Vietnam asks India to pay for Tata plant

Vietnam wants the Indian government to pay it $100 million to ensure that Tata’s mega steel project gets off the ground, after a delay of over four years due to land compensation issues.

“The Government of Vietnam has requested the Government of India to assist in $100 million in site clearance (for Tata project),” Vietnamese vice-minister for industry and trade Le Duong Quang said earlier this month.

In 2007, Tata Steel signed an MoU with Vietnam Steel Corporation to invest $5 billion in building an integrated steel plant with an output of 4.5 million metric tonnes at Vietnam’s coastal Ha Tinh province. In 2008, the joint venture was finalized, with a 65 per cent share for Tata Steel, which also became entitled to participate in the neighbouring Thach Khe Iron Ore mining project with an equity contribution of 30 per cent.

But from the beginning, the project got enmeshed in unresolved issues related to site clearance. Under Vietnamese law, the people’s committee of Ha Tinh must grant the investment licence and the money for site clearance and rehabilitation must be paid by the local authorities. But in 2008, citing the global economic slowdown, the authorities asked Tata Steel to pay the $200 million required for  site clearance.

The company’s angst further increased when the original land shown to it was given to the Taiwan-based Formosa Plastics group instead, for another  steel plant. To make things worse, the latter paid only $30 million towards site clearance, while the rest was paid by the Vietnam government. That is the exact amount that Tata Steel had offered from the very beginning to pay as its share for site clearance.

Incidentally, the Formosa group is known to be associated with the son and daughter of former Chinese President Jiang Zemin. “Our lines of credit have provisions that two-thirds of the items for the project have to be sourced from India. Now, they want us to pay $100 million to farmers for the land,” says an Indian government official.

India has taken up the matter at the highest level, with the Prime Minister himself asking his Vietnamese counterpart to expedite the process, not once but three times. But, to no avail.

Last October, during the visit of Vietnamese President Truong Tan Sang, the leader again promised to complete the project. Vietnam had also offered, according to the deputy trade minister, to increase Tata Steel’s share in the Thach Khe iron ore deposits from 30 per cent to 49 per cent.

Four years on, patience is running thin on both sides. Tata Steel has given clear indications that it is near pulling out while the Vietnam government is putting pressure on the Indian group to “upfront” the money for site clearance.

According to certain quarters, India’s support to Vietnam on the emotional issue of South China Sea may get Hanoi to be more flexible in negotiations with the Indian company.

Diplomatic sources feel Tata Steel should persevere in Vietnam, describing its plans as a “strategic project” for India. “The economic relationship with Vietnam is the weakest link in our ties, with only $4 billion in bilateral trade. This project could help change perceptions,” say the sources.

For his part, the Vietnamese minister says Indian businessmen are stereotyped in his country. “We feel they are over-prudent and that makes them lose opportunities,” he said, adding that it will be a “great pity” if the Tatas leave Vietnam.