Refinery construction
Troubles plaguing a refinery construction in Vietnam are not unusual in the world of oil and gas production. The project was begun with approval of the government in January 1998. The desire to have domestic refining capability was the key to the decision by the Ministry of Planning and Investment. The project was original slated to cost in the neighborhood of $1.3 billion but costs have now reached $2.5 climbing.
The volume of Vietnam's production of crude oil made refinery construction within the county an economically sound project. Shipments of crude oil from the emerging country topped 18 million tons in the year 2005 alone. The reasoning of the government was that refinery construction within Vietnam would be beneficial in three ways. First, it would keep profits from the crude oil from slipping away during the transport to the refinery and return as petroleum products, second it would provide much needed employment for workers both during the refinery construction and to operate the plant. Third, it would strengthen Vietnam's position in the world trade market.
Refinery construction was delayed the first time in 1995 when Total SA withdrew from the project stating that the site at Central Vietnam's Dung Quat made no sense economically. It is far from the producing oil fields on the South Vietnam coast and far also from the centers of money and banking in Hanoi and Ho Chi Minh City. The Vietnamese government chose the site to bring employment and economic stability to the people of Central Vietnam.
A new consortium of investors was put together only to withdraw two years later for the same reasons, stating that the proposed location for refinery construction would add at least $500 million to the cost of the project. In 1999 a joint venture between Vietnam's Vietsovpetro (also a Vietnamese-Soviet alliance) and the Russian External Economic Federation. This federation was also dissolved in 2002 with the Russians stating the refinery was not economically feasible at the proposed site.
In 2003 Vietnam made the decision to complete the refinery construction project alone and expect for the plant to be operation in 2008. Government officials admit they have made errors along the way, but blame inexperience and lack of continued expertise in overall planning and completion of the project.
Putting together the required financing has been a major difficulty, and would not have been possible without the forbearance of the engineers and contractors involved. Repaying the money which was fronted by Russia ate into money intended for reinvestment into the oil fields. Loans amounting to over $750 million have been arranged by Vietnam Bank and by the foreign contractors, but Vietnam is giving preference to domestic funding sources to finance the project.
The difficulties of this refinery construction project do not seem to have deterred the Vietnamese government. Already they are planning the construction of a second and third refinery in the country. The second site is fraught with the same distance and location difficulties as the first, but site number 3 is much nearer the oil fields and should be an easier project. The cutting edge Dung Quat refinery construction project will supply about 40% of Vietnam's domestic need for petroleum products.
The volume of Vietnam's production of crude oil made refinery construction within the county an economically sound project. Shipments of crude oil from the emerging country topped 18 million tons in the year 2005 alone. The reasoning of the government was that refinery construction within Vietnam would be beneficial in three ways. First, it would keep profits from the crude oil from slipping away during the transport to the refinery and return as petroleum products, second it would provide much needed employment for workers both during the refinery construction and to operate the plant. Third, it would strengthen Vietnam's position in the world trade market.
Refinery construction was delayed the first time in 1995 when Total SA withdrew from the project stating that the site at Central Vietnam's Dung Quat made no sense economically. It is far from the producing oil fields on the South Vietnam coast and far also from the centers of money and banking in Hanoi and Ho Chi Minh City. The Vietnamese government chose the site to bring employment and economic stability to the people of Central Vietnam.
A new consortium of investors was put together only to withdraw two years later for the same reasons, stating that the proposed location for refinery construction would add at least $500 million to the cost of the project. In 1999 a joint venture between Vietnam's Vietsovpetro (also a Vietnamese-Soviet alliance) and the Russian External Economic Federation. This federation was also dissolved in 2002 with the Russians stating the refinery was not economically feasible at the proposed site.
In 2003 Vietnam made the decision to complete the refinery construction project alone and expect for the plant to be operation in 2008. Government officials admit they have made errors along the way, but blame inexperience and lack of continued expertise in overall planning and completion of the project.
Putting together the required financing has been a major difficulty, and would not have been possible without the forbearance of the engineers and contractors involved. Repaying the money which was fronted by Russia ate into money intended for reinvestment into the oil fields. Loans amounting to over $750 million have been arranged by Vietnam Bank and by the foreign contractors, but Vietnam is giving preference to domestic funding sources to finance the project.
The difficulties of this refinery construction project do not seem to have deterred the Vietnamese government. Already they are planning the construction of a second and third refinery in the country. The second site is fraught with the same distance and location difficulties as the first, but site number 3 is much nearer the oil fields and should be an easier project. The cutting edge Dung Quat refinery construction project will supply about 40% of Vietnam's domestic need for petroleum products.
