The State-run Vietnam Oil and Gas Group (PVN) noted in a statement today, March 21, that a participation bonus in the oil and gas sector it paid to Venezuela was not “commission money” but was in fact an amount of money a contractor must pay the host country when signing contracts.

An oil drilling rig is being developed by the State-run Vietnam Oil and Gas Group and a foreign investor 

The explanation is aimed at clarifying its contract bonus payments, totaling US$584 million, in its loss-making project in the South American country.

The Investigative Police Department for Corruption, Smuggling and Economic Crimes at the Ministry of Public Security recently asked PVN to provide all documents related to the execution of the joint venture project on the exploitation and upgrade of the Junin-2 oil field, located in Venezuela’s extra-heavy crude-filled Orinoco Belt.

Launched in June 2010, the project was managed by PetroMacareo, a joint venture between PVN subsidiary PetroVietnam Exploration Production Corporation (PVEP) and its Venezuelan counterpart Petróleos de Venezuela.

The first phase was expected to extract some 50,000 barrels of crude oil per day, rising to 200,000 in the second phase, and Vietnam was counting on seeing profits within seven years.

For the Junin-2 project, the Vietnamese company was to invest some US$1.24 billion between 2010 and 2015, making it one of Vietnam’s largest oil and gas projects abroad.

This, however, did not include three contract bonus payments totaling US$584 million that the Vietnamese side had to pay the Venezuelan government to secure the investment license. This fee was not included or explained in the project proposal originally sent to the Government, according to the Finance Ministry.

PVN never provided clear, complete documents on Junin-2 but mentioned the project in its financial reports from 2010 to 2016.

Only in 2018, in its 2017 financial report, did it mention that the total capital provided to Venezuela amounted to VND10.7 trillion as of December 2017. This included two contract bonus transfers worth a total of US$442 million.

Little progress has been made on the project, prompting the then-prime minister to order PVEP to terminate the contract in December 2013. By that time, PVEP’s investment in the venture had amounted to US$1.825 billion, including the US$584 million in question.

A long-standing currency control system has complicated payments to foreign firms in Venezuela and the repatriation of profits. PVN stated in 2014 that Venezuela’s investment environment was not suitable for the firm, especially due to the country’s extremely high inflation rates.

“This sum of money matches the amount needed to purchase bidding dossiers. The amount is more or less dependent on the overall value of the contract package. This means when the oil and gas company from the host country delivers the relevant documents, we have to pay the money. This sum of money is also a deposit to enforce participation in the project. This is a standard international practice,” PVN remarked in the statement.

Foreign firms that invest in oil and gas exploitation in Vietnam also have to pay this money, according to the PVN.

The group said the firm BHP of England had to pay US$90 million for the right to explore the Dai Hung oil field, located in the Nam Con Son Basin, 270 kilometers southeast of the coastal city of Vung Tau.

In another example, a joint venture between PVN and a Russian company, set up to exploit oil in Russia’s Nhenhetxky autonomous region, had to pay a contract fee of nearly US$100 million.

“The payment of this fee is also aligned with the oil and gas laws of each country... For the Junin-2 project, the participant fee was US$584 million, of which US$300 million had to be transferred immediately, in line with Venezuela’s regulations,” PVN said.

SGT