher efficiency. Therefore, the prices of domestic products cannot be cheaper than the imports.

In fact, all enterprises in Vietnam strive to increase the locally made content ratios in their products to reduce the production costs. However, they have been facing too many difficulties in implementing the plan.

Giang said PV Shipyard plans to build a jack-up rig with the total investment capital of 100 million dollars. Meanwhile, the company can only buy 1.4 million dollars’ worth of domestically made materials and equipments.

As such, the domestic supplies can only provide 1.3 percent of the total procurement value of machines and equipments, accounting for 0.8 percent of the value of the total project. The locally made content ratio in the project is expected to be at 34.7 percent.

Giang wishes to raise the locally made content ratio to 50 percent, but it has given up the idea. In order to obtain the 50 percent localization ratio threshold, PV Shipyard would have to buy 30 million dollars’ worth of domestically made equipments, which proves to be an “impossible mission.”

Multi-billion dollars fall into the hands of Chinese

According to Phan Dang Phong, Deputy Head of the Mechanical Engineering Research Institute, Chinese suppliers can earn billions of dollars from the weakness of Vietnamese enterprises.

From now to 2025, Vietnam would build 35 thermopower plants in the country, which have the total investment capital of 43.5 billion dollars, including 32.7 billion dollars to be spent on machines and equipments.

“We spend money to build power plants, but we create jobs for Chinese and bring profits to Chinese mechanical engineering industry,” Phong said.

Meanwhile, according to Giang, the biggest problem is that Vietnamese enterprises cannot provide products at low prices.

“Our jack-up rig is priced at 200 million dollars, which is equal to a Singaporean product. Meanwhile, China offers the product at just 180 million dollars,” Giang said.

The problem here is that PV Shipyard cannot offer products at low prices because it cannot find domestic integrated equipment. Giang has been trying to persuade domestic partners to make the equipment, but the partners believe that these are risky projects.

Pham Huyen

Business & Investment Opportunities 
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com