The possibility of the State selling its stake in Irish Fertilizer Industries (IFI) has reared its ugly head yet again. Ugly? Such a sale would peel the financial veneer from the deal concocted in 1987, a deal designed to camouflage a very big white elephant. If the sale goes ahead, the State faces a write-off of more than £150 million (190 million).

That is not far from the £180 million of debt that would have had to be written off had Nitrigin Eireann Teoranta (NET) been allowed to fold with the loss of 500 jobs.

The grim results announced by IFI last week, showing losses of £10.7 million (13.5 million) in the year to September 30th 1998, compared with a profit of £7.1 million the previous year, compounded the problems for NET (it owns 51 per cent of the company - ICI owns the other 49 per cent, following the 1987 restructuring deal which left NET holding the massive debts). Significantly, no dividends are being paid compared with £1.5 million in the previous year. As NET tries to service its debt through the margins it receives from the sale of gas to IFI and the receipt of dividends, its financial position must have worsened considerably. NET has not yet published its accounts for 1997/8, but given the problems at IFI, it is likely to have recorded a loss. This would have pushed the debt up to around £170 million. NET's usefulness - if it can be called that - is now coming to an end. The contract under which it is allowed to buy gas from Bord Gais Eireann (BGE), and sell it on to IFI finishes at the end of 1999. Post-1999, NET's two sources of income (assuming IFI is sold) will have come to an end. Then the servicing of this debt will become a real burden and it would not be surprising if the debt is conveniently transferred to the NTMA.

The exact write-off will depend on what is received for IFI. However, while IFI is being put up for sale, there is no certainty there will be a successful conclusion, as the two shareholders are likely to have a different perception of what it is worth. Over four months ago, the Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, announced the appointment of IBI Corporate Finance to advise and assist the State in relation to any sale of IFI. Industry sources say tenders will be invited shortly. Given the uncertainty surrounding the fertiliser industry, portraying the merits of IFI will not be an easy task. Nevertheless, the outcome will be crucial, as the size of the consideration will determine the size of the State write-off.

IFI puts a rather happy gloss on its latest results. While noting that the losses were almost entirely due to the "dramatic and unexpected fall in fertiliser prices across Europe", it proclaims that this industry is "now at the bottom of a very severe cycle. The expectation within the industry is that prices will improve in the current year and that these improvements will continue, until sensible price levels are again established in Europe".

The commissioning of new plants led to delays, with an estimated impact of some £2 million to £3 million. Benefits are expected to flow through from mid-year and the company "expects to see a significant improvement in its financial performance".

Another benefit, not mentioned by IFI, is the annual management fee of £1 million paid to ICI. That arrangement terminates at the end of the year, which should enhance IFI's cash flow post-1999. However, IFI has a number of imponderables to face. Apart from being a minnow in the industry, it will have to sort out a new contract for the purchase of gas. The deal with BGE runs out at the end of 1999, and IFI has the option of doing further business with BGE, or with another producer. The price of energy is of crucial importance to IFI, which has manufacturing operations in Cork, Arklow and Belfast. That can be the decider between profits and losses.

Normal financial criteria cannot be applied to IFI to determine a value for the company. That would depend on what a suitor can get out of IFI. However, it would be surprising if IFI is worth as much as £60 million. And that would provide the State with less than £30 million, leaving it with a real white elephant.