Monday, November 12, 2007

Vietnam's oil refineries financing

Foreign firms may be cut out of second oil refinery

PetroVietnam has faced obstacles like higher capital costs in talks with foreign investors for Vietnam's second oil refinery and proposed that only domestic firms invest in the project.

The media said Friday that in February the state-run oil and gas firm had discussed with Japanese refiner Idemitsu Kosan Co Ltd forming a joint venture to build the 170,000 barrels per day (bpd) Nghi Son refinery, which the Japanese company estimated would cost US$5.25 billion.

PetroVietnam chairman Dinh La Thang told Vietnam Economic Times that his company had suggested two alternatives to the government, including a secondary option to continue negotiating with foreign firms to invest in the plant in the central Thanh Hoa Province.

"We are more inclined towards the first option," he said, referring to limiting the project to local investors.

PetroVietnam had lined up five domestic companies to be partners in the project and secured foreign crude oil supply to the plant for 30 years, he said. But he did not name any of the five firms.

No information was available on which foreign crude they secured, but in September PetroVietnam signed an initial pact with Western trader Trafigura for 30 years.

Idemitsu is among several foreign companies, including South Korea's Hanwha Chemical Corp, which have expressed interest in investing in the Nghi Son refinery, slated to become operational in 2013.

PetroVietnam became the sole investor and operator of the country's first refinery Dung Quat, scheduled to come online in 2009, after foreign investors withdrew from the project saying its location in the central region was too far from consumption centers.

is financed by proceeds from government sovereign dollar bonds and loans, including $300 million from a group of foreign banks including BNP Paribas, ANZ Bank, Bank of Tokyo-Mitsubishi UFJ and Mizuho.

Vietnam Development Bank lent $1 billion to the project last February.

PetroVietnam is also looking for investors for a third refinery with a capacity of about 180,000 bpd, to be located in Long Son in the oil-rich province of Ba Ria Vung Tau, as it moves to reduce reliance on oil product imports.

PetroVietnam officials have said a handful of oil majors have expressed interest in the Long Son project due to its location near Vietnam's biggest oil consumption markets Ho Chi Minh City and the Mekong Delta provinces.

But no firm deals had been reached so far, they added.