Death Blow For Chip Factory Project

The investors had already backed off and the federal government was showing no signs of making a last-ditch effort to save construction of the plant. But a spokesman for the factor's operating company on Friday said there was still a slim chance that the project's demise could be avoided: “The board of directors still hasn’t signed the papers (to file for insolvency.)"

The chip factory’s fate had already seemed sealed on Thursday after government officials from the German state of Brandenburg, who had supported the project with public funds, said that only the federal government could still salvage the plant.

Investors fail to give more money

Ever since its announcement three years ago, financing for the €1.3 billion ($1.5 billion) project has been uncertain. Things came to a head when the plant’s biggest investor, the Arab emirate of Dubai, failed to hand over a payment of €89 million in early November.

The gulf state, set to invest a total of €212 million, didn’t send the money as it was waiting for assurances from the German government as well as from the state government of Brandenburg to act as guarantors for a €650 million loan.

Brandenburg itself had given €40 million to build the plant, which was intended mainly as a custom chip production foundry for the communications industry. Intel, the U.S.-based chip maker, contributed the same amount.

The rest of the money was supposed to come from European Union funds, but EU officials plan to give significantly less if the plant gets reduced in size, as is likely to happen.

Need for new EU approval final straw

A smaller plant would have required operating company Communicant to file a completely new application for funds with the EU Commission, setting back the project an additional six months, Brandenburg’s former premier, Manfred Stolpe told German public television. This additional delay had finally caused investors to jump ship, said Stolpe, now responsible for pushing East German revitalization in the Schröder government.

His successor, Matthias Platzeck, had previously criticized Stolpe for presenting the project as a sure thing three years ago. Stolpe countered that the chip plant’s financing had seemed solid at the time.

The chip plant’s demise shocked residents of Frankfurt (Oder), the town at the German-Polish border where the factory building’s shell had slowly risen over the past years.

The area struggles with some of Germany’s highest unemployment rates and people there saw the factory as a last hope for economic recovery. About 1,300 jobs would have been created if the plant had been finished.

Third on a list of bad investments

The chip plant became the third massive project with public investments in Brandenburg to go belly up. In 2002, both a motor speedway and a company called CargoLifter, which planned to build zeppelins for cargo transport, filed for bankruptcy.

State government officials hope to salvage the speedway by offering millions of euros in subsidies to a leaseholder. A private consortium plans to fill CargoLifter’s giant construction hall with the world’s largest indoor rain forest and open an amusement and water park there by Oct. 2004.