Government caught in a concrete problem

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  A worker picks up cement bags from a production line at Ha Long Cement JSC in the northern province of Quang Ninh

The Vietnamese government is in a bind as major cement plants that have suffered huge losses struggle to pay back bank loans taken against government guarantees.

As of the end of last year, the government had backed loans worth a combined US$1.36 billion for 16 cement projects, said Finance Minister Vuong Dinh Hue.

Among the projects, Dong Banh, Ha Long, Cam Pha and Thai Nguyen, all located in the north, have been in the red for some time.

Dong Banh, for instance, has a government-guaranteed loan of $45 million. The plant, which has a designed capacity of 910,000 tons per year, was developed by state-owned Construction Machinery Corporation. It started operations in Lang Son Province late in 2008 after two years of construction, but released its first commercial product only in September 2010.

The plant had to shut down last year after accumulating losses of VND197 billion ($9.47 million) by the end of March.

Due to the shutdown, the government may face a heavy debt obligation. Payments to the creditors ANZ, Fortis Banque France S.A., and Bangkok Bank are estimated at about $29 million in the next five years.

Nguyen Van Diep, spokesperson for the Vietnam Cement Association, said many producers are struggling to clear debts. The Dong Banh Plant in particular may never be able to do so, he said.

The industry has been hit hard by the economic downturn, but investors also have themselves to blame for developing so many new plants over the past few years, he said.

Diep said his group is calling for the government to help extend payment deadlines and boost consumption so that cement producers can try to turn the situation around.

"Otherwise, many companies would have to stop production and would never be able to pay back their loans," he said.

The government often supports state-owned companies in securing loans from banks for a guarantee fee, usually 0.25 percent of the loan value. If the borrower defaults, the government is responsible for repayment.

Former central bank governor Cao Sy Kiem said under the current economic conditions there is little hope that struggling companies can repay loans or even sell their assets.

Economist Le Dang Doanh said the government has been too "generous" in offering loan guarantees to many companies.

"State-owned enterprises are to blame for expanding to non-core sectors. When oil and financial companies invest in cement projects, it's not a surprise that they incur losses.

"But because the Ministry of Finance represented the government in assessing projects and loan guarantee plans, it should take responsibility too," Doanh said.

Commenting on a Ministry of Construction plan to sell the Dong Banh Plant to private company Hoang Phat Vissai, Doanh said it was a last resort move to pass the loan repayment obligation on to another company.

Previous attempts to sell shares of the plant on the Hanoi Stock Exchange had failed, he added.

Even if the deal with Vissai works out, the government has already suffered losses because all its efforts and investments have turned into nothing, he said.

"This is a very costly lesson we have to learn because of our poor investment strategies," Doanh said.

Vietnam's cement output is around 58 million tons per year. Deputy Construction Minister Nguyen Tran Nam said in July that even though there was a stockpile of 2.8 million tons in the first half of this year, it is unnecessary to worry about surplus since demand is expected to rise.

He said cement consumption is projected to hit 75 million tons in 2015, compared to 54 million tons last year. "It's unreasonable if we just look at the current difficult situation and then review and change the current master plan for the development of the cement industry."

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