Diversifying Machinery Supply Sources

 

Mr Nguyen Van Thu, Chairman of the Vietnam Association of Mechanical Industry (VAMI), said, without no market, most industrial projects used contractor appointment mechanism or low-priced mechanism and most projects were grasped by Chinese contractors. From 2003 to 2011, China was EPC contractors of five out of six chemical projects, all two mineral processing projects, 49 out of 62 cement projects, and a lot of transportation projects. China is also general contractors of 16 out of 27 thermoelectric projects and only seven projects are free from Chinese contractors.

 

According to statistics, most projects are delayed from three months to three years, equipment quality is uneven, and some supporting equipment is often replaced because of low quality. Contract value usually goes up because of changes from original designs, changes in material standards, or added contractors.

 

Besides, Chinese contractors often import iron, steel, materials, spare parts and accessories from China although they can source in Vietnam. They also bring with them Chinese manual workers to projects they are in charge.

 

For example, Vietnamese subcontractors were given a contract value of VND170 billion (nearly US$8 million) in the US$466 million Lam Dong alumina project. Or, local subcontractors were given VND53 billion (US$2.5 million) of contract value in the US$499 million Nhan Co alumina project.

 

Without doubt, the mechanical engineering industry is affected most because Chinese general contractors do not gave mechanical engineering works to local contractors. All is imported from China and this is why Vietnam is usually incurred huge trade deficit with China. Vietnam ran a trade deficit of US$1 billion in 2002 but the value soared to US$20 billion 10 years later, of which synchronous equipment contributed US$10 billion.

 

Thu said the Law on Procurement counts lower value rather than the origin and quality of equipment. The whole world will lose to China if only price is taken into account. Therefore, China won most major projects in Vietnam.

 

In addition, many investors oft for EPC form rather than separate contract works to find suitable local contractors for each work. Needless to say, they also lack information about contractors’ competency.

 

Many EPC bids are given to Chinese contractors because they arrange low-rate loans from China with simple borrowing procedures. The Government of China also has export support policies, offers low-rate loans, and maintains beneficial yuan to USD exchange rate - good conditions for Chinese contractors to win overseas bids.

To deal with urgent power supply, Vietnam applied a mechanism called 1195 (dated November 9, 2005) that an EPC contractor of an ongoing project will be given another similar EPC contract if such contractor arranges finance. This is why China keeps many coal-fired power EPC contracts in Vietnam.

 

On the other hand, mechanical engineering industry support mechanisms are not seriously implemented while mechanical engineering industry development policies are inconsistent. Besides, Vietnam’s reliance on imported materials is also a tough difficulty for mechanical engineering industry (Vietnam imports 2 million tonnes of iron and steel because the price is 15-20 percent lower than that from other countries such as South Korea and Japan.

 

He added that many Chinese-led EPC contracts are affected and interrupted by tensions between Vietnam and China at the East Sea and VAMI proposed the President and the Prime Minister to review all ongoing industrial projects undertaken by China to mobilise domestic resources and select other foreign contractors to complete such projects. This is an enormous challenge but also a good opportunity for domestic designers and constructers to advance forwards.

 

To develop mechanical engineering industry sustainably and promote its roles in the current period, the mechanical business community proposed that the Government build five-year mechanical engineering industry development plans where the State will be a stakeholder to manage and regulate resources. Besides, the Government should soon host a meeting with relevant ministries and VAMI to discuss solutions to abandoned or delayed Chinese-led EPC contracts.

 

He also urged VIMA members to join forces to build specialised production complexes and raise their product quality to meet domestic technical specification requirements.