Believing that the steel industry now can get benefits from the low electricity prices, the Ministry of Finance (MOF) is attempting to “create a fairness” by imposing tax.

Most steel furnaces using backward technologies

According to the Ministry of Finance, the supply has far exceeded the demand in nearly all sectors, from structural steel, cold rolled steel, welded steel pipes, metal plated corrugated iron and coated color corrugated iron. Only hot rolled steel, quality steel, mechanical steel and alloy steel still cannot be manufactured in Vietnam.

In 2010, the total finished steel product output reached 9.2 million tons, an increase of 33.04 percent over 2009. The noteworthy thing is that in 2010, the export steel volume increased significantly over the year before (finished steel exports increased by 238.74 percent, while scrap steel exports increased by 247.74 percent).

In order to churn out such a high output, steel mills consumed up to 4.67 billion kwh of electricity, which is believed a big waste. According to the Vietnam Steel Association (VSA), only four steel mills out of the current 32 laminating steel mills are using advanced technologies of G7 countries, while 10 mills are using middle class technologies, and 18 others (more than 50 percent) are using very backward technologies.

The steel mills using backward technologies explain why steel mills consume much electricity. A furnace with modern technology consumes 350-400 kwh to make one ton of steel, while a backward furnace needs 600 kwh.

Making profits thanks to low electricity prices

Also according to MOF, the electricity price should be equal to 165 percent of the average electricity price of 2010 (1242 dong per kwh) in order to avoid loss for the producers. As such, the electricity price should be 1777 dong per kwh. Meanwhile, though the electricity price has been raised recently, power plants still incur losses, and enterprises can save 525 dong per kwh from the electricity price gap.

If steel mills only have to pay for electricity bills in accordance with the 2011’s average electricity price, the profits they will get from the electricity price gaps would be 214,000 dong per ton (modern furnaces) and 321,000 dong per ton (backward furnaces). As such, the electricity price gap alone can bring the profit of 10-15 dollars per ton to manufacturers.

Imposing tax is the solution

MOF has proposed to levy the export tax of 3 percent on structural steel, cold rolled steel, welded steel pipes, metal plated corrugated iron and coated color corrugated iron in order to restrict the export of the steel products. Besides, the ministry has also proposed to collect the export tax of 3 percent on ingot steel exports.

Regarding the scrap steel, though the exports increased sharply in 2010, the product is being imposed the export tax of 22 percent already, nearly hitting the committed ceiling level, it is impossible to raise the tax rates further.

The Ministry of Industry and Trade does not agree with the Ministry of Finance on the taxation plan, saying that the steel supply has far exceeded the demand, and it is necessary to exempt tax to encourage exports to “clear the stocks”. However, MOF still has been insisting on taxing, saying that manufacturers must not take full advantages of the preferences to make products for export to earn profits.

A similar solution has been suggested for the cement industry. According to MOF, cement production is the industry which uses many minerals, while it affects the environment. Meanwhile, the cement prices are not high, at 40-45 dollars per ton, which makes it unable to cover expenses. Cement is also the industry which can get benefits from the low electricity prices (2.4 dollars per ton).

Therefore, MOF has proposed the government to collect five percent on clinker exports.

Source: SGTT