Vinachem leaders named over blowing away $185 million

The Central Inspection Commission reveals names to go with Vinachem's whopping $185 million losses

Violations committed by several Vinachem leaders have significantly contributed to “blowing” trillions of the company’s money.

According to the Central Inspection Commission of the Communist Party of Vietnam, several Vinachem projects have been making losses in recent years. In particular, four out of five projects, most notably Ninh Binh Fertiliser Plant project, have accumulated losses of over VND4.2 trillion ($185 million).

The Ministry of Industry and Trade (MoIT) has issued a warning of the urgent need to effectively detect and address violations committed by any division or individual at Vinachem.

Four Vinachem leaders in the red

The four high-ranking leaders of Vinachem who were put under investigation include Nguyen Anh Dung, secretary of the Vinachem Party Committee and chairman of Vinachem Board of Directors and Members’ Council for the term 2010-2015, as well as three other former leaders of the term 2005-2010.

In particular, Nguyen Anh Dung was held mainly responsible for the violations of the Party Standing Committee of Vinachem during the term 2010-2015.

Given his responsibilities as the leader of the group, Dung was accused of acting irresponsibly and slacking in the course of his management, monitoring, and inspection duties, causing a wide range of violations and shortcomings in the management of human resources, capital, assets, land, and investments of the group.

Such violations have resulted in so many serious consequences that Vinachem and other affiliates were unable to preserve the capital allocated by the state.

He was charged with slacking on his duties of supervision and inspection for serious violations during the implementation of the Lao Cai DAP No.2 project. Besides, he was mainly responsible for violations during the implementation of the Ha Bac fertiliser project.

Do Quang Chieu, former secretary of the Vinachem Party Committee and former chairman of the Board of Directors, was held mainly responsible for violations and shortcomings in steering the implementation of the Ninh Binh fertiliser project during its first phase.

Specifically, Chieu was deemed irresponsible for submitting the project pre-feasibility and feasibility study reports to relevant agencies while the development plan for Vietnam’s chemical industry had not yet been approved.

Although some ,inistries, relevant government bodies, and experts have warned that the project was of low efficiency and contained abundant risks, he still requested competent authorities to authorise the investment. As a result, to date, the project has been performing extremely poorly, causing substantial losses and losing the entire state equity.

Nguyen Quoc Tuan, former secretary of the Vinachem Party Committee, former chairman of the Board of Directors and the Members’ Council, was held responsible for general violations and shortcomings in his duties at the group’s Party Standing Committee.

Particularly, Tuan was deemed irresponsible as a high-level excecutive, slacking in the course of his management duties and thus causing numerous violations in the management of capital, assets, land, and investments of the group. He was held responsible for signing decisions to approve the adjusted feasibility study report of Ninh Binh Fertiliser project and change the schedule of project implementation contrary to the guidelines of the prime minister.

He was accused of failing to monitor and supervise the implementation of the Ha Bac fertiliser project and the DAP No.2 Lao Cai Project, leading to the rise of countless violations and shortcomings. Moreover, he was held responsible for issuing the resolution of the Board of Directors to execute the construction of a commercial centre, offices and luxury apartment complex at 233B Nguyen Trai, Hanoi in contravention of regulations.

Do Duy Phi, former deputy secretary of the Vinachem Party Committee and former member of the Board of Directors and the Members’ Council as well as CEO of the group, was deemed irresponsible and slacking in management, causing violations and shortcomings in the management of capital, assets, land, and investments of the group.

He was found responsible for violations and ethical breaches after issuing the decisions on the implementation of the Ninh Binh fertiliser project, Ha Bac fertiliser project, and Lao Cai DAP No.2 project.

The four projects of Vinachem running trillion-dong losses

1. The Ninh Binh fertiliser project incurred a loss of over VND3 trillion ($132.2 million)

The project was executed by Vinachem with a total investment sum of VND12 trillion ($528.6 million). This project incurred the biggest loss of up to VND3.217 trillion ($141.7 million) (by the end of 2016).

According to the Ministry of Industry and Trade, the project’s difficult financial situation stemmed from rising investment costs, plus repayment of borrowings from banks and losses from operation. As a result, its production and business suffered from great inefficiency and the plant was shut down.

As stated in the conclusions of the Central Inspection Commission, despite warning from ministries, agencies, and professional government bodies on the project’s low investment efficiency and potential risks, CEO of Vinachem and the Members’ Council still requested competent authorities to authorise implementation.

As a result, the plant continuously suffered losses, with a total amount of more than VND2.5 trillion ($110.1 million).

With respect to the inspection conclusion, MoIT pointed out that Vinachem had wrongly approved the project’s adjustment proposal based on underestimated financial risks and limitations in forecasting capacity.

At the conclusion of the inspection of this project, MoIT mentioned a host of violations and shortcomings in the management of the construction of the Ninh Binh fertiliser project as well as the production and business activities of Ninh Binh Fertilised One Member Co., Ltd.

Regarding Vinachem’s Members’ Council and its CEO, the Central Inspection Commission concluded that the leaders had not performed their monitoring and supervision duties justifiably and adequately, which allowed the Project Management Unit of Ninh Binh Fertiliser Plant to breach the contract by switching from equipment sourced from EU and G7 countries to products of Chinese origin.

The Members’ Council and CEO of Vinachem also committed numerous violations in contract signing, acceptance testing, payments to contractors, and the finalisation of the project.

A number of processes were corrupted with wrongdoings throughout the stages of project formulation, appraisal, approval, contract signing, acceptance testing, and payments to the fulfilment of state budget obligations, which inevitably increased the total investment of the projects.

