Officials oppose plan to scrap old ships, say there are better uses

The Hufa Star 01 ship is being disassembled for scrap metal in Hai Phong City. Photo courtesy of Saigon Tiep Thi

Vietnam Maritime Administration is planning to destroy old sea vessels to sell them as scrap metal and save on maintenance costs, but several transport experts and officials say many of the old ships could still be put to other uses.

The administration has listed 53 sea vessels, with a total loading capacity of 673,500 DWT (around ten percent of the national fleet capacity), that need to be broken down.

Many of the boats were bought secondhand by state ship building giant Vinashin and shipping giant Vinalines, both of which are billions of dollars in debt. Forty-one of the boats are anchored in Vietnam and 12 are being held overseas as their owners have failed to fulfill payments to foreign partners.

The administration said that when a vessel is left unused, the law requires the ship’s owners to continue maintaining the vessel and paying all fees related to the ownership, but the embattled owners of the 53 ships in questions cannot afford to make those payments.

Very few legit businesses would ever use a diesel vessel more than 15 years old, but some on the current list are older than that, it said.

An annual market report from the Vietnam Asset Management Company late last year said Vinalines’ 21-year-old Vinashin Atlantic was bought in 2007 for around US$56 million but it can now make its owners around $7.5 million if they sell it as scrap metal. It has been anchored in the southern beach town of Vung Tau since May 2009.

The company estimated that many of the other boats are worth between $1.4 and 4.3 million as scrap metal.

But a Tuoi Tre report February 26 quoted transport business investors as saying that authorities should think of other solutions besides simply destroying the vessels, in order to save as much waste as possible.

They said newer boats in the pack can be transferred to more financially competent owners to be used for at least a few more years.

Pham The Hung, director of Red Star Transport and Forwarding Company in Ho Chi Minh City, said some boats were making losses only because of poor management on the part of their state companies, not because they were not valuable vessels.

“Instead of breaking down the boats for scrap metal, you can sell them to private businesses at a good price and those businesses can repair the vessels and continue using them,” Hung said.

Some experts said a number of the boats can be fixed to transport agricultural produce, noting that they can at least make money running the Vietnam-China routes.

They also said it was not necessary for the Maritime Administration to propose changing laws in order to bring some of the vessels now anchored overseas home for destruction, suggesting they should be sold overseas. Current laws do not allow Vietnamese agencies to import a product for destruction for scrap, due to environmental concerns.

An expert in charge of sea vessels from Vietnam Asset Management Company said Vietnam would have to accept a cheap price when selling overseas, but dragging the vessels home is also costly.

Tran Van Lam, former director of Vietnam Ocean Shipping JSC, said the Hoa Sen (Lotus), which is currently stuck in China, could be sold to a Filipino or Indonesian business.

The used, Italian-made high-speed vessel, which was bought for $87.8 million in 2007, has been stuck in China since 2011. It caused operational losses of $22.5 million and was docked in 2009 after 39 north-south trips.

Lam said Vietnam should offer to sell the boat at around 80 percent of the market price. “That is still more effective than selling it as scrap metal.”

Nguyen Van Cong, deputy head of the Transport Ministry that received the administration’s request to destroy boats, also said he does not support the solution.

He said the boats are a “painful lesson about economic management.”

Transport insiders said Vietnam should tighten control on the purchase, registration and use of old boats, putting a lower limit on their ages, so it can avoid this same situation in the future.

Trinh Duc Chinh, former head of Vietnam Register, the country’s quality management agency, said many boats bought by state companies before 2010 were not designed for transport in the first place, but for resale for profits.

Tuoi Tre quoted crew members on boats currently demobilized in Ho Chi Minh City as saying the boats have formed a garbage dump on the Saigon River over the last several years.

Mechanic Pham Son Tung, on Vinalines’ Song Gianh boat, said the company is only paying people to stay on the boats so the port authority cannot say they are abandoned.

Vinalines has a total of 143 ships with a total loading capacity of 3 million DWT and plans to sell more old ships this year. It sold 10 ships in 2011.

The group announced losses of $117 million last year, saying it failed to see a falling market when it bought additional ships over the past several years. It expected a total of $101 million in losses by the end of this year.

It is under government inspection for fraudulent activities relating to the purchase and ineffective use of old ships. From 2010 to 2011, the group incurred losses totaling $182.3 million, but falsely reported profits.

Former Vinalines officials including Duong Chi Dung, general director and chairman between August 2005 and February 2012, have been arrested in connection with the investigation.

Several boats under Vinalines’s jurisdiction were transferred from shipbuilder Vinashin, which nearly went bankrupt after piling up debts of US$4.5 billion in 2010.

The boats including Hoa Sen, Song Gianh and Vinashin Atlantic were among many bad investments that put eight Vinashin officials in jail. The former board chairman had his 20-year sentence upheld at an appeal last August.