VCN – With huge investment capital, for many years, the second phase of TISCO’s (Thai Nguyen Iron and Steel Joint Stock Corporation) production expansion project has been in a difficult cycle, with construction stall.
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Serious financial imbalance
The second phase of TISCO’s production expansion project started in September 2007 but has been suspended since the first quarter of 2013 due to difficulties in arranging capital because the project was prolonged and the total investment was adjusted up (from 3,843 billion VND in 2005 to 8,104 billion VND in 2013, an increase of 4,261 billion VND compared to the initial figure - Reporter). The EPC contract that was signed between TISCO Investor and China General Contractor, which is Metallurgical Construction Corporation (MCC), has faced many unresolved problems. This made the project prolonged and difficult.
According to a report of the Ministry of Industry and Trade, due to difficulties in capital, production and business, in the first three months of the year, TISCO’s rolled steel production reached only 185,000 tonnes; billet production reached 87,200 tonnes; blast furnace iron production reached 47,500 tonnes; consumption of rolled steel reached 208,000 tonnes; revenue reached 3,535 billion VND; profit reached 10 billion VND and the company paid 106 billion VND to the State budget.
In the financial report to its shareholders in early April, TISCO leaders admitted the company was in an extremely difficult situation, with serious financial imbalance. The risk of financial crisis leading to bankruptcy is great without a timely rescue from the Government, banks and competent authorities. The data showed that, although TISCO’s charter capital by the end of 2018 was nearly 1,937 billion VND, its liabilities accounted for about 82% of the capital structure.
The Ministry of Industry and Trade revealed that in recent years, the Steering Committee of the Government, ministries and agencies have implemented the withdrawal of 1,000 billion VND of State Capital Investment Corporation (SCIC) contributed to the project, preserving State capital. At the same time, the investor cooperated with APAVE-VNCC Supervisory Consultant to work with MCC Contractor and Vietnamese subcontractors to review and finalise the volume of work done, and determine the amount of work to be continued.
Focus on divesting State capital
The biggest difficulty in the second phase of TISCO’s production expansion project is that problems in the EPC contract with MCC contractor have not been solved. Therefore, the project is still suspended. The guarantee obligations of Vietnam Steel Corporation (VNSteel) for TISCO's loan to Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) have not been released yet.
At a meeting of the Steering Committee dealing with shortcomings and weaknesses of some shelved and inefficient projects and enterprises of the Industry and Trade sector which took place at the end of March, Deputy Prime Minister Vuong Dinh Hue stated: "For TISCO's project, it is necessary to make a report to consult the ministries. The project should be thoroughly dealt with and its problems need to be continuously handled when the project is moved to SCIC. There are two issues to be solved before equitisation. One is to deal with the EPC contract; the other is to disburse the guarantee of VnSteel. Comrades at the State Capital Management Committee in enterprises need to direct SCIC that after receiving the project, SCIC needs to include the plan: if the two above problems have not been solved, to reduce losses and damage, whether that equitisation is possible or not, whether state capital is continuously divested or not in that condition. Just hand it over, after moving to SCIC, the project will be recalculated and reported to the Steering Committee for further handling”.
TISCO has completed the Draft plan to solve the Project’s problems with the MCC General Contractor. The plan is being submitted to competent authorities to continue negotiating with the contractor. VNSteel is also implementing a State divestment plan at TISCO under the direction of the Government and working with VietinBank on the release of the corporation's guarantee obligations for TISCO's loan to the project.
The Ministry of Industry and Trade stated that it was necessary to focus on implementing the plan of State divestment under the direction of Deputy Prime Minister Vuong Dinh Hue in two cases. The first case, complete the settlement of the EPC contract dispute of the Project and resolving VNSteel's guarantee for TISCO at VietinBank. The second case, when these two problems could not be resolved, it was necessary to report to SCIC to submit to the State Capital Management Committee after the Ministry of Industry and Trade handed over the right to represent the State owner at VNSteel to SCIC.
In 2017, although the second phase of TISCO’s production expansion project was still under construction and being suspended from construction to solve its obstacles, the first phase of the Project still had stable production and business activities. TISCO’s production of rolled steel reached 739,390 tonnes; consumption of rolled steel was 744,676 tonnes; billet production reached 412,012 tonnes; production of blast furnace iron reached 168,125 tonnes; exploitation of iron ore reached 667,673 tonnes; exploitation of fat coal was 146,237 tonnes; revenue reached 9,824 billion VND; profit before tax reached 121.2 billion VND, and the company paid 394 billion VND to the State budget.
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In 2018, TISCO’s production of rolled steel reached 788,567 tonnes; consumption of rolled steel was 761,901 tonnes; billet production reached 408,261 tonnes; production of blast furnace iron reached 199,834 tonnes; exploitation of iron ore reached 477,681 tonnes; exploitation of fat coal was 123,016.43 tonnes; revenue reached 12,254.47 billion VND; profit before tax reached 35.95 billion VND, and the company paid 186 billion VND to the State budget.
By Thanh Nguyen/ Ha Thanh