Debates over oil refinery project heat up at NA session

Debates over the long-delayed Dung Quat Oil refinery project, its commercial viability and finance for it heated up at the National Assembly's session on Wednesday as deputies grilled relevant agencies on the time and cost wasted.

Dozens of NA deputies posed questions - sometimes to the tune of harsh criticism - as to who and what agencies should be held accountable for the delay of nearly a decade since the project was endorsed more than seven years ago.

While the majority of deputies voiced approval to push the project ahead, some still pondered if the site in Quang Ngai province was good enough to ensure cost-effectiveness and a profit at length.

The strong-worded questions stirred up the question-and-answer session right after a presentation by Minister of Industry Hoang Trung Hai on the oil refinery project.

A deputy said the gasoline transport cost would be US$30 million a year higher for a refinery in Dung Quat than a similar project in Vung Tau. If the project is to operate for 30 years, the total transport cost will be nearly US$1 billion higher, dampening the cost-effectiveness and thus the internal rate of return.

The site of Dung Quat was planned for this first refinery project nearly a decade ago, as planners argued that such a large-scale project would help pull along the socio-economic development in the poverty-stricken central region.

Deputy Nguyen Ngoc Tran from An Giang remarked that for national projects, the national interests should be the first factor to be considered. Dung Quat aside, the second oil refinery project planned for Nghi Son in the northern province of Thanh Hoa could be a repetition of the grave mistake since the area is not accessible for large vessels, according to Tran.

Deputy Nguyen Duc Dung seconded Tran's opinion, saying the Government should take the bold decision to relocate the oil refinery to another location if the chosen site did not prove efficient.

"The project must be profitable before it can bring about benefits for the surrounding areas," he said.

From another angle, deputy Dang Van Thanh expressed his doubts if sufficient capital could be found for the mammoth project.

The total invested capital is estimated at US$2.58 billion, with PetroVietnam as the project owner contributing US$1.8 billion, according to Thanh.

Between 1997 and now, PetroVietnam has been able to accumulate US$400 million from profit in crude oil export. The corporation has only until 2010, when the refinery is scheduled for commissioning, to raise US$1 billion more, which looks highly unlikely, he said.

Regarding bank credit for the project, only US$250 million has been secured, leaving the balance on tenterhooks as potential creditors will likely charge high rates for a project whose viability is not high, he added.

Despite the heated disputes, the Dung Quat Oil refinery project will get going soon, after the Engineering-Procurement-Construction contract was signed between PetroVietnam and the Technip-led consortium in mid-May.

Minister of Industry Hoang Trung Hai in his presentation Wednesday work would start on key facilities for the oil refinery in July.

The oil refinery will have a processing capacity of 6.5 million tonnes a year, with 5.5 million tonnes to be supplied by PetroVietnam and the rest from imported sources.

"The refinery is expected to create about US$450 million in added value for the country in the future," he said, adding its internal rate of return is estimated at 6.7%, which is acceptable and in line with previous calculations.

The project upon completion in early 2009 will produce 1.8 million tonnes of gasoline, 3 million tonnes of diesel, 300,000 tonnes of LPG, 400,000 tonnes of kerosene and aircraft fuel, 300,000 tonnes of fuel oil, and 100,000 tonnes of polymer-grade propylene.

The Vietnam Oil and Gas Corp. (PetroVietnam) has admitted that poor preparations are to blame for the long delays to and the higher cost of the country's first oil refinery project.

"The poor preparations are a subjective reason for the lengthened negotiations with a foreign consortium led by France's Technip," said PetroVietnam chairman Pham Quang Du.

He said in an interview before a Government report on the progress of the project was delivered at the ongoing National Assembly session that the longer-than expected talks were also due to the huge number of construction items, many of them quite new to PetroVietnam.

A lot of changes to the project were made when the two sides got down to the negotiating table, he said. This has led to the cost of the project rising from the originally planned US$1.5 billion to US$2.5 billion.

