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Electrical engineers feel the pinch

Update: July, 21/2006 - 00:00

Electrical engineers feel the pinch

(21-07-2006)

HA NOI — High material costs are putting electrical engineering contractors in a bind: facing losses if they carry out the project, or forfeiting bonds if they withdraw.

Hoang Thai An, vice chairman of the Viet Nam Electrical Industry Association, told a conference on Tuesday that some companies making electrical poles, cables and transformers for the nation’s power network are suffering losses as large as VND30-40 billion (US$1.87-2.5 million).

An said that metal prices, particularly non-ferrous metals such as aluminium, zinc, and copper, increased 20-72 per cent during the first six months of 2006. Together with rising petroleum prices, they have rapidly driven up the cost of electrical engineering projects. Contracts signed in January based on cheaper input prices have now become more of a burden than a blessing for the contractors which won them, he said.

The association has solicited the Ministry of Planning and Investment to legally endorse adjustments of contract value, as governed by the Bidding Law, when material price fluctuations exceed 5 per cent so that contractors can avoid large losses.

The association also asked for co-operation from the Ministry of Construction and the Ministry of Finance to assist the contractors when input prices rise.

The association asked Electricity of Viet Nam (EVN), their major contracting partner, to supplement contracts with a formula to adjust contract value at any change in input prices larger than 5 per cent. This would be applied at all projects funded from the State budget or official development assistance (ODA) funds.

Companies that have won bids for electrical projects have complained of heavy losses as metals prices have increased sharply between the time of bid offers and the time of contract signings. For instance, Tran Phu Electrical Engineering Co ate a loss of VND5.4 billion ($0.33 million), and Electrical Construction Co No 4 won five projects resulting in losses of VND8.65 billion ($0.54 million).

Hoang Duc Binh, the deputy director of steel pole maker Dong Anh-Hyundai, said that, between December 2005 and April 2006, the company participated in six projects with EVN. It won two projects for steel poles totalling 6,018 tonnes. Subsequently, zinc prices surged to $3,950 per tonne causing losses of $600,000.

If the company does not fulfill the contract, it forfeits bonds worth $110,000 and is shut out of bidding on other EVN projects.

"If we continue to carry out the project, not only we but also other pole makers will suffer from losses. However, we have to keep bids low to win contracts and maintain jobs for workers," Binh said.

The financial picture at the LS-VINA Cable joint venture is not any brighter. Its deputy director, Nghiem Duc Minh, said that, as copper increases in price, the company faces losses of VND32 billion ($2 million). The company has withdrawn from some projects and lost hundreds of millions of dong in bonds.

Last week, the Ministry of Industry advised electrical enterprises to negotiate with EVN to adjust contract prices based on fluctuating input prices. In the future, the parties should consider allowing such an adjustment of contract value, the ministry said in an official letter to the Electrical Industry Association last week. — VNS

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