The National Assembly (NA) is slated to promulgate the Law on Petroleum in its fourth session in October. The amendment is aimed at making the oil and gas sector more favourable with investment incentives and special policies for oil and gas projects. However, several NA deputies and experts are still unsure about these plans.

After reviewing the amended law, Nguyen Manh Cuong, Vice Chairman of the National Assembly Committee for Judicial Affairs, said that more consideration should be given to the authority to approve oil and gas contracts and issue investment certificates.

“According to the draft, the prime minister approves the content of an oil and gas contract. Clause 2 states that the PM’s approval is a prerequisite for the contractor to sign the contract and that this replaces the approval of the investment policy,” Cuong explained.

However, this may cause new problems, Cuong suggested. “For example, if the project is of national importance, with a capital of $435 million or more, it is necessary to use a specific mechanism that must be approved by the NA. In fact, when investing in the oil and gas sector, many projects are among those of national importance.”

The government is tasked with defining regulations on the principles of determining oil and gas fields which are eligible for investment incentives and favourable policies. Accordingly, the draft law stipulates a corporate income tax (CIT) of 25 per cent for such oil and gas fields.

However, the CIT law has yet to mention this. So far, crude oil is subject to a tax rate of 5 per cent while the cost recovery rate reaches up to 80 per cent of oil and gas output in one year.

According to the Ministry of Industry and Trade, the proposal is based on research and reference to the policies of other countries in the region with similar oil and gas activities to Vietnam. Thailand’s CIT is 20 per cent, while Malaysia and China levy the same tax at 25 per cent, and the rate for Myanmar is 30 per cent. Malaysia’s cost recovery rate is up to 75 per cent while Indonesia’s equivalent is 90 per cent.

Policymakers also pay attention to supplementing and amending the regulations without incurring costs. The revised regulations are expected to lure more contractors to participate in oil and gas activities, thereby bringing in more new contracts.

Many open oil and gas fields in Vietnam have limited potential and small reserves. They are also located in deep water and offshore with complex geology. This, combined with unpredictable oil price fluctuations, makes it hard to call for investment in the field.

Le Ngoc Son, deputy CEO of Vietnam Oil and Gas Group (PetroVietnam), warned about the dim prospects of oil and gas exploration with alarming figures. Over the past seven years, PetroVietnam has signed three new contracts while 13 others were terminated and five more cancelled.

Son noted that crude output has been falling continuously every year. “Even the increasing oil inventory annually cannot compensate for the shrinking output. The inventory only compensates for around 16 per cent of the output, and the compensation coefficient was 0.55 per cent on average between 2015 and 2020,” Son explained.

He added that the investment climate is becoming less favourable. “There are only 55 out of 108 valid contracts that have been signed, of which five are being terminated. Even worse, many remaining contracts have been suspended. Only 18 contracts are underway and just seven are now in the pipeline,” he said.

According to Phan Duc Hieu, a standing member of the National Assembly Economic Committee, Vietnam needs a package of special investment incentives tailored to the needs of investors and mutual benefits for both parties.

“Vietnam will lag behind if the country simply offers preferential policies on par with other nations. This is because other countries’ preferential policies may have changed by the time the revised law is enacted,” Hieu said.

Dau Anh Tuan, deputy general secretary of the Vietnam Chamber of Commerce and Industry, said, “Many businesses are wondering about the model contract. According to Chapter II, the parties may agree on a way to suspend the execution of a number of rights and obligations in the contract in the event of force majeure or other unusual circumstances, which are subject to the approval of the PM. According to many businesses, this definition does not guarantee existing regulations prescribed in Chapter 19 of the Law on Petroleum.”