In mid-May, PetroVietnam finally signed an engineering-procurement-construction (EPC) contract with the Technip-led consortium to build the main component of the Dung Quat refinery project in the central province of Quang Ngai.

The value of the contract is estimated at around US$1.56 billion, sending the estimated cost of the entire project up to some US$2.5 billion.

Asked about the timing of the signing of the deal, Du said to some extent, this timing was significant as work on the component that made up 60% of the cost of the project began.

This also did away with worries that the project had come to a complete halt, he said, noting it was better late than never as the project was of national importance.

In 1997, the low-grade A83 gasoline and industrial diesel oil made up the majority of the refinery's output under the original plan but these two products were later banned from circulation, resulting in changes to technology and product lines.

Due to these changes, the cost has jumped, he said, addÂ*ing that moreover, the cost estimates were based on crude oil prices when the project was mapped out.

In 1997, the crude oil price was some US$20 per barrel and fell to US$10-12 a year later, but has now rocketed to about US$50, he said.

This has affected the refinery construction cost and to make matters worse, there have been many projects to build oil refineries elsewhere in the world, thus causing equipment supply to fall short. This shortfall has in turn had an impact on oil prices.

Asked whether PetroVietnam would continue to export crude oil extracted off the country's southern coast or use the entire output for local refining, Du said the company would supply part of the output for the upcoming refinery and export the rest.

Under an oil industry development plan for the next 10 to 20 years, annual crude oil output is projected at 18-20 million tonnes, which is enough for the refinery to process and for export, he explained.

And now the government's going to build the second oil refinery in Nghi Son, Thanh Hoa. What the... ?
Why in Ba Ria Vung Tau, where there are many oil source, they don't build an oil refinery? Build an oil refinery in here will make more profits. Build in the Central or the North, we have to transfer the oil to there, and cost more money for transferring. And the South is the most developing part of the country, need more oil to use.
Why? :( I don't understand. Why the goverment are wrong and they still don't want to recognize that they are wrong? :(

Dung Quat is hard to debate cause no one here is expert in this sort of things. If what this offical says are true , i think it was worth to build Dung Quat in the Central, for this region desperately needs investment:

Dung Quất - cung đường và độ sâu:



Như Lao Động đã thông tin, TCty Dầu khí VN vừa ký hợp đồng gói thầu quan trọng nhất của dự án NM lọc dầu Dung Quất. Tuy vậy, xung quanh dự án vẫn đang có một số băn khoăn mà nổi cộm là cung đường vận chuyển và độ sâu của vịnh Dung Quất. Phóng viên Lao Động đã phỏng vấn ông Lê Văn Dũng - Giám đốc Trung tâm Xúc tiến đầu tư BQL Khu kinh tế Dung Quất.


Tàu 21.000DWT cập cảng Dung Quất.
´ Thưa ông, đến nay vẫn có nhiều ý kiến cho rằng đặt NM lọc dầu tại Dung Quất là một sai lầm. Quan điểm của ông về vấn đề này?

- Các quốc gia xung quanh chúng ta, ngay cả Thái Lan cũng đã đạt sản lượng lọc dầu hơn 40 triệu tấn/năm. Các nước không có dầu thô như Nhật Bản, Hàn Quốc có công suất lọc dầu xấp xỉ nhu cầu tiêu dùng nội địa, còn quốc gia không có dầu thô như Singapore cũng xuất khẩu dầu thành phẩm tương đối lớn ở ASEAN. Người ta sang tận Trung Đông mua dầu chở về lọc mà còn có lãi. Điều đó cho thấy, một quốc gia có dầu thô như VN thì dù dự án nằm ở bất cứ đâu trong lãnh thổ VN, nếu có công nghệ tiên tiến và quản lý tốt thì chắc chắn có lợi nhuận cao hơn các nước phải nhập dầu thô để lọc dầu.

´ Nhưng nếu đặt NM lọc dầu tại một nơi gần các mỏ dầu, lại gần thị trường tiêu thụ, thì chắc chắn vẫn có lãi hơn chứ?

