Kuwait inks $6bn Vietnam refinery deal

JOINT VENTURE: Kuwait has sealed a $6 billion deal to develop a refinery in Vietnam. (Getty Images)

Vietnam on Monday took another step to becoming self sufficient in fuel, sealing a $6 billion joint venture deal for its second refinery with Kuwait and Japanese firms, state-owned Petrovietnam said.

The company, which holds a monopoly over Vietnam's oil and gas sector, said Kuwait Petroleum International (KPI) and Japanese refiner Idemitsu Kosan Company will each hold a 35.1% stake in the plant, while Petrovietnam will hold a 25.1% stake.

It said a fourth partner, Mitsui Chemicals, would take a 4.7% share in the project.

The Nghi Son refining and petrochemical complex is the country's first foreign investment in the refining sector, Petrovietnam officials said.

Officials said the refinery in the Thanh Hoa province, about 200 kilometres south of the capital Hanoi, is expected to go onstream in five years and will have a daily capacity of 200,000 barrels that could double in future.

"Kuwait Petroleum Corporation (KPC) and KPI has committed themselves to long-term supply of all crude oil demand from the project estimated at 10 million tonnes per year at initial stages, and possibly raise to 20 million tonnes when the project is expanded in future," a statement from the joint venture said. It did not give a timeframe when the capacity will be doubled.

Vietnam's Prime Minister Nguyen Tan Dung and three deputy premiers, as well as Kuwait's oil minister was at the signing ceremony.

About 70% of the construction costs for the plant will be procured through project financing from the Japan Bank for International Cooperation.

The Nghi Son refinery is designed to produce annually 2.1 million tonnes of gasoline - 92, 95 and 98-octane grades - 2.67 million tonnes of diesel, 790,000 tonnes of kerosene and jet fuel, as well as 500,000 tonnes of liquefied petroleum gas (LPG), a feasibility study by Idemitsu showed.

Petrovietnam officials have said products from the refinery will be for domestic use and any extra barrels will be exported.

Vietnam's first refinery, the 140,000 barrels per day (bpd) Dung Quat facility - 100%-owned by the government - is scheduled to start operations in 2009, after years of delays due to fund shortages and design changes.

Unlike Dung Quat, which will use up to 80% of the local light sweet Bach Ho crude, Nghi Son will rely entirely on Kuwaiti crude supply.

Petrovietnam is holding talks with several foreign firms including Venezuela' PDVSA for a third refinery with capacity of at least 140,000 bpd in the country's southern region, its top fuel consumption centre, as part of efforts to be oil product self-sufficient by 2015.

Despite being Southeast Asia's third-largest crude producer with output averaging 300,000 bpd, Vietnam still relies almost entirely on oil product imports as it lacks major refineries.

In addition to the three main refineries, Hanoi has also licensed a number of smaller private refineries but none of the projects have materialised due to lack of funding and access to secure crude supply.

Last November Hanoi, which had been banning foreign firms from distributing oil products, offered to allow overseas investors in the Nghi Son project to sell directly to the domestic retail market. To do this, Idemitsu, KPI and Mitsui Chemicals must form a joint venture retail company.

But Hanoi said it would only open the retail market to foreign firms other than the Nghi Son investors after five years of the refinery's operation.

Consumption of refined oil products in the country of 85 million people and 20 million motorbikes stands at about 250,000 bpd and expected to grow 13-15% a year in the next three years, energy experts have said.

The economy is growing at more than 8% and inflation is at double digits, one of the highest in Asia. (Reuters)

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