Re-launch of Armenia’s Nairit to require $210-346 mln in investment, operations economically unsound – WB conclusion
10.06.2015,
11:51
Investments worth $210-346 million will be required to resume operations at Armenia’s Nairit chemical plant, and the estimated cost of supplies exceeds the projected price for polychloroprene rubber, which makes the enterprise non-competitive, says the World Bank’s preliminary report about further operations at Nairit and the plant’s technical and financial viability.
YEREVAN, June 10. /ARKA/. Investments worth $210-346 million will be required to resume operations at Armenia’s Nairit chemical plant, and the estimated cost of supplies exceeds the projected price for polychloroprene rubber, which makes the enterprise non-competitive, says the World Bank’s preliminary report about further operations at Nairit and the plant’s technical and financial viability.
WB’s preliminary conclusion was discussed at a meeting of Nairit technical council on Tuesday, the press office of Armenia’s ministry of energy and natural resources reports. The discussion was attended also by representatives of the ministry of energy.
Earlier Armenia’s government asked the World Bank to assess the viability of the plant, and a financial and technical audit was carried out by the WB together with Jacobs Consultancy.
The conclusion presented by the director of Nairit Ruben Saghatelyan says the plant halted operations in 2010, and the owner abandoned it. As of today, liabilities of the enterprise exceed 121 billion drams ($250 million), including the loan that has not be repaid to CIS Inter-state Council. Over this period, the plant has had no profits and relied on Yerevan Hydro Power Plant loans to pay wages and maintenance costs. Total debt to the hydro power plant is 23 billion drams ($48 million).
The loan debt is still being accumulated. The experts say Nairit plant will remain a heavy burden on electric power companies due to an annual of 3 billion drams in wages payments and maintenance costs if no solution is found.
Nairit will have one of the highest unit costs in the global market because of the industrial process that is based on butadiene and acetylene, according to the conclusion. The experts pointed also to substantial depreciation of the assets of the plant.
The experts say an unrealistic reduction of expenditures or increase of price for polychloroprene rubber will be required to ensure financial liability of the plant. Consequently, the enterprise will fail to compete in the European, Asian or other markets due to high unit costs and remoteness of these markets, the conclusion says.
According to WB experts, capital investments required to resume operations in the plant will pay back only in 30-35 years, which is far from being attractive to investors.
Nairit cannot be competitive, hence, future operations are economically unsound, says the conclusion.
The staff of Nairit plant has not agreed with the preliminary conclusion of the World Bank and said four times smaller investments would be required for re-launching the enterprise. The plant is able to produce competitive products, the employees said.
Now, after the World Bank provided its conclusions, it is the Armenian government that will have to determine the future of the plant.
In early April Armenian Central Bank chairman Artur Javadyan said the CIS Interstate Bank could write off Nairit’s debt and return the bank’s shares to the Armenian government. According to him, the plant’s debt stood at 102 billion drams, including 63 billion dram to be paid as loans.
On January 22, 2014 the Moscow Arbitration Court ruled that Rhinoville Property Limited, the owner of Nairit, pay $107.95 million to the Interstate Bank. Particularly, the court ordered that the company pay $68.6 million of principal debt as well as interests and penalty on an Interstate Bank loan.
Nairit was the only plant in the Soviet Union to produce chloroprene rubber. The plant was closed in 1989 for environmental reasons and resumed operating partially in 1992. In 2006, 90% of Nairit’s shares were sold to British Rhinoville Property Limited for $40 million. The remaining 10% belong to the Armenian government. ($1-476.17 drams). -0-
WB’s preliminary conclusion was discussed at a meeting of Nairit technical council on Tuesday, the press office of Armenia’s ministry of energy and natural resources reports. The discussion was attended also by representatives of the ministry of energy.
Earlier Armenia’s government asked the World Bank to assess the viability of the plant, and a financial and technical audit was carried out by the WB together with Jacobs Consultancy.
The conclusion presented by the director of Nairit Ruben Saghatelyan says the plant halted operations in 2010, and the owner abandoned it. As of today, liabilities of the enterprise exceed 121 billion drams ($250 million), including the loan that has not be repaid to CIS Inter-state Council. Over this period, the plant has had no profits and relied on Yerevan Hydro Power Plant loans to pay wages and maintenance costs. Total debt to the hydro power plant is 23 billion drams ($48 million).
The loan debt is still being accumulated. The experts say Nairit plant will remain a heavy burden on electric power companies due to an annual of 3 billion drams in wages payments and maintenance costs if no solution is found.
Nairit will have one of the highest unit costs in the global market because of the industrial process that is based on butadiene and acetylene, according to the conclusion. The experts pointed also to substantial depreciation of the assets of the plant.
The experts say an unrealistic reduction of expenditures or increase of price for polychloroprene rubber will be required to ensure financial liability of the plant. Consequently, the enterprise will fail to compete in the European, Asian or other markets due to high unit costs and remoteness of these markets, the conclusion says.
According to WB experts, capital investments required to resume operations in the plant will pay back only in 30-35 years, which is far from being attractive to investors.
Nairit cannot be competitive, hence, future operations are economically unsound, says the conclusion.
The staff of Nairit plant has not agreed with the preliminary conclusion of the World Bank and said four times smaller investments would be required for re-launching the enterprise. The plant is able to produce competitive products, the employees said.
Now, after the World Bank provided its conclusions, it is the Armenian government that will have to determine the future of the plant.
In early April Armenian Central Bank chairman Artur Javadyan said the CIS Interstate Bank could write off Nairit’s debt and return the bank’s shares to the Armenian government. According to him, the plant’s debt stood at 102 billion drams, including 63 billion dram to be paid as loans.
On January 22, 2014 the Moscow Arbitration Court ruled that Rhinoville Property Limited, the owner of Nairit, pay $107.95 million to the Interstate Bank. Particularly, the court ordered that the company pay $68.6 million of principal debt as well as interests and penalty on an Interstate Bank loan.
Nairit was the only plant in the Soviet Union to produce chloroprene rubber. The plant was closed in 1989 for environmental reasons and resumed operating partially in 1992. In 2006, 90% of Nairit’s shares were sold to British Rhinoville Property Limited for $40 million. The remaining 10% belong to the Armenian government. ($1-476.17 drams). -0-
