Banks shy away from DAP plant

The flagging agriculture sector is eagerly awaiting the proposed fertiliser plant

The four largest state-owned banks recently concluded that the diamonium phosphate (DAP) project, which broke ground last year in the Dinh Vu industrial park of Haiphong and is scheduled for completion by 2007, would have low returns-on-investment and a long pay-back period.
This low efficiency led all the banks to give a strong thumbs down on the project’s final financial package, even though the facility is already half-complete.
The Bank for Foreign Trade of Vietnam (Vietcombank), Industrial and Commercial Bank of Vietnam (Incombank), the Bank for Investment and Development of Vietnam (BIDV) and the Bank for Agriculture and Rural Development (Agribank) all denied Vinachem, the plant’s developers, the requested loan package.
Failure to procure additional funds would mean that the $200-million DAP fertiliser plant, developed by the state-owned chemical conglomerate Vinachem, would be put on ice for a while.
Despite the news, Vinachem’s general director Do Duy Phi remained positive. He believed that the government would soon step in to tackle the problem.
“This is a key project to produce goods that will reduce imports. I hope the prime minister and the Ministry of Finance will guarantee the loans as they promised they would do a long time ago,” Phi said.
A Vietcombank official told Vietnam Investment Review that their decision was based on the assessment that the DAP plant had low financial efficiency and was too dependent on investments in other related projects such as Lao Cai province’s ore exploitation and investment in railroads and seaports.
In addition, the price of DAP fertiliser that the plant will offer is higher than the imported price, which is currently around $265 per tonne.
This high price would make it hard for the country’s first fertiliser plant to stay competitive, especially when Vietnam fully joins the AFTA (Asean Free Trade Area) in the next few years.
The bank’s official said that Vietcombank had refused to fund the project from the outset, due to the bank’s opinion that the plant would be unprofitable.
To reassess its initial opinion, Vietcombank conducted a second review of the project last month.
The bank’s conclusions were the same, and it maintained its position that it would not pour money into this national-scale plant.
Directors of Agribank and BIDV echoed Vietcombank’s views, saying that it was unlikely that the fertiliser plant would secure loans from their banks.
“We are still in the process of appraising the project,” said Agribank general director Le Van So. “But there is very little chance that we will approve the loan due to the project’s low return-on-investment.”
An Agribank report points out that it would take the project six years to yield a profit and 13 years to pay off all accumulated losses.
However, So added that his bank would inject $40 million into the project provided three conditions were met: the Ministry of Finance write a letter of guarantee committing to pay all monies owed to the bank, including interest, if the project fails to pay; the State Bank omit the appraisal step in the loan; and the State Bank support the project developer in accessing foreign currency.
If these conditions were met, a source from BIDV revealed that the bank would provide an additional $10 million.
While the Ministry of Finance has yet to comment on this proposal, the State Bank already rejected one of these conditions last week.
According to the State Bank’s deputy governor Phung Khac Ke, under no circumstances would the appraisal procedure be removed, a compulsory step for a bank to give a loan.
Ke said the State Bank would not bear responsibility for commercial banks’ loans, and that no exceptions would be made.
It is expected that the DAP fertiliser plant would churn out 300,000 tonnes of fertiliser annually once it is operational, jumpstarting the country’s flagging fertiliser production and helping to reduce reliance on imports.
Vietnam currently imports 100 per cent of its annual domestic demand of around 500,000 tonnes
of diamonium phosphate fertiliser.
The country’s DAP imports account for 35 and 40 per cent of total fertiliser imports to Asian countries.