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Among the 12 loss-making and poorly run projects under the Ministry of Industry and Trade (MoIT), only those in the chemical and steel industries have found proper solutions to their challenges and got back on track to reach production efficiency.
Two big projects file for bankruptcy
The Ministry of Industry and Trade (MoIT) approved the bankruptcy petitions of DQS and Phu Tho bio-ethanol plant. PetroVietnam will have to arrange a meeting with its shareholders on short notice to outline a detailed bankruptcy process.
In addition, the State Audit Office of Vietnam was proposed to evaluate the price of a 104,000 dead weight tonnage ship of DQS to promote the bankruptcy process of PetroVietnam’s shipbuilding company.
DQS was established in 2006 by Vietnam Shipbuilding Industry Group (Vinashin), which is now called Shipbuilding Industry Corporation (SBIC). Due to its restructuring plan, DQS was transferred to PetroVietnam on July 1, 2010.
According to DQS’ financial statement, as of June 30, 2010, its chartered capital was more than VND3.758 trillion ($165.4 million), but its accumulated loss was VND1.235 trillion ($54.3 million) and total liabilities were VND7.44 trillion ($327.4 million), including VND4.8 trillion ($211.2 million) in bank loans. DQS has failed to achieve financial balance and does not have the ability to pay off debts.
After being transferred to PetroVietnam, PetroVietnam invested VND5.095 trillion ($224.2 million) in DQS, consisting of a VND1.9 trillion ($83.6 million) addition to DQS’s chartered capital, while the remaining amount went to settling debts.
As of June 30, 2016, DQS’s chartered capital was VND1.9 trillion ($83.6 million), owners’ equity was negative VND1.108 trillion ($48.8 million). Its total liabilities were more than VND6.893 trillion ($303.3 million), of the total, VND1.227 trillion ($54 million) was borrowed from banks.
Regarding Phu Tho bio-ethanol plant, its total initial investment was VND1.317 trillion ($58 million) with the engineering, procurement, and construction (ECP) contract value of over $59 million. However, during the construction process, developer PetroVietnam Coating Corporation Joint Stock Company (PVB) and the main contractor PetroVietnam Construction Joint Stock Corporation (PVC) adjusted the EPC contract by an additional $14.3 million.
The Phu Tho bio-ethanol factory project was delayed since November 2011 due to numerous violations. In particular, the main contractor PVC has unilaterally stopped construction of the project, and as a result, all equipment and machinery went to rust and the project has incurred more losses due to increasing interest and other expenses. Moreover, the construction of other component projects of the Phu Tho bio-ethanol factory has also been delayed.
PVB violated the regulations on management construction investment costs by approving the investment adjustment from VND1.31 trillion ($58 million) to VND2.48 trillion ($109.3 million).
The state inspectorate said, “As of September 2016, PVB, PVC, and their parent company PetroVietnam have not offered a solution, thus, the project on Phu Tho bio-ethanol factory is getting increasingly deadlocked, and it is becoming difficult to continue with the project.”
Resuming three projects
The three PetroVietnam projects that incurred big losses and were required to resume by MoIT include Dung Quat bio-ethanol fuel plant, Binh Phuoc ethanol plant, and Dinh Vu polyester fibre and yarn factory (PVTex).
In particular, Dung Quat bio-ethanol fuel plant will restart operations, after which PetroVietnam will have to divest from this project as it incurred the biggest loss in the company’s portfolio.
Nguyen Hoai Giang, chairman of Binh Son Refining and Petrochemical Co., Ltd., which holds 60 per cent stake in Dung Quat bio-ethanol fuel plant, said that if the factory operates without government incentives, its loss will be about VND150 billion ($6.6 million).
With incentives, its loss will still be about VND100 billion ($4.4 million), and if it stops operations, the loss will be about VND200 billion ($8.8 million). However, even the best plan with the least loss needs additional investment, otherwise the plant will have to be sold.
The Dung Quat bio-ethanol fuel plant is expected to be a source of cheap and clean bio-fuel to partly replace gasoline, with the aim of reducing CO2 emissions from engines. However, the factory has stopped operations in April 2015 and a fourth of the workers have left their jobs.
The Binh Phuoc bio-ethanol plant is related to the plan to use the government’s bio-gasoline E5 from 2018, thus, MoIT requested PetroVietnam to restart the plant.
Regarding PVTex, PetroVietnam is requested to cooperate with its foreign partner to resume the project, then divests from the plant. However, to resume this polyester fibre and yarn factory, PetroVietnam needs an additional VND250 billion ($11 million), with a wide range of strict requirements.
At the meeting to discuss PetroVietnam’s loss-making projects with MoIT on July 7, 2017, CEO of PetroVietnam Nguyen Vu Truong Son said that PetroVietnam wants to solve these projects, however, every plan, including resuming the plants or the plan to go bankrupt needs money.
Meanwhile, the government has no intention of investing in these five projects anymore. Thus, PetroVietnam finds it hard to arrive at a sufficient solution.