Ifc Loan Approval to Nghe an Tate & Lyle Sugar Company

Yangxiu Huang

Nghe An Tate Lyle Case Study Memo

TO: IFC Senior Management

FROM: Ewan Cobban, IFC Agricultural Specialist

DATE: October 1998

SUBJECT: IFC Loan Approval to Nghe An Tate & Lyle Sugar Company

It is my recommendation that NATL sugar company should proceed with the loan for Nghe An Tate & Lyle Sugar Company and its sugar mill in Vietnam.

First of all, measured by the economic rate of return, the NATL project could generate the sound free cash flow and reasonable NPV assuming the IFC refinance it while it might generate the negative cash flow the first year. As to the risk facing the project, it is crucial to convince the farmers to grow sugar cane rather than other crops. Another problem is to convince the truckers to make the investment to buy the trucks to transport the sugar cane.

According to the comparison of economic benefit of other crops with that of sugar cane, it is way more attractive for farmers to grow sugar cane other than other crops for it has higher return and shorter life cycle. However, there is some necessary adjustment to make. Now the NATL implements the installment method which include a first installment of 75% of the total and rest 25% adjusted for market price NATL received form the processed sugar. This adjustment is unfairly placed on the farmer so NATL should make the total payment one time within 14 days of delivery to appeal farmers to grow sugar cane.

For truck haulers, if it was not a profitable activity for the truckers, no one would haul the cane to the mill. Truckers needs to borrow to buy a lorry which is a large investment for most of them. So NATL may consider to offer subsidy to them or prepay part of the salary.

Also, the project will benefit a large group of people in Vietnam and bring social return. It could generate high NPV and IRR over the lifetime of the project which is not only a benefit to sugar cane farmer but also considered as social benefit. In addition, the government promises to build enhanced infrastructure which included bridge and road. The enhancement could benefit people who live in this region by bringing more economic opportunity. For these neighboring residents, the environment benefit is advantageous. The mill was designed to beat the world bank’s guideline. The main byproduct could be used as fuel to mill and low-grade fertilizer. NATL also implemented a work place health and safety policy commensurate with Tate & Tyle’s worldwide procedures. It appears the environmental impacts would be negligible.

The NATL projects could bring other social benefits which appeal the government to support the project. The mill could simply increase the tax revenue. The creation of new wealth and expenditure of tax revenues would be especially important in a low-income country like Vietnam.  

Coban