State-owned Vietnam National Chemical Group (Vinachem) has decided to pull out of a loss-making potassium salt mining and processing project in Laos’ province of Khammuane after pouring trillions of Vietnamese dong into the megaproject for 15 years, Tuoi Tre Online newspaper reported.

Workers are seen at a factory of Hanoi Battery Joint Stock Company, a subsidiary of Vietnam National Chemical Group

The withdrawal will result in heavy losses for the State budget, according to inspectors with the Ministry of Industry and Trade.

The project, which kicked off in 2015, required an estimated investment of US$522 million, with US$105 million coming from Vinachem, US$113 million from Vietnam Development Bank, US$161 million from the Bank for Investment and Development of Vietnam and US$143 million from Vietnam Bank for Industry and Trade.

In September 2015, Vinachem estimated the profit generated from the project at some US$140 million, based on the prices of potassium salt products quoted by Fertecon World Fertilizer Review, ranging from US$340 to US$365 per ton.

However, the average potassium salt price in Southeast Asia plunged to US$250 per ton in 2016, putting the project at stake.

Vinachem failed to put the project into operation in 2016. In addition, the consulting firm for the project had used a similar project in Germany to estimate the total investment cost of the project, leading to the required investment rising from US$377 million to US$522 million.

The progress of the project was hampered by the slow capital disbursement of the banks, as bank loans for the project were no longer guaranteed by the Government from October 2016.

Vinachem asked the prime minister for permission to suspend the project twice, on November 21 and 29, 2016.

The Government later directed the group to recalculate the total investment needed for the project.

However, the National Institute of Mining-Metallurgy Science and Technology’s recalculation showed that Vinachem still could not make the project profitable.

On May 15 last year, the Ministry of Industry and Trade requested Vinachem to terminate the potassium salt mining and processing project in Laos and determine the capital it had injected into the project, along with the costs that arose, following its withdrawal. The ministry wanted to recover the maximum State capital.

However, the project contractor, a joint venture of TTCL, K.UTEC and CECO, refused to end the engineering, procurement and construction contract signed with Vinachem.

According to the contractor, the project had been 57% completed by July 2017. However, Vinachem had made payments for only 16.25% of the workload.

In 2008, Vinachem established Viet-Lao Chemical and Rock salt Co., Ltd, (Vilachemsalt) to execute the potassium salt exploitation and processing project in Laos, but Vilachemsalt was incapable of holding tenders, approving adjustments to the project’s technical design, drawing up the master plan, supervising the contractors, assessing the project’s quality or storing paperwork related to the project, leading to multiple violations in the project’s execution process.

SGT