engineers feel the pinch
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
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
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