Friday, September 14, 2007

Vietnam has grave concerns about its oil refinery projects

Debates over oil refinery project heat up at NA session

Debates over the long-delayed Dung Quat Oil refinery project, its commercial viability and finance for it heated up at the National Assembly's session on Wednesday as deputies grilled relevant agencies on the time and cost wasted.

Dozens of NA deputies posed questions - sometimes to the tune of harsh criticism - as to who and what agencies should be held accountable for the delay of nearly a decade since the project was endorsed more than seven years ago.

While the majority of deputies voiced approval to push the project ahead, some still pondered if the site in Quang Ngai province was good enough to ensure cost-effectiveness and a profit at length.

The strong-worded questions stirred up the question-and-answer session right after a presentation by Minister of Industry Hoang Trung Hai on the oil refinery project.

A deputy said the gasoline transport cost would be US$30 million a year higher for a refinery in Dung Quat than a similar project in Vung Tau. If the project is to operate for 30 years, the total transport cost will be nearly US$1 billion higher, dampening the cost-effectiveness and thus the internal rate of return.

The site of Dung Quat was planned for this first refinery project nearly a decade ago, as planners argued that such a large-scale project would help pull along the socio-economic development in the poverty-stricken central region.

Deputy Nguyen Ngoc Tran from An Giang remarked that for national projects, the national interests should be the first factor to be considered. Dung Quat aside, the second oil refinery project planned for Nghi Son in the northern province of Thanh Hoa could be a repetition of the grave mistake since the area is not accessible for large vessels, according to Tran.

Deputy Nguyen Duc Dung seconded Tran's opinion, saying the Government should take the bold decision to relocate the oil refinery to another location if the chosen site did not prove efficient.

"The project must be profitable before it can bring about benefits for the surrounding areas," he said.

From another angle, deputy Dang Van Thanh expressed his doubts if sufficient capital could be found for the mammoth project.

The total invested capital is estimated at US$2.58 billion, with PetroVietnam as the project owner contributing US$1.8 billion, according to Thanh.

Between 1997 and now, PetroVietnam has been able to accumulate US$400 million from profit in crude oil export. The corporation has only until 2010, when the refinery is scheduled for commissioning, to raise US$1 billion more, which looks highly unlikely, he said.

Regarding bank credit for the project, only US$250 million has been secured, leaving the balance on tenterhooks as potential creditors will likely charge high rates for a project whose viability is not high, he added.

Despite the heated disputes, the Dung Quat Oil refinery project will get going soon, after the Engineering-Procurement-Construction contract was signed between PetroVietnam and the Technip-led consortium in mid-May.

Minister of Industry Hoang Trung Hai in his presentation Wednesday work would start on key facilities for the oil refinery in July.

The oil refinery will have a processing capacity of 6.5 million tonnes a year, with 5.5 million tonnes to be supplied by PetroVietnam and the rest from imported sources.

"The refinery is expected to create about US$450 million in added value for the country in the future," he said, adding its internal rate of return is estimated at 6.7%, which is acceptable and in line with previous calculations.

The project upon completion in early 2009 will produce 1.8 million tonnes of gasoline, 3 million tonnes of diesel, 300,000 tonnes of LPG, 400,000 tonnes of kerosene and aircraft fuel, 300,000 tonnes of fuel oil, and 100,000 tonnes of polymer-grade propylene.