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Project Appraisal & Finance
Nghe An Tate & Lyle Sugar
Tate & Lyle asked the International Finance Corporation
(IFC) to consider lending up to $45 million to finance a $90
million sugar mill in Northern Vietnam.
To make decision the IFC agricultural unit has been
conducting a research investigating the following
• The project’s commercial viability and attractiveness from
the sponsor’s perspective.
• The assessment of project’s development impact.
• The major risks facing the project.
PROJECT COMMERCIAL VIABILITY
Construction and operation of sugar mill in Northern Vietnam.
Intend to capitalize on the rapid growth in domestic demand
for sugar forecast for the country.
Low current sugar consumption.
• 9kg/person expected to grow to 14 kg by 2005
Deficit sugar country (imports sugar)
Domestic demand (700,000 tons in 1997) vs. Domestic supply
Strong quotas/high tariffs system – profitable domestic
Government support, as it is considered strategically important
project for the country:
Need to develop the northern part of the country
Employment creation, skills development in the regional
labor force and industrialization of the rural economy.
PROJECT COMMERCIAL VIABILITY….
Economies of scale: Use of better technology in milling, training
of farmers in better farming methods.
Able to set up longer term contracts with farmers for sugar
cane supply(low cost price and additional revenues).
Calculated IRR for the project is about 18%. Directly comparing
it with organization's cost of capital, we will see that project
covers its cost of capital.
The economic rate of return (ERR) is about 19%, which is much
more high than IFC threshold value of 10%.
PROJECT IMPACT ANALYSIS – ERR
Direct employment of an estimated 725 mill workers (premiums
and approximately twice higher salaries).
Sugar produced by NATL includes tarifs and taxes: Imported
and domestic sugar prices will be equalize->attractive for the
consumers and hence competetive in the market.
Researches show that the revenues from sugar cane will
exceed the ones that farmers gain from alternative crops.
NATL needs 300 trucks for cane delivery. Preference will be
given to locals while signing trucking contracts.
Infrastructural development: Connect neighboring regions
thereby improving speed and quality of trade as well as
facilitate the delivery of cane to the mill.
Cane supply/feedstock risk: About 22000 farmers should supply
the company so NATL will encourage local farmer to convert to
cane. The payment mechanisms also increase the risk of supply,
because farmers want to get their money in whole, in one
• Farmers for many decades supply local sugar companies,
and it will take some time from NATL to convince farmers to
change their habit.
Transportation risk: Bad transportation infrastructure means
trucks will need to be repaired frequently; as well the fuel
consumption will rise, which is additional burden for the farmers.
• cane deteriorates very fast: cane should be transported as fast
as possible. Many farmers do not have their own trucks, and they
have to find additional money to buy or rent trucks.
Sponsors risk could be neglected because of the reputation of
the sponsor company.
Taking into account the results of research, we can conclude
that overall risk of project is below the moderate level and IFC
can finance the project.
The project implementation provides wide range of high social
benefits, including employment creation, skills development in
the regional labor force, a contribution to the reduction of
hunger and poverty in rural areas, and industrialization of the
It is reasonable to finance project as the ERR indicator shows
that both social and financial benefits are sufficient.