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Russia's $1.3bn Vietnam refinery venture in
doubt
By Sergei Blagov
MOSCOW
- Russian oilers have prided themselves on playing a
dominant role in Vietnam's oil sector, but a row over a
major bilateral refinery venture may deal a blow to
Moscow's interests in the country.
In an
unprecedented development, Vietnamese officials have
opted to make public their grievances over a major
investment project by announcing that Russia has
withdrawn from a US$1.3 billion joint venture to build
Vietnam's first oil refinery Dung Quat. The chairman of
the state-run oil monopoly PetroVietnam, Pham Quang Du,
told Vietnam's National Assembly last month that the
Russian government had agreed to exit the refinery
venture, and that "Zarubezhneft lacks experience for
such a project", according to the Thanh Nien newspaper.
PetroVietnam and the Russian state oil company
Zarubezhneft agreed in 1998 to build the refinery at
Dung Quat Bay in central Quang Ngai province. The
companies have equal stakes in the joint venture company
VietRoss, a structure that PetroVietnam blames for
stalemates in making decisions, such as the choice of
construction contractors. Moreover, Russian media
reports also pointed to Zarubezhneft's alleged financial
manipulations in Vietnam, connected with the company's
CFO Yuri Pyrikov, who was fired in summer.
Interestingly, though, the Russian government
has yet to confirm Hanoi's announcement. Indeed, on
November 22, Russia's foreign ministry spokesman
expressed hope that Moscow and Hanoi could continue
cooperation to build Dung Quat. "Long-term positive
experience of cooperation in the energy sector will
enable Russia and Vietnam to find a mutually acceptable
solution," spokesman Alexander Yakovenko was quoted by
the Interfax news agency as saying.
Vietnamese
official statements sounded less optimistic, though. Any
development relative to Russia's further role in the
Dung Quat refinery project "should not negatively affect
bilateral relations", Vietnamese foreign ministry
spokesperson Phan Thuy Thanh said in a statement on
November 21.
Vietnamese officials definitely
sounded unhappy over their refinery partnership with the
Russians. Pham Quang Du implicitly accused Zarubezneft
of blocking the largest bidding package worth $740
million, adding that the Russian partner had been
plotting to supply the plant with outdated technology.
According to Du, since the two sides held equal 50
percent stakes, they were unable to reach consensus over
the procurement of equipment. Pham Quang Du also
commented that although Zarubezneft had experience in
gas and oil production, it did not have any in building
oil refineries, the Vietnam News Agency (VNA) reported.
Vietnamese government officials also blamed
Russian oilers of stalling the refinery project.
Disputes on the details of supply contracts for the
refinery have delayed its construction, the VNA quoted
Planning and Investment Minister Vo Hong Phuc as saying.
Phuc reportedly pledged that Vietnam must build the
refinery by itself.
The Vietnamese government
has also promised that a winning Dung Quat bidder, a
consortium led by France's Technip-Coflexip, was going
to continue working with PetroVietnam.
VietRoss'
tendering difficulties reportedly involved disagreements
over a choice of subcontractors. For instance,
Zarubezhneft head Nikolai Tokarev has said that his firm
supported the Samsung-ABB consortium, while PetroVietnam
favored the Technip-led consortium.
Nonetheless,
PetroVietnam's announcement came as a surprise to
Russian oil executives. Zarubezhneft's spokesman Anatoly
Chuchko told Asia Times Online that his company "was
surely going to take part" in Dung Quat construction. On
November 21, Zarubezhneft issued a statement pledging
continued interest in the refinery project. However,
Zarubezhneft conceded that the company may participate
in Dung Quat "in a different format in order to achieve
better economic results".
In the meantime, the
Russian government may think otherwise. On November 21,
the official news agency RIA quoted anonymous government
sources in Moscow as confirming Russia's intention to
dissolve the VietRoss joint venture due to "economic
reasons". Yet Russian government officials are yet to
come up with any clear statement on VietRoss.
Moreover, despite Zarubezhneft's official
optimism, sources in Moscow have indicated that in
October the company probably signed a MoU with
PetroVietnam, formally agreeing to dissolve VietRoss.
