Thai firm's mega refinery finds backing

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A view of the Nhon Hoi Economic Zone, where Thailand's top energy firm PTT Plc plans to build a US$27 million refinery (
PHOTO COURTESY OF TUOI TRE)

Vietnam should consider the positive impacts of a US$27-billion mega oil refinery Thailand's top energy firm PTT Plc plans to build in the central region instead of focusing too much on its negative effects, analysts have said.

The huge project would boost Vietnam's exports and also strengthen competition in the domestic market, leading to lower gasoline prices, they said.

The Thai firm is considering building a refinery in the Nhon Hoi Economic Zone in Binh Dinh Province with a capacity of 30 million tons a year, which would make it one of the largest in the world.

The capacity is almost five times that of the country's only existing refinery, Dung Quat, which plays a major role in the government's plan to produce around six million tons of oil products for the domestic market this year. The country would still have to import an estimated nine million tons to meet demand.

PTT plans to start construction in 2016 and begin commercial operation three years later.

The Binh Dinh people's committee wants the government to green light the refinery, but it faces resistance from the state-owned PetroVietnam, which owns Dung Quat and is building others.

PetroVietnam has said the refinery would upset the demand-supply situation. The government has estimated annual demand for petroleum products to reach 27 million tons by 2025.

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Its own refinery in Dung Quat in the central province of Quang Ngai has a capacity of 6.5 million tons per year, while it will start building one in the northern Thanh Hoa Province next month with a capacity of 10 million tons.

The company expects to build one more plant also with a capacity of 10 million tons by 2025.

The refinery's proposed location is close to the places where PetroVietnam plans to build two of its own, which have been approved by the government and included in its road map for the oil and gas industry for the period through 2025.

On the other hand, the road map does not include PTT's plant, PetroVietnam said.

Though PTT plans to export part of its output, there would be still be a supply overhang, it claimed.

Economist Nguyen Minh Phong dismissed these fears, saying, "we need not worry much about oversupply. The plant's products can be exported."

"In any case there should be more competition in the local fuel market to benefit consumers."

PetroVietnam also claimed that PTT has not properly worked out some essential details such as stable long-term supply of crude oil for the refinery, details of partners for the project, and finance.

Phong, while saying the government should carefully consider PTT's project, pointed out: "If the project is approved, it will have a great impact on the economy.

"It will help increase Vietnam's supply of refined oil products and exports of value-added products, and stabilize the domestic gasoline market, which would bring down prices.

"In general, it would accelerate the process of restructuring the national economy, and Binh Dinh's industrialization and modernization."

Pham Chi Lan, another economist, said the issue Vietnam needs to consider is whether PTT has the financial and technical wherewithal to go ahead with the project, and whether the project would benefit the economy.

"Firms should accept competition," she said referring to PetroVietnam's objections.

To objectively consider

Ho Quoc Dung, vice chairman of the Binh Dinh People's Committee, has insisted that the project has "very high" feasibility thanks to "perfect" infrastructure and the investor's "determination."

Local authorities have "big expectations" from the project and its influence on the Binh Dinh economy, he said.

He said that PTT is a Thai public company with assets of over $50 billion and that HSBC has also pledged support.

If approved, "the project will not only improve Binh Dinh's economy but also contribute to the development of the country," he said.

Tuoi Tre newspaper quoted Pireeyutma Vanapruk, a PTT executive who worked with Binh Dinh authorities on the project, as saying his company had opted not to invest in a smaller refinery because profitability would have been lower.

Nhon Hoi Economic Zone's vast area and ready availability of land and infrastructure would help save time and money, he was quoted as saying.

In a report to the government in mid-April the Ministry of Industry and Trade noted that the proposed construction period of three years and half was hardly feasible in Vietnam.

While PTT said 50 percent of the investment would come from loans, its funding arrangement was not clear, the report said.

The company should also consider the fact that the Nhon Hoi coast is shallow and needs dredging, it added.

Nevertheless, the ministry recommended that PTT's project be included in the oil and gas industry road map if the Thai investor clarified issues like funding, crude oil supply, and plans to sell its products domestically and abroad.

The chairman of the Government Office, Vu Duc Dam, said at a press briefing late last month that the project has been submitted to the government, and the investor and relevant agencies have made pre-feasibility studies.

The government would consider the project based on assessments by relevant agencies of Vietnam's energy security and FDI needs, he said.

"An objective evaluation will be made, and if the project can contribute to the country's development, the government will provide incentives to the investors.

Otherwise, the government would not offer incentives, and it would be up to the investor to decide whether to proceed with the project, he said.

The project is "only at the pre-feasibility stage," he emphasized.

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