The multi-billion-dollar Dung Quat oil refinery upgrade and expansion project is being implemented very slowly and its operator has repeatedly asked the Vietnamese Government for support and incentives.

Dung Quat Refinery in in Quang Ngai Province.

According to the Ministry of Industry and Trade (MOIT), the expansion project, which will cover 108 hectares of land in the Dung Quat Economic Zone in the central province of Quang Ngai, has been stalled due to problems in land clearance and capital access.

The MOIT has acknowledged that the site clearance of 108 hectares of land was expected to be completed by March 2016. However, the handover of the land was delayed by a year and the compensation procedure has not been completed.

State-owned Binh Son Refining and Petrochemical Company Limited (BSR), the operator of Dung Quat Refinery, previously said the expansion would cost some US$1.8 billion, of which equity capital and loans would account for at least 30 per cent and 70 per cent, respectively.

BSR plans to borrow $1.26 billion, it said, but added that given the large estimated loan amount it has asked that the Government guarantees the loan with the lowest possible cost and longest possible term.

In November 2009, the Government issued a decision allowing the BSR to annually retain an amount of money equivalent to 3 per cent of import duty on petrochemical products, 5 per cent from import tax on LPG products and 7 per cent of import duty on petroleum products.

Potential foreign partners, such as JX Nippon from Japan, Gazprom Neft from Russia and PDVSA from Venezuela, withdrew from the project after the Government rejected a request to extend tax incentives for Dung Quat oil refinery.

Needed incentives

In order to improve the economic efficiency of the project, the Viet Nam National Oil and Gas Group (PVN) has requested that BSR cut costs relating to investment and operations and optimise the production process.

If the project cannot achieve its targeted economic efficiency, Dung Quat Refinery’s petroleum products will not be qualified for domestic consumption and will have to seek export markets, forcing the refinery to reduce capacity or even stop operations.

According to BSR, upgrading and expanding the Dung Quat refinery is essential to allow factories to process crude oil with higher sulfur content, reducing dependence on domestic sweet oil (with less than 0.42 per cent sulfur), which is both expensive and at risk of being exhausted.

At the same time, the upgrade and expansion of the refinery will also help it realise its goal of increasing the stable supply of petroleum products in accordance with the Euro 5 standard.

“Expansion work is expected to be completed by 2021, following which Dung Quat Oil Refinery will have capacity to refine 8.5 tonnes of crude oil meeting Euro 5 quality standards per year,” said BSR Director Tran Ngoc Nguyen.

According to Nguyen, BSR is seeking loans at the lowest possible cost and longest term, adding that the group still wished to receive a Government-guaranteed loan so that it can access an optimal source of funds for the expansion project.

Tran Viet Ngai, Chairman of the Viet Nam Energy Association, told Nguoi Lao Dong (the Labourer) newspaper that the Dung Quat Oil Refinery expansion project plays an important role in the development strategy of Viet Nam’s oil and gas industry.

“It is crucial to solve the urgent problem of capital mobilisation. If the public debt pressure is too high and the Government cannot guarantee the loans, the project operator can consider commercial loans because the project must be carried out no matter what,” Ngai said. 

VNS