- Đúng là sự hơn kém của một địa điểm, xuất phát từ quan điểm kinh tế của dự án, chủ yếu liên quan đến phí vận chuyển nguyên liệu và sản phẩm của nhà máy. Phí vận chuyển dầu thô từ Bạch Hổ về Long Sơn (Vũng Tàu - địa điểm "cạnh tranh" với Dung Quất) là 3USD, về Dung Quất là 3,5USD. Phí vận chuyển sản phẩm từ Dung Quất về TPHCM là 5,6USD, từ Dung Quất ra Hải Phòng là 5,5USD. Chênh lệch chi phí vận chuyển giữa Dung Quất và Long Sơn khoảng gần 30 triệu USD/năm nếu sản phẩm tiêu thụ 100% ở phía nam. Với một NM có doanh thu 2 tỉ USD/năm thì sự chênh lệch này là chấp nhận được.
Còn nếu được tiêu thụ ở cả 3 vùng, con số chênh lệch chỉ khoảng 20 triệu USD. Trong tương lai, khi thị phần miền Trung tăng cao hơn, và NM lọc dầu Dung Quất phải đảm đương thêm việc xuất dầu cho Lào và đông bắc Campuchia, thì hầu như không còn chênh lệch nữa.

´ Một nghi ngại nữa là cảng Dung Quất không đủ sâu để đặt NM lọc dầu?

- Nghi ngại đó là không có căn cứ. Trong quy hoạch hệ thống cảng biển VN đến 2010 - tầm nhìn 2020, Dung Quất đã được phê duyệt là cảng nước sâu đa chức năng, có thể đáp ứng cho tàu dầu tới 100.000DWT, tàu hàng 50.000DWT, sản lượng hàng hoá qua cảng 2,7 triệu tấn vào năm 2010. Quy hoạch này được lập trên cơ sở nhiều nghiên cứu của các nhà khoa học trong, ngoài nước.

Trong giai đoạn từ 1995 đến 1997, TCty Tư vấn thiết kế GTVT (TEDI) đã đo sóng, gió, thuỷ hải văn và khoan khảo sát hơn 20 mũi tại vịnh Dung Quất. Các kết quả cho thấy Dung Quất là vịnh biển lý tưởng để xây dựng cảng nước sâu. Độ sâu lớp đá gốc đo được đều đạt từ 14,3 đến 36,3m. Hiện
nay, tại Dung Quất, bến số 1 đã được xây dựng phục vụ thi công NM lọc dầu, vì vậy quy mô chỉ dừng ở việc đón tàu 20.000 DWT. Tuy vậy, bến này đã đạt sản lượng hàng hoá dự kiến 1 triệu tấn năm 2005 - qua đó trở thành cảng có tốc độ tăng trưởng nhanh nhất VN.

Hiện nay, ngoài TCty Hàng hải VN và Gemadept đang có dự án đầu tư bến số 1 và bến số 2 cảng tổng hợp Dung Quất, một số đối tác khác như Jujong (Singapore) và Wanhai (Đài Loan) cũng đang nghiên cứu đầu tư các bến khác. Vinashin đang triển khai xây dựng NM đóng tàu 100.000DWT - sẽ tăng lên đóng loại tàu 400.000DWT tại Dung Quất. Nếu không có cảng nước sâu thì không thể xây dựng một NM đóng tàu

