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Overcoming losses, moving to net profit

The Ministry of Industry and Trade has summarised and evaluated the pilot investment of Tan Rai and Nhan Co bauxite projects in the Central Highlands.

Accordingly, the investment capital of Lam Dong Bauxite-Aluminum Complex project (Tan Rai project) has been revised up three times from VND 7,700 billion to more than VND 15,400 billion.

After five years of operation, (from October 2013 to the end of 2018), in the first three years, the projects suffered losses. Since 2017, the project made increasing profit. If the profits were VND 379 billion in 2017, they increased nearly VND 1,800 billion after tax in 2018.

As of December 31, 2018, the project still had a loss of VND 1,325 billion due to exchange rate differences (VND 1,162 billion).

The reason for the loss in the first three years of this project is the decrease in alumina price. In 2016, the alumina price was US$254/tonne, down 24 percent compared to the calculation. In addition, the production line is unstable in the first time of operation is also a cause for the loss. However, the world alumina price increased again in 2017, reaching $334/tonne.

It is expected that by the end of 2019, this project will have no losses and turn into a net profit. The payback period is 10 years, earlier than the project was approved in 2013.

The report of the Ministry of Industry and Trade also stated that by the end of 2018, Tan Rai project contributed more than VND 2,700 billion to the State budget.

The Nhan Co Alumina Plant project has a total initial investment capital of VND 3,300 billion, then increases to VND 16,800 billion.

In the first year of production in 2017, Nhan Co alumina Plant had a profit of VND 35 billion. In 2018, the project earned more than VND 472 billion after tax.

Notably, the project faced depreciation faster and higher than normal depreciation for quick payback. If the depreciation was implemented according to regulations, the project would have higher profit. The payback period was reduced to nine years, earlier than the approved project in 2014. Nhan Co project has contributed over VND 1,700 billion to the Sate budget.

There are shortcomings and adequacies

Besides the results, the Ministry of Industry and Trade also pointed out shortcomings and inadequacies of these projects.

Specifically, preparation for investment in the two bauxite and alumina production projects of investors has not been effective. The selection of scale, capacity and technology of projects has been inconsistent and has had to be revised many times, prolonging the time for investment preparation, increasing investment costs and affecting the investor's overall capital plan.

In addition, the Chalieco contractor is still limited and lacks experience with gibbsite bauxite ore in the Central Highlands of Vietnam and Vietnamese law and weather conditions in the Central Highlands. Therefore, there are problems and shortcomings from the stage of technology design, operation process, construction organisation, red mud reservoir design to pre-acceptance test and settlement of works.

According to a report of the Ministry of Industry and Trade, although some of the project's technical indicators are equivalent to or higher than the design, they have not reached technical standards of advanced aluminum plants in some similar projects of G7 countries.

Bayer technology is the key technology for alumina production in the world. Bayer Americas technology has been selected to apply to the two projects that are considered suitable for gibbsite bauxite ore in the Central Highlands. However, technological processes and some technological equipment originating from China are not optimal, they need to be studied and improved.

The Ministry of Industry and Trade said that for these two projects, environmental protection solutions need to be studied and perfected for more efficient solutions of emissions, recycling and using red mud. Land reclamation, environmental rehabilitation and restoration will bring higher land use value after the mining process.

"The two projects ensure social and economic efficiency. The Vietnam National Coal-Mineral Industries Holding Corporation Limited has many positive solutions to improve the efficiency of the projects. However, it needs measures to manage risks caused by fluctuations of alumina and aluminum prices in the market," the Ministry of Industry and Trade said.