New signs of two loss-making projects of the Industry and Trade sector

	Many loss-making projects have reduced financial pressure by hundreds of billions VND
	Ministry of Industry and Trade proposes 5 criteria to take major projects out of loss-making projects
	Establish Steering Committee to handle loss-making projects “trillion” of industry and trade sector

Ninh Binh Fertilizser Plant is one of loss-making projects that have restructured debt. Photo: Nguyen Thanh

Making profit, reducing loss but not sustainable

The Government has sent a report to the 14th NA deputies on the situation and results of dealing with shortcomings and weaknesses of projects and enterprises that are behind schedule and inefficient from the Industry and Trade sector.

Specifically, for the six loss-making projects: By 2018 and the first eight months of 2019, there were two factories having profits (DAP fertilizer Factory No. 1 - Hai Phong has an after-tax profit of VND7.2 billion and Vietnam-China steel factory has after-tax profit of VND270,730 billion). However, due to market difficulties, production and business targets decreased compared to the same period in 2018.

Four loss-making projects are gradually overcoming difficulties, continuing to reduce losses. However, due to the market difficulties, the results are not sustainable. Specifically, compared to 2017 and 2018, Ha Bac Nitrogenous Fertiliser Plant reduced a loss of VND342 billion; DAP fertiliser plant No. 2 in Lao Cai reduced a loss of VND208.8 billion; Ninh Binh fertiliser factory reduced a loss of VND417.2 billion.

Compared to the same period in 2018, in the first eight months of 2019, Ninh Binh Fertiliser Plant decreased a loss of VND284.6 billion, but Ha Bac Nitrogenous Plant increased a loss of VND138.9 billion; DAP fertiliser plant No. 2 in Lao Cai increased a loss of VND94.25 billion; DQS Company reduced a loss of VND46.47 billion.

The Government's report also stated that for three projects that have shut down, so far, one project has been under operation, two projects have been eligible to operate again, but due to market difficulties, production has been stopped.

Specifically, Dinh Vu polyester fibre factory has operated three DTY lines since April 20, 2018.

Quang Ngai Biofuel Plant Project has been operated under a contract with Sundries Import Export Joint Stock Company (Tocontap) from October 2018 to April 2019 to produce 2,000 m3 of quality ethanol. However, due to the difficult consumption of products and high prices of cassava, its partner could not implement the production and business plan in 2019 and stopped cooperation.

Binh Phuoc Bio-Fuel Ethanol Plant has completed maintenance and repair, ready to operate, but due to unfavourable market movements, the parties decided not to re-operate the plant.

The remaining three unfinished construction projects: for the Phuong Nam Pulp Factory Project, the Vietnam Paper Corporation has submitted a plan to the Ministry of Industry and Trade to continue handling and organising the second auction of the Project as prescribed.

Meanwhile, the Phu Tho Biofuel Plant Project continues to face difficulties because the Vietnam Oil Corporation (PVOIL) is not the main shareholder (accounting for 39.76 percent), shareholders outside the industry (accounting for 60.24 percent) did not contribute more capital to continue implementing the project.

The project of expanding production of Thai Nguyen iron and steel plant – Phase 2 has also not solved the dispute of EPC contract between China Metallurgical Construction Corporation (MCC) and subcontractors.

Challenges in EPC contract settlement

Currently, the resolution of projects and enterprises that are behind schedule and ineffective in the Industry and Trade sector faces many difficulties, lasting from year to year.

Firstly, issue in handling dispute to finalize the EPC contract and finalise the whole project. According to the Government's report, there are seven enterprise projects arising problems and disputes over EPC contracts that have not been solved yet.

Some cases cannot be settled and need international arbitration. For examples, there are three projects of fertiliser factory (Ninh Binh fertiliser, Ha Bac fertiliser, DAP No. 2-Lao Cai) the parties could not arrange, so now they have to prepare a plan to resolve the dispute in court or arbitration.

The secondly, issue in dealing with financial issues to solve difficulties for projects and enterprises while ensuring the principle the State does not provide additional capital. Enterprises are confused in deciding the policy of contributing more capital to have financial resources to solve difficulties for the project, especially the determination of the source of State-owned enterprises expected to add to the project is State capital or capital of the enterprise.

For examples, some projects, especially fertiliser projects of Vietnam Chemical Group (Vinachem), have difficulties in working capital loans for production and business activities as commercial banks have applied loans with the method of “collecting 10 and re-lending nine”, resulting in a shortage of capital for production and business activities, and a rise in raw material costs.

In addition, several projects and enterprises have not been depreciated and restructured loans, so it is difficult to allocate financial resources to handle problems and arrange working capital for production and business.

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Another difficulty is to handle the formulation of plans and carry out divestments. Except DAP 1 Haiphong fertiliser plant and the Vietnam-China Steel Plant are profitable, the remaining projects and businesses have suffered losses or shut down, so many investors are not interested.

In addition, projects and enterprises still dispute over EPC contracts, so they have not been able to finalise the whole project, and there is no basis to determine the value of projects and divestments.