Maybe Dung Quat oil refinery is a right decision. It's in the Central and near the North, so it will provide oil to these regions.
But the second oil refinery is in Thanh Hoa, in the North, where there isn't much oil. And Dung Quat oil refinery has done the duty of providing oil to these regions.
Why don't invest the second oil refinery in Ba Ria Vung Tau, where there're a lot of oils. Total, a French coporation in oil field, and many other foreign investors had persuade to invest here. And when the government forced them to invest in Dung Quat, or others, all of them are quit. This is the main reason why Dung Quat still isn't being constructed now.
Why the government make the same mistake again with Nghi Son oil refinery in Thanh Hoa? If investing in Long Son, Vung Tau, there are alot of advantages. And the profits are much more. Clearly examples are:
A deputy said the gasoline transport cost would be US$30 million a year higher for a refinery in Dung Quat than a similar project in Vung Tau. If the project is to operate for 30 years, the total transport cost will be nearly US$1 billion higher, dampening the cost-effectiveness and thus the internal rate of return.
And
Deputy Nguyen Ngoc Tran from An Giang remarked that for national projects, the national interests should be the first factor to be considered. Dung Quat aside, the second oil refinery project planned for Nghi Son in the northern province of Thanh Hoa could be a repetition of the grave mistake since the area is not accessible for large vessels, according to Tran.

Deputy Nguyen Duc Dung seconded Tran's opinion, saying the Government should take the bold decision to relocate the oil refinery to another location if the chosen site did not prove efficient.

"The project must be profitable before it can bring about benefits for the surrounding areas," he said.

I think the reason is: the government doesn't want to belong to the South. Because if there are any wars occuring again, the Vietnam capital with the North will has enough resources to survive, while the South has nothing. That's why the first 2 oil refinery will be near the North. :(

What were they thinking? Major oil sources are in the south. Wouldn't building it near Ba Ria Vung Tau would save transportation costs? Geez, that "for the sake of equal development" argument again. I'm tired of it.

They even plan to build a whole new city in Dung Quat,where local villagers still live in huts.....

Here, this article explains everything:

Lawmakers blame poor location for delay in Vietnam oil refinery

Industry Minister Hoang Trung Hai.
Bad choice of location is the major cause of the delay and obstacles in the construction of Vietnam’s first oil refinery, legislators said at a hearing hosted by the country’s parliament June 8.
The Dung Quat oil refinery, which is the country’s biggest-ever investment, is to be built in the Quang Ngai province in central Vietnam, 850km south of Hanoi.

The site is roughly 1,000km from the country’s major oil fields off its southern shore, and also far away from its main economic centers like Hanoi or Ho Chi Minh City, implying high transport costs for both crude and oil refined products.

The Dung Quat oil refinery is expected to begin operation in 2008, about seven years behind the initially-planned schedule.

The project was approved by the country’s legislative body, the National Assembly in 1997, and was due to open in 2002.

Original costs were estimated at US$1.5 billion, but are now up to $2.5 billion following changes in project designs.

Wrong choice

A major cause that led to the delay is the inappropriate location of the refinery, said National Assembly deputy Le Thanh Long from the southern Long An province.

“Initially, we had planned to locate the facility in the southern Ba Ria-Vung Tau province, and the project had attracted attention from international investors,” he said.

“However, the location was moved to the Quang Ngai province, and investors were no longer interested, leading to obstacles over investment capital and construction,” Mr. Long said.

Another deputy said the National Assembly needs to reconsider the location of the Dung Quat oil refinery.

“I think it would be better to lose billions of dong on the initial investment to move the project than erect it in the wrong place,” he said.

He said the location might lead to heavy losses, and if the plant is to be shut down for unprofitable operation then the country will lose more billions of dong.

National Assembly research has shown that the project’s internal rate of return, or IRR, which was estimated at least 15%, has now dropped to 6% following increases in total investment.

“If the IRR is only 6%, we should reconsider the project, as many economists say, if the IRR of an investment is less than 10%, then bankruptcy is very likely,” said another deputy.

Predicted profitable

However, National Assembly deputies from the country’s central region did not quite agree with the criticism over the plant’s location.

“I do not think investment into the Dung Quat oil refinery is an inappropriate strategy,” said a deputy from the central Da Nang province.

“There are some problems arising with the project during implementation.” Other deputies from the same region also agreed with the opinion.

“We should do it even the economic effectiveness is not high,” said a deputy from the central Binh Dinh province.

