The northern province of Phu Tho, for example, has tasted the bitterness from the deal with four South Korean investors.

Four investors hurt the whole province

A credit officer whom Tien phong’s reporters met, related that in the years from 2002 to 2005, a lot of local banks fell into the trap raised by the four South Korean investors and lent them a lot of money. Of these banks, Agribank Phu Tho was the biggest creditor.

Nguyen Manh Hung, Head of the Phu Tho provincial management board of industrial parks, believes that the Phu Tho Planning and Investment Department must take responsibility for the running away of the South Korean investors, because the department was assigned to control the industrial workshops and factories outside industrial parks.

Hung has confirmed the information that South Korean investors have fled and taken away the money they borrowed from banks. “No once could imagine before that the foreign investors, who looked generous, would fall into big difficulties and then escape from the country with such big sums of money,’ Hung said.

“They have caused a big pain to the whole Phu Tho province,” he added.

The South Korean investors – who were they?

Tien phong’s reporters met a lot of workers who once worked for the South Korean invested enterprises. The investors turned out to be not so generous as initially thought.

Nguyen Thi Huyen was one of the tens of workers who once worked for Tasco Polycon, one of the four South Korean companies that borrowed 12 million dollars from Agribank Phu Tho.

Huyen related that the works at Tasco Polycon were simple, but she had to work hard and earned 350-400,000 dong a month. During the two year working period at the company, the laborers never got extra money for sickness, or maternity leave, and never got bonuses.

“When we were working as usual, we heard that the South Korean boss had escaped from Vietnam because he fell into insolvency. We did not get any compensation or allowances,” Huyen said.

Nguyen Manh Thang said that he was working for Tasco when he was told that the business’ owner fled. After a short time, another South Korean came and took over the workshop. However, the new boss also has fled, leaving a big unpaid debt.

“Now I am working for Robe, a Vietnamese invested enterprise. The owner of the enterprise is renting the workshop premises from a bank – the creditor of Tasco. The job has been stable. I have been working here for three years,” Thang said.

10 million dollars vanished into the air – who to blame?

Tasco Polycon and Tasco Industry are the two out of the four companies which still have not paid debts to Agribank Phu Tho. The other two are Tasco Vietnam and Tasco Material. All the four companies have factories located in the Dong Lang industrial factory cluster in Viet Tri City.

The workshops of the companies are mostly one-floor buildings with corrugated iron roof. The companies mostly made simple products, such as packs, ropes, and none of the products had high values.

Therefore, no one could explain why the South Korean investors, who had out of date machines with low capacity, and only made simple products, still could borrow such big sums of money from local banks.

Agribank Phu Tho is trying to exploit the workshops left by South Korean investors by renting them to domestic producers. However, to date, the bank has only recovered 59,000 dollars and 103 million dong, while experts believe that it will take the bank tens of years to take back the sum of money it once lent to the South Korean businesses.

Part 2: Kenmark group and the 50 million dollar debt

The Taiwanese group, which registered a big 500 million dollar investment project in Hai Duong province, made the local authorities and people exult. However, just after a short time of staying in Vietnam, it has fled, leaving the unpaid 50 million dollars. The provincial authorities still do not know how to deal with the case.

The most gigantic project turned out to be the worst

In 2005, the Hai Duong provincial authorities released the decision on allowing Taiwanese Kenmark group to develop a 500 million dollar project in the Viet Hoa Industrial Zone in Hai Duong City. By that time, the project had been considered the biggest one in the locality.

The investment license granted to Kenmark clearly said that Kenmark would build industrial production areas, business-trade areas, urban area, and an entertainment complex on a 100 hectare land plot. The project was scheduled to be developed in two phases. In the first phase, 90 million dollars would be poured into the project to build the items on the area of 46 hectares.

Sources said that Kenmark easily borrowed 50 million dollars from the Thanh Do branch of the Bank for Investment and Development of Vietnam (BIDV), SHB Quang Ninh, Habubank Bac Ninh. Of these banks, BIDV Thanh Do was the biggest creditor.

In May 2010, two factories of Kenmark suddenly stopped operation, while the investor informed the Hai Duong provincial authorities that Kenmark stopped the operation in Vietnam.

Right after hearing about the collapse of Kenmark’s project in Vietnam, a lot of domestic contractors flocked to Kenmark’s production bases to carry thousands of tons of steel away from the Viet Hoa-Kenmark Industrial Zone to partially recover the debts.

Meanwhile, disputes between commercial banks – the creditors of Kenmark – and contractors – the clients of Kenmark – were also raised.

According to Mai Duc Chon, Head of the Hai Duong provincial Management Board of Industrial Zones, the biggest mistake that BIDV Thanh Do made was that it lent money to Kenmark to help the investor buy fixed assets.

“The lending came contrary to the Vietnam’s policy on attracting foreign direct investment,” he said. “Vietnam needs foreign investors because it wants the investors to bring capital to Vietnam. We do not want foreign investors to come to Vietnam just to borrow money from Vietnamese banks,” he said.

