VietNamNet Bridge - The national oil & gas group PetroVietnam may have to spend more than $2 billion, or VND40 trillion, to cover losses from the Nghi Son petrochemistry and refinery complex. 

The Nghi Son Oil Refinery project is being implemented in Nghi Son Economic Zone in Thanh Hoa province with the huge investment capital of $9 billion. PetroVietnam is one of four partners of the project and the only Vietnamese partner. 

However, PetroVietnam’s role in the project is bigger than contributed capital which accounts for 25.1 percent of total capital.

Under the agreement signed between the government and the joint venture, Nghi Son not only can set its wholesale prices at the same levels with import prices, but also can add a 7 percent import tariff on petroleum products and 3 percent on petrochemical products (polypropylene and benzene) to the selling prices.

Also under the agreement, within 10 years, if the government of Vietnam cuts the import tariff to below the preferential levels, PetroVietnam will have to compensate for the decreases.

The national oil & gas group PetroVietnam may have to spend more than $2 billion, or VND40 trillion, to cover losses from the Nghi Son petrochemistry and refinery complex.

As a result of the regional integration, the tariff on the imports from ASEAN, now zero percent, has become lower than the preferential level for Nghi Son. This means that when Nghi Son becomes operational, PetroVietnam will have to cover the losses within 10 years.

A recent calculation shows that with the oil price of $45 per barrel, PetroVietnam would have to spend $1.54 billion to cover losses. The sums of money would be $1.8 billion if the oil price is $50 per barrel and over $2 billion if the oil price is $70 per barrel.

This does not include the money PetroVietnam will have to pay to build the internal construction works such as breakwaters, internal roads and lighting systems, about VND3.8 trillion.

How much does PetroVietnam expect to earn from Nghi Son as a shareholder?

If the oil price is $45 per barrel, PetroVietnam can earn $716 million within 10 years, or VND1.6 trillion a year.

If the oil price is $50, the profit would be VND1.4 trillion a year.

This means that once Nghi Son is put into operation, PetroVietnam would lose $80-110 million a year.

Petrochemicals 

Nghi Son also plans to export petrochemical products, including sulfur 0.25 million tons a year, benzene 0.25 million tons and 0.19 million tons of prolypylene, about 1.37 million tons in total. The exports will not be subject to export duties.

Tran Viet Ngai, chair of the Vietnam Energy Association (VEA), said petrochemicals will be the ‘way out’ for oil refineries in Vietnam.

“One cannot make profit with oil refinery projects,: he said.

Luong Bang