Nghi Son, the second oil refinery after Dung Quat, which was plagued by funding problems, finally gets a breather when the state owned PetroVietnam agreed to guarantee some of the loans used to build the oil refinery.
7 Aug 2012 — TOKYO — Plans by Japanese and Kuwaiti investors to build Vietnam’s second oil refinery took a step forward Tuesday with the news that the Vietnamese government will help underwrite some of the project.
“The Vietnamese government has agreed to act as a guarantor for some liabilities for the project, but it won’t guarantee any loans for the project, Do Van Hau, chief executive of state-run Vietnam Oil and Gas Group, or PetroVietnam, told Dow Jones Newswires.
The news about the financing of the $8 billion-$10 billion Nghi Son refinery is significant for international investors who have been cautious about joining state-run companies in projects in Vietnam, some of which have run up large debts and in so doing have undermined its banking sector.
It is important, too, for oil markets, as Vietnam has only one oil refinery now, and repeated technical problems with it have rippled across Asia’s crude-oil and refined products markets.
The PetroVietnam head was speaking shortly after Shunichi Kito, finance director for Idemitsu Kosan Co. (5019.TO), said in Tokyo that a financing problem that had long hampered talks with banks had been resolved.
“We have agreed at some level” of underwriting from the Vietnamese government, Mr. Kito said, but he declined to give details. Banks had been unwilling to lend to the project without underwriting from the Vietnamese government.
Idemitsu Kosan and Kuwait Petroleum International each hold a 35.1% stake in the planned 200,000 barrel-a-day refinery to be built 180 kilometers south of Hanoi, while PetroVietnam and Mitsui Chemicals Inc. (4183.TO) own 25.1% and 4.7% respectively. KPI is a unit of state-owned Kuwait Petroleum Corp.
The partners are working on contract details and Mr. Kito said his company wants to make a final investment decision “as soon as possible.” The investment decision has already been delayed at least twice.
Japan’s Minister of Economy, Trade and Industry Yukio Edano is expected to visit Vietnam soon. However, Mr. Kito said the Nghi Son partners and the Vietnamese government “have an agreement to a level where we don’t need special help” from Mr. Edano.
In early July, PetroVietnam said that it expects construction to begin in the third quarter of this year.
The Nghi Son refinery is being designed to process Kuwaiti crude and Kuwait Petroleum is to supply all the feedstock for it.
This is going to be important for PetroVietnam Transportation as the latter has a monopoly on transportation of raw materials and finished products for Vietnam’s oil refineries and the new refinery is crucial to drive the future earnings of PetroVietnam Transportation.
As the shareholders of PetroVietnam Transportation, we are encouraged by the current developments as it bodes well for the company in the future.