Making A Difference

Bad Business

Prime Minister Rao's investment offer falls through due to India's inability to generate finances for the promised projects

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Bad Business
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Hanoi's euphoria was shortlived as the promised 210 MW gas-based power generation plant did not see the light of day. Indian Ambassador to Vietnam, S.L. Malik, says that despite a visit to Vietnam last year by officials of two Indian public sector org-anisations, BHEL and the Central Electricity Authority, the Indian side could not come up with a financial package to build the power plant, estimated at $200 million.

Eager to rebuild its war-ravaged infrastructure, Vietnam threw open the power project in Phu My to international bidders. It is currently being built with Japanese Official Development Assistance and by a group of foreign companies including theAustralian energy firm, Broken Hill Propriety (BHP).

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Another non-starter was the Indian Government's offer to provide assistance to build a gas-based fertiliser plant in Vietnam worth about $200 million. The Vietnamese government noted that the Indian Government made no effort to open talks to build a fertiliser plant. Moreover, the Vietnamese were surprised when a private sector Indian firm, the Duncan Group—rather than an Indian state organ-isation—began negotiating with them.

For its part, the Duncan initiative failed as it found the project financially unviable. In particular, the private sector firm felt the price of gas to run the plant was too high.

The collapse of both initiatives has hurt Indian economic interests in Vietnam. But there is no faulting Rao's savvy economic vision of harnessing some of the 2.5 trillion cubic feet (tcf) of gas discovered in offshore Vietnam by a consortium of Oil and Natural Gas Corp (Videsh Ltd), British Petroleum and Norway's Statoil, and using the same gas to run the power and fertiliser plants in Vietnam. What could have been a grand Indian transnational economicstrategy, a business coup even, collapsed and was taken over by companies from other countries that are now investing in these projects in the hope of making future profits.

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Concedes Malik: "India's weakness is the lack of finance." To be sure, some Indian and foreign investors have levelled a general criticism against the Vietnamese for not responding quickly to offers, and for their lack of initiative in making sugges-tions. But that remains a peripheral issue.

Unfazed by a few lost opportunities, the two-decade-old Indo-Vietnam Joint Commission—which brings together ministers from both sides for an annual conference—is meeting in New Delhi for three days beginning February 23 to boost bilateral economic links. Vietnam's foreign minister Nguyen Manh Cam is leading a 15-member delegation to India where he will meet Rao and External Affairs Minister Pranab Mukherjee.

Malik says that two significant agreements will be inked during the meeting of the Joint Commission. First, a trade protocol, originally signed in 1990, will be renewed till December 1997 in an effort to boost bilateral trade that had touched $100 million last year.

Secondly, India will extend a new loan to Vietnam of about Rs 850 million after it recently repaid a part of an old loan of the same amount. Here again, Rao has asked the External Affairs Ministry to provide the loan at 5 per cent interest, to be repaid after 15 years. The deal works to India's advantage as Vietnam will spend these funds to buy Indian machinery for its steel, sugar and rubber processing industries. Vietnam's debt to India stands at about Rs 2,400 million in loans extended over the past 10 years, of which it has repaid about Rs 1,286 million.

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Another problem India needs to address is that although New Delhi has identified Vietnam as a "thrust country", Indianexporters lack the normal trade facilities. Indian banks, for instance, do not accept letters of credit (LOCs) opened by Vietnamese banks. Only recently did the Export Credit Guarantee Corporation of India agree to accept LOCs on five state-owned Vietnamese banks.

Still, the Vietnamese are grateful for the official assistance provided by the Indian Government, such as the free supply of textile machinery worth about $500,000 to the Hanoi Textile Polytechnic, and an elaborate training programme worth a few million dollars a year under the Indian Technical Economic Programme to coach over 100 Vietnamese people a year in banking, management, accountancy and computer hardware. Tata buses too have been supplied and are a familiar sight on the streets of Danang. Not to miss the trees for the wood, there is the Vietnamese offer to India, on payment, of some 5,000 ducks for a breeding programme that may ultimately appear on Indian dinner tables, and an Indian gift of 500 goats to boostmilk supplies in Vietnamese villages.

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There is a perceptible change in Vietnam's attitude toward India. When Vietnam began opening up its economy in the mid-1980s, it looked to the West for everything from computer chips to cereals, without a thought for the higher cost of such imports. Now that the chicken have come home to roost in Hanoi and the country cannot afford hard currency imports, the Vietnamese are on the look-out for cheaper appropriate technology.

Take the case of wheat flour which Vietnam imports to produce its staple noodles. Earlier, this essential commodity was imported from Australia, not from India. But in the last four months, Indian firms such as CIMMCO, an S.K. Birla group company, have sold $30 million worth of the relatively cheaper wheat flour to Vietnam.

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Indo-Vietnamese ties have travelled a long way from the bonhomie of Cold War politics to a new age of pragmatism dictated by both countries' market-oriented policies, and the pursuit of mutual self-interest.

Says a Vietnamese official who lived through the era of the friendship between Ho Chi Minh and Jawaharlal Nehru: "We will not forget that Nehru was the first leader to visit our country after we won our independence from France in1954. Every child in Vietnam knows who our true friends are." An Indian businessman glosses the statement: "This simply means, 'we are good friends. But how about making a buck or two'."

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