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Hope Dwindling for Chip Plant in Eastern Germany

A massive project to build a chip factory in eastern Germany is running out of funds. The half-built factory might join a growing list of unsuccessful investments aimed at creating jobs in this struggling region.

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The chip factory's future doesn't look too bright.

A few minutes from the German-Polish border, just outside the town of Frankfurt (Oder), the chip factory is slowly taking shape next to a freeway. The construction has provided hope to those living in the area, who face some of the highest unemployment rates in the country. If the €1.3 billion ($1.5 billion) project is completed, 1,300 people could find work here.

But after years of negotiations, financing is still not in place and Communicant, the plant's operating company, might be insolvent as soon as the end of the month. The emirate of Dubai, the project's biggest investor, has so far failed to inject more money.

"We haven't filed for bankruptcy yet," a spokesman for Communicant, said this week.

Investor wants government as guarantor

The gulf state, set to invest a total of €212 million ($250 million) in the plant, was supposed to hand over €89 million ($105 million) in early November. It hasn't done so since it's waiting for assurances from the German government as well as from the state government of Brandenburg to act as guarantors for a €650 million ($763 million) loan. Federal and state officials have yet to decide on the matter.

Brandenburg itself has given €40 million ($47 million) to build the plant, which is intended mainly as a custom chip production foundry for the communications industry. Intel, the U.S.-based chip maker, has 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.

A growing list of bad investments

Lausitzring

The Lausitzring during better times.

The chip plant would not be the first investment project in Brandenburg to fail. In 2002, both a motor speedway and a company called CargoLifter, which planned to build zeppelins for cargo transport, went bankrupt.

"Lausitzring," hailed as Europe's most modern motor speedway, failed to lure big ticket events such as the Formula 1 to its location in a former coal mining area in southern Brandenburg. Only 40 people, not 1,500 as originally expected, found a job there. The state of Brandenburg covered most of the €158 million ($168 million) construction costs.

On Friday, state government officials said the speedway should be leased out until a buyer has been found. Under the controversial deal, Brandenburg would spend millions more to subsidize operations over the next five years. "It's clearly better to keep Lausitzring open for business than shutting it down," Brandenburg's minister of economics said.

State and federal governments also pumped millions into CargoLifter, an ambitious venture that news reports described as the "perfect money destruction machine." The company never produced any zeppelins at the site south of Berlin. In October, CargoLifter's brand-new furniture and machinery went on auction.

Will a tropical island save the day?

What's left is one of the world's largest cantilever construction halls. An investor consortium from Malaysia and Britain claims it knows exactly what to do with it. The group wants to turn the gigantic building into an amusement park called "Tropical Island," complete with rainforests, lagoons and sandy beaches.

Cargolifter

Investors want to turn the gigantic Cargolifter hall into a tropical amusement park.

On Thursday, the investors announced that they have already bought plants and aim for an Oct. 2004 opening. The park is expected to create 500 jobs. The consortium is shouldering the €70 million ($82.3 million) construction costs. This time, there hasn't been any talk about state subsidies for the project.

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