Since the venture was formed by an intergovernmental
agreement, VietRoss must be dissolved by the two
governments.
The Dung Quat plant is to be
located in Quang Ngai province, 900 kilometers south of
Hanoi. It will have an annual processing capacity of 6.5
million tons of crude oil or 130,000 barrels per day.
Operations were expected to begin in 2005.
In
choosing the refinery site, Hanoi has said that it wants
to develop its central provinces, which have largely
missed out on the benefits of economic reforms adopted
in the late 1980s. However, Quang Ngai province is
roughly 1,000 kilometers away from the country's main
oil fields off Vietnam's southern shore. The site is
also far away from the country's economic centers of Ho
Chi Minh City and Hanoi, hence refinery's location
implies higher transportation costs for both crude oil
and refined products.
The Dung Quat saga began
in 1995 when France's Total SA pulled out, claiming that
the site made no economic sense. A consortium of foreign
firms, including South Korea's LG Group and Petroliam
Nasional Berhad (Petronas) of Malaysia, stepped in to
replace Total - only to pull out two years later.
When Zarubezhneft clinched the deal with
PetroVietnam, Russian oil executives conceded that the
site was undesirable, but Zarubezhneft agreed to the
Vietnamese terms. As former Zarubezhneft head Oleg Popov
put it, "It's a bad site, but we take what the
Vietnamese gave us. They dictated the rules of the game,
and ... we accepted." Zarubezhneft was looking at the
long term in an attempt not only to produce oil, but
also to refine and sell oil products in Vietnam.
The refinery was expected to cost a total of
$1.3 billion. Russian oilmen expected up to $2.3 billion
in profits from Dung Quat, estimated on 35 years of
operation. Apart from VietRoss, Zarubezhneft operates
Vietnam's main oil field in waters off the south of the
country in partnership with PetroVietnam. The $1.5
billion Russian-Vietnamese Vietsovpetro joint venture,
or VSP, accounts for the bulk of Vietnam's oil exports,
which totaled nearly 14 million tons of crude oil in the
first 10 months of this year. Vietsovpetro plans to pump
13.5 million tons this year, while the country's overall
output is expected to reach 17 million tons, according
to PetroVietnam.
The 50 percent stake in VSP is
Russia's most profitable state-owned asset. Russia
earned 9.92 billion rubles ($312 million) of profit from
Vietsovpetro in the first nine months of this year.
During the same period, the Russian government earned
only $18.8 million from all fully state-owned businesses
in Russia.
Initially, VietRoss was supposed to
be funded from VSP's profits. In its November 21
statement, Zarubezhneft pledged to re-think its
investment policy in Vietnam in order "to concentrate
funding" on critical projects to develop off-shore oil
fields in southern Vietnam. However, the Vietnamese
government now is reportedly considering raising tax of
VSP profits from 40 to 55 percent. As a result, the
Russian government may loose up to $100 million a year.
Officially, Moscow has long prioritized
cooperation with Vietnam in oil, gas and energy sectors.
In March 2001, when Russian President Vladimir Putin
visited Hanoi, he inked a bilateral declaration of
"strategic partnership" with Vietnam which specifically
mentioned energy cooperation.
In the spring,
Prime Minister Mikhail Kasyanov traveled to Vietnam and
praised bilateral oil and gas cooperation. Kasyanov, who
visited Hanoi from March 26 to 28, said that he had high
hopes for the commissioning of the Dung Quat oil
refinery. He hailed Vietsovpetro and Dung Quat as
Russia's most important projects in Vietnam. In October,
Vietnamese Communist party chief Nong Duc Manh traveled
to Moscow to meet Putin, and both leaders also praised
bilateral energy projects.
Yet despite the
official optimism, the much heralded showcase project
VietRoss has only set off bitter controversy. Following
last July's early exit from Cam Ranh Bay naval base,
even though Russia's lease there was due to run until
2004, it is understood that relations between the former
Cold War allies have experienced some turbulence.
Therefore, despite official upbeat pronouncements,
Russia and Vietnam are yet to forge a new partnership
based on a strong pragmatic basis of sustainable
economic cooperation.
(©2002 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication
policies.)
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