Oil Report

Vietnam may limit 2nd oil refinery to local firms

HANOI, Oct 12 (Reuters) - Petrovietnam has faced obstacles including higher capital costs in talks with foreign investors for Vietnam’s second oil refinery and proposed that only domestic firms invest in the project, state media said on Friday.

In February Petrovietnam discussed with Japanese refiner Idemitsu Kosan Co Ltd 5019.T about forming a joint venture to build the 170,000 barrels per day (bpd) Nghi Son refinery, which the Japanese company estimated would cost $5.25 billion.

Petrovietnam had suggested two alternatives to the government including a secondary option to continue negotiating with foreign firms to invest in the plant in northern Thanh Hoa province, Dinh La Thang, chairman of the state oil monopoly, told the Vietnam Economic Times.

“We have submited two options to the government, in which we are more inclined to the first option,” Thang said, referring to limiting the project to local investors.

He said Petrovietnam had lined up five domestic companies to be partners in the project and secured foreign crude oil supply to the plant for 30 years He did not name any of the five firms.

No information was available on which foreign crude they secured, but in September Petrovietnam signed an initial pact with Western trader Trafigura to supply crude to its refinery for 30 years.

Idemitsu was among several foreign companies, including South Korea's Hanwha Chemical Corp 009830.KS, which have expressed interest in investing in the Nghi Son refinery, slated to become operational in 2013.

Petrovietnam became the sole investor and operator of the country’s first refinery Dung Quat, scheduled to come online in 2009, after foreign investors withdrew from the project saying its location in the central region was too far from consumption centres.

The $2.5 billion price tag for the 130,000-bpd Dung Quat plant is financed by proceeds from government sovereign dollar bonds and loans including $300 million from a group of foreign banks including BNP Paribas BNPP.PA, Australia's ANZ Bank ANZ.AX, Bank of Tokyo-Mitsubishi UFJ 8306.T and Mizuho 8411.T.

Vietnam Development Bank also lent $1 billion to the project in February this year for 16 years.

Petrovietnam is also looking for investors for its third refinery with a capacity of about 180,000 bpd, to be located in Long Son in the oil hub province of Ba Ria Vung Tau, as it moves to reduce reliance on oil product imports.

Petrovietnam officials have said a handful of oil majors have expressed interest in the Long Son project due its location near Vietnam’s biggest oil product consumption markets Ho Chi Minh City and the Mekong Delta provinces. But no concrete deals had been reached so far.