The indebted dozen: state-managed projects pile up losses

By Anh Minh   October 25, 2019 | 09:00 pm PT
The indebted dozen: state-managed projects pile up losses
Government officials inspect Vinachem's DAP 1 Hai Phong Fertilizer Plant. Photo courtesy of Vinachem.
Twelve loss-making projects managed by the Ministry of Industry and Trade have racked up debts totaling VND20.06 trillion ($862 million) as of June.

Of the 12 projects named in a 2016 National Assembly list of poor-performing, loss-making projects, just two began making profit in the first eight months of this year, according to a recent government report sent to the National Assembly.

During this period, the DAP 1 Hai Phong Fertilizer Plant in northern Hai Phong City and Viet Trung Steel Plant, a joint venture between a state-owned steelmaker and a Chinese partner, had made VND7.3 billion ($313,000) and VND271 billion ($11.65 million) in profit respectively.

But other business and production metrics of the two projects had fallen compared to the same period last year because of unfavorable market conditions, the report stated.

Because DAP 1 Hai Phong had been able to largely resolve its shortcomings and return to profitable production, the government has proposed that the project is taken out of the "poor-performers" list.

Among three fertilizer projects of the Vietnam National Chemical Group (Vinachem) that had suspended operations, two resumed production this year, but continued to make losses. Ha Bac Fertilizer Plant lost VND342 billion ($14.7 million) in the first eight-months, up 68.5 percent year-on-year, because it ran into many problems that required the whole plant to stop production and undergo maintenance.

The Ninh Binh Fertilizer Plant also lost VND400 billion ($17.2 million) during this period. It had resumed production early 2017, but only operated for 117 days in 2018, having paused 7 times.

The third, DAP 2 Lao Cai Fertilizer Plant, lost VND209 billion ($9 million), up VND94 billion ($4 million) over the same period last year.

Of projects owned by state oil and gas group PetroVietnam, the Dinh Vu Polyester Fiber Plant (PVTex) incurred losses of over VND340 billion ($14.6 million) as a result of higher input costs. The Dung Quat Shipyard and Quang Ngai Bio-fuel Plant also made losses in the first eight months.

The other six loss-making projects in the National Assembly’s list are: the Thai Nguyen Iron and Steel JSC; Dung Quat Bio-ethanol Plant; Ethanol Binh Phuoc; Ethanol Phu Tho; a steel production joint venture between Lao Cai Steel and a partner; and the Phuong Nam Pulp Factory, which the government had tried to auction off unsuccessfully.

According to the report, the biggest difficulties facing two-thirds of the projects were ongoing legal disputes regarding the value of Engineering, Procurement and Construction (EPC) contracts of these projects, some of which have gone to court or international arbitrators.

This also prevented the projects from being evaluated, preventing the government from divesting its capital.

With the government sticking to the principle of not investing more capital in the loss-making projects, state-owned enterprises who are shareholders were also hesitant to make investments. Difficulties in obtaining loans for working capital have also cash-starved the projects, in particular Vinachem’s fertilizer plants, the report said.

It said that the most important task in the near future would be to resolve the projects’ EPC disputes, which will provide a basis to close the projects and deal with related issues.

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