Rare public outcry prompts Vietnam to hit investment brakes

[HANOI] To Nguyen Tan Phong, a farmer in Vietnam's Mekong Delta, the foreign-owned paper mill built upriver from his catfish ponds was an ecological disaster waiting to happen.

Mr Phong feared a repeat of last year's toxic spill from a steel plant owned by Taiwan's Formosa Plastics Corp that devastated central coast fishing communities and cut annual economic growth by 0.3 percentage point.

Then something happened that Mr Phong didn't expect: The central government abruptly delayed last summer's scheduled opening of the US$1.2 billion mill owned by Hong Kong's Lee & Man Paper Manufacturing Ltd. It's now undergoing stringent environmental tests to get final approval.

"Local governments used to accept foreign direct investment projects because they brought in huge amounts of capital," Mr Phong, 65, said last month. "Now, because of environmental concerns, they dare not accept it." Rattled by the outpouring of public anger over the Formosa incident, Vietnam's Communist leaders are rethinking the strategy of courting foreign investment at almost any cost. Now they are vowing to reject environmentally harmful investment and introduce regular factory inspections to ensure companies comply with the law.

Minister of Natural Resources and Environment Tran Hong Ha has ordered provincial officials to make regular checks at factories a "key task in 2017" to help "better prevent and handle any environmental violations", according to a Jan 19 posting on the government's website.

Finding the right balance will be key. With foreign companies contributing more than 70 per cent of export revenue, the government faces pressure to avoid hurting an economy that grew 6.21 per cent last year - one of the highest rates in Asia. Disbursed foreign direct investment climbed 9 per cent to a record US$15.8 billion.

Lee & Man said that it's installed new waste facilities at the paper mill. It's now undergoing a trial run that will continue into February, according to an e-mailed statement from the company.

The public outcry over Formosa prompted a reaction from Vietnam's leaders in part because they are realising that environmental risk can threaten the legitimacy of the Communist Party, said Nguyen Xuan Thanh, a Ho Chi Minh City-based senior fellow at the Harvard Kennedy School of Government. That will be tested by powerful state-owned enterprises, influential private companies and a growing number of coal-fired power stations to meet increasing demand for electricity, he said.

"It's the dilemma China faced 20 years ago," Mr Thanh said.

Until last April's toxic spill in central Ha Tinh province, the government paid little heed to the environment as it opened the country to outside investors, according to Pham Chi Lan, who served as an economic adviser to former Prime Minister Phan Van Khai. That created "favourable conditions for polluters," she said, adding that now the government realises that environmental disasters can hurt the economy. The Ministry of Natural Resources and Environment didn't immediately respond when reached by phone.

Ha Tinh saw a 17 per cent drop in growth after the Formosa spill devastated the local tourism and fishing industries. Prime Minister Nguyen Xuan Phuc has said he will shut down the steel mill if it happens again, and has ordered officials to closely monitor other projects.

After the disaster, government officials found 53 violations from the company. Formosa took full responsibility and agreed to pay US$500 million in compensation. Vietnam last month said it would punish four government officials over the incident.

Even so, government oversight is so lax that for most foreign enterprises the cost of complying with local environmental standards in Vietnam is as much as 50 per cent less than in their home countries, said To Trung Thanh, an associate professor at the National Economics University in Hanoi.

A study from the university in 2015 found that nearly two-thirds of foreign-invested enterprises discharged more waste than local regulations allowed, while 23 per cent of companies released 12 times the proscribed limit.

It remains unclear if the environmental commitments in Hanoi will filter down to far-away provinces, where officials are more apt to ignore environmental risks when deep-pocket foreign investors come calling, said Le Anh Tuan, deputy head of the Institute of Climate Change Research at Can Tho University, south-west of Ho Chi Minh City.

In the Mekong Delta, officials are taking environmental concerns seriously. Truong Canh Tuyen, vice chairman of Hau Giang People's Committee, said that Lee & Man's plant will be allowed to open only if it meets the required standards.

Nguyen Van Chien, who exports seedless lemons to Europe from his 100-hectare farm 19 kilometres from the mill, said no amount of safeguards will be enough to calm his fears.

"I don't think we should have that factory here," he said this week. "This place is for agriculture."

BLOOMBERG