Industry Minister Hoang Trung Hai said although the IRR, which is now estimated at 6.7%, is not low, it still corresponds with initial estimates.

The economic effectiveness of oil refineries in general is not high following heavy infrastructure investment and requirements over national energy security, the minister said.

“The Dung Quat plant’s effectiveness is equivalent to that of other refineries in the world. The project can be profitable and possibly all debts will be settled 11 years after 2009,” Mr. Hai said.

Something wrong

National Assembly deputies said there are likely signs of misconduct following the delay of the project.

“What’s unusual is the National Assembly had demanded the project to be completed in 2002, and when it was not done then the cause of delay must have been analyzed,” said a deputy.

“Now no one would take responsibility for the setback,” he said.

The government is responsible for the problem following poor management, said Deputy Nguyen Ngoc Tran from the Mekong Delta An Giang province.

“I sense inconsistencies in this project, and I request State Inspectors to begin investigating,” Mr. Tran said.

Another deputy said the government did not prepare well for the project before submitting it to the National Assembly for approval.

Meanwhile, the National Assembly did not examine the project carefully when approving it, he said, adding the legislative body was not determined to order the government to clarify obstacles in the project.

Reported by Manh Quan & Tuyet Nhung – Translated by Hieu Trung.

Vietnam's first ever refinery gets off the ground
11-28-2005, 07h02
DUNG QUAT, Vietnam (AFP)

photo
Vietnamese Deputy Prime Minister Nguyen Tan Dung (C) and Daniel Valot (R), president of the Technip group, applaud during the commencement day ceremony of a 2.5 billion USD refinery project in Dung Quat. After decades of waiting, construction began on the first ever oil refinery in central Vietnam, in the first step towards energy autonomy for the communist nation
(AFP)

After decades of waiting and countless delays, construction began on Vietnam's first ever oil refinery, a major step towards energy autonomy for the communist nation.

"We overcame lots of difficulties and obstacles to arrive at today's launching of the Dung Quat project", said Deputy Prime Minister Nguyen Tan Dung at a ceremony here.

The project, which requires the building of a vast infrastructure, including a port, is expected to cost 2.5 billion dollars, according to industry estimates.

The deal has beed dogged by many delays and twists and turns over the years but for the authorities it is seen as crucial for ensuring energy autonomy for Vietnam, which, despite being a major crude producer, has to import all its refined petroleum products because it has no refineries.

"Dung Quat refinery is particularly significant from an economic, political, social and security standpoint, not only for the central (Vietnam) region but for the whole country," minister Dung said.

The controversial plan for the project swallowed up millions of dollars in studies over the past decade.

"For long, we thought Dung Quat was nothing but a dream project on paper but today it's a reality," said Nguyen Kim Hieu, head of the provincial people's committee of Quang Ngai province where the project is located.

Some 2,000 people, mostly local children and elderly women, were at the ceremony. The state-of-the-art project is being built in one of the poorest regions of Vietnam.

An entire city and industrial zone are expected to grow along the coast.

The Technip group of France, leading a consortium including the Japanese engineering giant JGC Corporation and Spain's Tecnicas Reunidas, signed the construction contract with state-owned giant PetroVietnam in May.

Dung Quat, 120 kilometres (75 miles) south of Danang, a central port city, was picked as the site partly because Vietnam's leadership wanted to develop an industrial counterweight in the centre between the two existing poles, Hanoi in the north and the commercial hub, Ho Chi Minh City, in the south.

The complex is expected to have an annual capacity of 6.5 million tonnes and become operational by 2009.

Before the final deal on the complex was struck in May, some observers had begun to wonder whether it would ever get off the ground.

The accord came after 10 years of procrastination and withdrawal from the project by such industry giants as Total of France -- now known as TotalFinaElf -- and a consortium of American Conoco Inc., Stone and Webster, South Korea's LG and Malaysia's Petroliam Nasional (Petronas).

