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KAFCO threatens liquidation

By Toufique Imrose Khalidi
The controversial Karna-phuli Fertilizer Company (KAFCO) project has hit another snag as its chief executive has gone to the extent of suggesting that the company be liquidated.
The frustration has stemmed from financial problems especially the failure to settle dispute between the company and the general contractor over cost overrun caused by suspension of construction work since October last year.
The government's rclusal to give guarantee for the entire amount of export credit led to the work stoppage.
After a months-long uncer-
tainty, the government reluctantly' agreed to issue the letter of guarantee (LG) on March 9, giving in to pressures from within and outside.'
The construction work is yet to resume although the KAFCO received 'duly signed' LG in early April and subsequently expressed optimism about a rapid resumption
The company and the general contractor, Chiyoda Corporation of Japan, arc locked in 'intense negotiations' over the issue and ''there is still a considerable gap between what KAFCO thinks should be the real costs for the suspension
and resumption of work and what Chiyoda is requesting lo pay." said Managing Director Tore Feuk in a recent letter to Board of Directors.
Chiyoda has asked for a compensation of 40 million US dollars but KAFCO insists the figure should not exceed 27 million.
As for the target amount. Chiyoda's offer is USS33.5 million while that of KAFCO is U9S2) million.
Another reason behind the financial crisis is the non-avail-ability of Romanian credit due to the country's internal crisis.
According to KAFCO man-
age men t. the extra costs could be financed with maximum S10 million extra equity and the rest financed through a subordinated loan from the contractor, terms and conditions of which should be acceptable lo the KAFCO shareholders.
Chiyoda and Marubeni. general contractors and also shareholders, have offered a subordinated loan to finance up to half the extra costs maximised to S20 million.
In the backdrop of deadlock over cost overrun settlement, the KAFCO MD sought mandate from the Board to continue negotiations with Chiyoda and put forward "five alternatives for KAFCO and its shareholders” for consideration at the Board meeting on May 11.
The first proposal was lo "accept the present differences between Chiyoda and KAFCO and decide on an extra equity contribution on a certain level and ask the general contractor lo finance the difference with a subordinated loan."
This could result in a quick resumption of work, said the MD but added "acceptance of the difllcult-to-justify S4O million figure would reduce the future dividends lo the shareholders and make the project less viable."
The second alternative was setting up of a negotiation committee with representatives from the shareholders and possibly independent engineer for a early solution lo the impasse.
The third one was offering a compromise solution to Chiyoda and settling the matter more or less finally at ihc Board meeting. The MD also suggested a solution by Chiyoda to the Romanian credit problem as part of the settlement.
The fourth alternative pro- I posed by Tore Fcuk was dele- , gation of authority to CDC s or I BCIC's technical teams to talk I with Chiyoda and acceptance of the outcome by shareholders.
The last alternative that the KAFCO chief executive saw was to "conclude that the project is not worthwhile pursuing any further and liquidate the com pany."
The 1 1th May Board meet Ing failed to arrive at a solution as the shareholders did not agree to the extra equity proposal and Chiyoda-Marubeni refused to promise subordinated loan.
Under the circumstances, possibilities for meeting the proposed July 1 deadline for resuming work appear remote.
And if the fifth alternative of Tore Feuk eventually materialises, Bangladesh, which has poured Taka 100 crore into the largest foreign Invested project, will top the loser's HsL
Meanwhile, apart from issuing LG, the government has extended another favour to KAFCO by letting It convert about USS6OOOOO worth taka Into foreign exchange for foreign payments abroad.
According to a Bangladesh Bank source, KAFCO has again applied for permission to convert another USS4OOOOO from taka Into foreign currency.
When KAFCO opened foreign currency account in Bangladesh, it was stated that foreign currency would come to the account from external sources. Now, the FC account opened with a foreign bank in Bangladesh has an inadequate balance. Till date, about one million dollar has been sent abroad.
As the stalemate drags on, a KAFCO source says Tore Feuk wants to quit his post