Banks Turn Back on Fertiliser Project

3:26:30 PM | 7/8/2005

Banks Turn Back on Fertiliser Project


Local banks have refused to finance a major fertiliser plant project in the northern city of Haiphong, which had a designed output with the potential to cut the country's need for imported fertiliser in half, because of its perceived infeasibility and poor potential profitability.


Construction of the Dinh Vu DAP Fertiliser Plant began in 2003 at an estimated cost of US$172 million, but the project, which had been scheduled to be completed this year, has been moving at a snail's pace since then due to financial and other difficulties.


If completed, the plant is expected to produce about 330,000 tons of DAP fertiliser per year, meeting half of the country's annual demand for imported DAP fertiliser.


According to a State Bank of Vietnam (SBV) report, the Government last year directed the country's four major State-owned commercial banks to provide about US$75 million for the project. But two of the banks, the Foreign Trade Bank of Vietnam (Vietcombank) and the Bank for Industry and Commerce (ICB), have refused to share the credit risk after assessing the project, says the report.


The banks demurred that the project is financially inefficient, and its feasibility depends too greatly upon other related projects such as the upgrading of railway systems, the seaport, and an ore sifting line. Given the high risk of loss, the two banks stated that they would not provide credit unless the project is guaranteed by the Government.


Meanwhile, two other banks, Vietnam Bank for Agriculture and Rural Development (Agribank) and Bank for Investment and Development (BIDV), have agreed to lend US$39 million to the project under certain conditions, said the SBV. BIDV wants the Ministry of Finance to assure loan payment, interest and related loan-servicing expenses, and is asking the Government to exempt lenders from the project's financial appraisal process, the report stated.


According to Agribank general director Le Van So, the project's financial outlook is dim because the plant's projected price for fertiliser will be higher than that of imported product. The price will pose a challenge to the competitiveness of the plant, especially when the country is opening its market under the ASEAN Free Trade Agreement (AFTA).


The project is expected to suffer losses in its first five years of operation, and it is estimated to take an additional 13 years for the project to retire its accumulated debt, So added.


However, So commented, given the project's potential to substitute for import, and stabilise the fragile fertiliser market, the Government should step in to resolve the problem. For now, all of the banks are taking a wait-and-see attitude, and only a strong Government commitment may be enough to encourage them to provide credit to the project.