The Hai Duong Management Board of Industrial Parks then decided to close the Viet Hoa-Kenmark to protect the assets there.

Banks made mistakes

The production bases in the Viet Hoa-Kenmark industrial zone have been left idle since May 2010. No contractor can be found here. The only officers who are still working are security guards. Two years after the Hai Duong provincial authorities released the decision to close the industrial park and they have not taken any further moves, because they really do not know how to deal with the case.

According to Chon, a lot of Japanese investors and domestic investors have expressed their intention to rent Kenmark’s workshops, but no one has come so far.

Nguyen Xuan Doan, Deputy Director of the Hai Duong provincial Planning and Investment Department, told Tien phong that Kenmark has spent some tens of millions of dollars so far, while the remaining money for the project has been borrowed from Vietnamese banks.

However, Chon does not agree with the police’s conclusion that the Taiwanese investor has fled, saying that the Taiwanese owner of Kenmark still flies to Vietnam, while the workshops and the land area remain untouched.

Chon has affirmed that Kenmark has spent 70-80 million dollars to build factories, while it borrowed 50 million dollars from banks. He also said that Kenmark has asked the Hai Duong provincial authorities to instruct BIDV Hai Duong to allow to delay the debt payment, stressing that only this method can help Kenmark take necessary measures to pay bank debts.

Part 3: The fight against FIEs’ price transfer and tax evasion

A lot of foreign invested enterprises (FIEs) in Lam Dong province have been believed to play tricks to evade tax. The tax sums the local taxation agencies collect from the FIEs are very small, while the agencies have to make 120 billion dong worth of VAT refund to the enterprises.

The FIEs which expand business despite constant losses

According to the Lam Dong provincial management agencies, most of the FIEs in the locality have reported losses in the last many consecutive years.

In 2009, for example, 104 FIEs in Lam Dong (95 percent of total FIEs) reported losses. Bigger businesses reported bigger losses. Tra King Lo (which has 32 billion dong capital in legal capital) reported the loss of 47.7 billion dong, Haiyih (11.2 billion dong) reported the loss of 47.6 billion dong, TFB Vietnam (32 billion dong) reported the accumulative loss of 40 billion dong.

According to Nguyen Van Tua, a taxation officer of the Lam Dong Taxation Agency said that the accumulative loss that the 17 FIEs reported by the end of 2009 had reached 317 billion dong. Especially, some enterprises had incurred the loss which was higher than their investment capital.

As such, in principle, the enterprises do not have financial capability to maintain production. However, in fact, the enterprises still can keep normal operation, and many of them have even been expanding business, setting up more workshops, installing more equipment and renting more land to grow tea.

The Lam Dong Taxation Agency had every reason to have doubts that the FIEs tried to evade tax by conducting the so called “price transfer”. Therefore, it has decided to take inspections at the 17 enterprises from Taiwan, specializing in making o long tea for export, the enterprises which reported the biggest losses.

Buying high, selling cheap

The leaders of the Lam Dong Taxation Agency said they had too many difficulties in the tax inspection due to the limited data collected from the FIEs. Therefore, the taxation agency had to collect information from relevant agencies such as the department for industry and trade, customs agency, the planning and investment department and food hygiene management body.

In 2010 alone, the taxation agency carried out six dialogues with the enterprises that reported losses in an effort to clarify the truth.

The trick that most of the Taiwanese enterprises used was “buying high and selling cheap.” They declared the high prices of the materials and equipment imported from Taiwan, while reporting low prices of the finished products exported to Taiwan.

In order to make one kilo of o long tea, the enterprises needed 5 kilos of material tea which was sold at 35,000 dong. As such, the spending for materials alone to make one kilo of product was 175,000 dong. Besides, enterprises also had to pay for electricity, water, labor force, management and other expenses.

Meanwhile, the enterprises reported the average export price at 4 dollars per kilo only, or 64,580 dong, which was just equal to 37 percent of the production cost.

While the products were exported at 64,580 dong per kilo, they were sold at 1.2 million dong per kilo on the domestic market, which was 18 times higher than the export price.

After the inspection, the export price for o long tea has been raised by 2-3 times to 8.6 dollars per kilo on average. Especially, the price of special products was raised to 11.68 dollars per kilo. As such, the enterprises turned out to be profitable, instead of taking loss since 2005 as they initially reported.

Agencies attempt to control export prices

The Lam Dong provincial taxation agency said that it is carrying out the second step in the fight against the price transfer. An official of the taxation agency has pointed out that the actual export prices have been increasing over the last few years, while the export prices reported by FIEs have not changed since 2009.

Senior ranking officials of the taxation agency said that it plans to refer to different information sources to find out the actual export prices of products which help fight against the price transfer of FIEs.

An official from MOF said in 2011, MOF will inspect 700 FIEs which reported big losses.

Source: Tien Phong.