2. Lao Cai DAP project charged with abundant violations

The total investment of the Lao Cai DAP project reached nearly VND5.2 trillion ($229.1 million), a significant increase compared to the initially approved figure (more than $193.8 million).

Notably, since July 2015, after the plant went into commercial production as of June 30, 2016, it has failed to meet production output targets.

Practically, from July 1, 2015 to December 31, 2015, the average production capacity was only 65.2 per cent, resulting in 107,571 tonnes of DAP; from January 1, 2016 to June 30, 2016, the average production capacity dropped to 43.5 per cent, yielding 71,758 tonnes of DAP.

In 2015, the company lost more than VND100 billion ($4.41 million). In 2016, the loss was over VND800 billion ($35.2 million).

The audited report on the construction, management, and utilisation of investment capital of Vinachem’s Lao Cai DAP project dated October 27, 2016 by the State Audit indicated countless cases of misconduct.

The State Audit of Vietnam also detected signs of law infringement during the implementation of the project. Hence, the Audit Office decided to pass its records to the investigation agency for further clarification.

Specifically, the approved total investment was found different to the actual VND70.2 billion ($3.09 million). During the negotiations to cut down the bidding price of Package No.3 EPC1 originally worth $38.48 million, investors lowered the requirements on technical capacity, origins, and quality of some equipment. They also failed to thoroughly adhere to the principal design and bidding documents, while implementing some unnecessary bidding packages, wasting VND9.3 billion ($409,692).

As requested by MoIT's Steering Committee to handle loss-making projects, Vinachem must resolve all deficiencies and disputes in order to settle the EPC contract and finalise the entire project before September 30, 2017.

3. Ha Bac fertiliser project

Once the “alpha male” of the Vietnamese fertiliser industry, after expanding its operations with a total investment sum of more than VND10 trillion ($440.53 million), the project has been suffering growing losses.

In 2010, the company kicked off a renovation and expansion project with a total investment of more than $568 million. The project was finalised and put into operation in 2015, raising the capacity from 180,000 to 500,000 tonnes per year.

The new expanded plant has just been put into operation, so interest expenses were fairly significant as significant funds were allocated to cover depreciation. After the first year of expansion (2015), Ha Bac Fertiliser JSC reported a loss of VND669 billion ($29.47 million) (higher than the planned loss of $3.08 million). The figure continued to increase to around VND1 trillion ($44.05 million) just one year later.

According to the first year plan (2015), the company expected to incur a loss of $26.55 million, equivalent to VND585 billion. In the second year (2016), the loss was forecasted at $5.659 million, equivalent to VND124.69 billion. By the third year (2017), the company expects to gain a profit of $4 million, equivalent to VND88.3 billion (at current exchange rates).

Even if the company manages to make profit in 2017, it is nearly impossible for it to break even before 2019.

The poor performance might be attributed to fierce competition among domestic manufacturers, and importers, especially those from China.

With regards to the expansion project of Ha Bac fertiliser plant, the Ministry of Construction also concluded that many violations occurred during the implementation of the project, such as purposely overestimating the costs, performing construction works without a licence, executing illegal construction works and hiring unqualified staff. As such, Ha Bac Fertiliser JSC had to bear a total fine of up to VND100 billion ($4.4 million).

To date, the project has not been able to finalise the EPC bidding package because the investor has not yet arranged enough funds for disbursement, while at the same time several procedural obstacles have not been properly addressed.

4. Dinh Vu DAP project in Haiphong is struggling to escape from losses

According to the financial reports, DAP-Vinachem JSC (DDV) of the Dinh Vu DAP project, as of September 30, 2016 has accumulated losses of nearly VND321 billion ($14.14 million).

The owner’s equity fell to VND1.145 trillion ($50.44 million), down 24 per cent since the beginning of the year. DDV’s financial debts have reached VND817 billion ($35.99 million), including nearly VND682 billion ($30.04 million) of short-term debts and around VND135.4 billion ($5.96 million) of long-term debts.

Vinachem awarded Dinh Vu DAP Plant's EPC to Chinese contractors. The project started in 2003 and was basically completed by 2009, making very slow progress compared to the requirements. The products of the plant failed to meet the quality standard originally designed, with the chemical content of DAP fertiliser products exceeding 61 per cent.

The Chinese contractors were unable to find appropriate solutions for these technical and technological problems. Later, they had to accept the penalty for withdrawing from the project. Two years after the handover, Dinh Vu DAP Plant began to “experience” losses due to the backlog of products.

As of June 30, 2017, DDV has accumulated losses of VND521 billion ($22.95 million). The owner’s equity has dropped to VND944.6 billion ($41.61 million).

The total assets of DDV were VND2.073 trillion ($91.32 million), down by 6 per cent compared to the beginning of the year. In particular, the value of short-term assets was estimated at more than VND503 billion ($22.16 million) (making up 24 per cent of the asset structure), while long-term assets were valued at VND1.534 trillion ($67.58 million), accounting for 76 per cent.

In 2016, DDV recorded its biggest loss as production output only reached 168,000 tonnes. Revenue decreased sharply compared to 2015, only yielding VND1.319 trillion ($58.1 million) and resulting in a loss of VND470 billion ($20.7 million).

The leaders of Dinh Vu DAP Plant said that such big losses were caused by a sharp decline in fertiliser market prices, while the cost of materials kept increasing. Besides, limitations in the management of production costs and poor market planning were also listed as some of the root causes.