They balked at the Vietnamese authorities' insistence to locate the refinery close to Danang, far away from the oil-producing centre of Ba Ria-Vung Tau as well as from the southern economic powerhouses around Ho Chi Minh City.

Experts say Hanoi was extremely wary of letting such a strategic project benefit Ho Chi Minh City at the expense of the capital in the north.

The last to pull out three years ago was Russian oil and gas giant Zarubezhneft, prompting Vietnam to decide it would finance the project on its own.

Vietnam produced 20.1 million tonnes of crude oil in 2004, or 13.3 percent more than in the previous year.

-------
Finally, we get a oil refinery. The location is not ideal but for what it's worth, it will stimulate the Central's economy, good decision.

I think the reason is: the government doesn't want to belong to the South. Because if there are any wars occuring again, the Vietnam capital with the North will has enough resources to survive, while the South has nothing. That's why the first 2 oil refinery will be near the North. :([/QUOTE]

You mean when Nguyen Huu Chanh takes over the South?

Actually they prioritise the north-central areas of Vietnam aiming at achieving some economic parity between the three regions, although the southern region (Saigon and DBSCL) is still the enviable economic center of Vietnam.

If it only takes $30 millions more to transport the oil than if it were to be built in the South. I'm for it given how much it will change the central region.

I thought I red this somewhere a while ago, it said a refinnery which a third one is being plan to be built in Dong Bang Song Cuu Long region.

I think once the network of road and infrastrure are completed, then the economy will expand more further to the South. Such projects are My Thuan bridge was completed, Can Tho bridge is being constructed, High way 1 or A1 which link Ha Noi to Ca Mau is being expanded and another highway is also being built along the coast to all the way to the tip of Southern Vietnam, Ca Mau, and last but not least, Can Tho airport, phi truong tra noc is in planning to upgrade to an international aiport in the region. I might be wrong but I think they are currently doing some upgrading at this time, just the run way.

From Thanh Nien:
Mekong Delta airports to get upgraded
Airports Tra Noc and Phu Quoc in the Mekong Delta region are to be upgraded to international standards, heard a conference on the region’s development master plan Feb 14-16.
The two-day conference in Can Tho presided over by Prime Minister Phan Van Khai singled out the Tra Noc Airport in Can Tho City to play an important role in the region.

The airport’s upgrade will be carried out in two phases from now to 2010 with total investment capital of some VND2 trillion, according to a report of the Ministry of Communications and Transport.

The upgrade project will include building new terminals and runways so that the airport would be able to receive long-range planes like B767 and A300.

On Phu Quoc Island, zoned as a tourist hub of southern Vietnam, the airport would be upgraded to serve both domestic and international flights.

Specifically, a new airport will be built on a 1,450-hectare site to replace the current airport. The VND2 trillion project will start in 2007 and complete three years later.

Other regional airports including Rach Gia and Ca Mau will be upgraded to handle international flights.

Expressways envisioned

The master plan for regional communications development also includes building four main roads linking the Mekong Delta region with southeastern provinces and two expressways HCMC-Can Tho and Ben Luc-Long Thanh.

In addition, some VND2.5 trillion will go to building and upgrading 25 river and sea ports by 2010. The port complex in Can Tho would be able to handle 6.7 million tons of cargo a year.

Story from Thanh Nien News
Published: 15 February, 2005, 21:44:42 (GMT+7)
Copyright Thanh Nien News

I'm betting on the Mekong Delta's future. Can Tho is where I plan to live when I move back to VN. The pace is more laid back and things are cheaper than Saigon. But Saigon's food is still king!

Thank you for the info. Baria. I think the same way, Can Tho was a cultural hub in the South and still is, it's going to be transformed rather fast in the next few years. I heard that Som Chai cross from Ninh Kieu wharf is in a planning stage to develop into a new town ship like Thu Them in Saigon. Unlike you, I would rather live in the North like Sapa, even though I was born in Can Tho.

Som Chai was linked to Can Tho by Quang Trung bridge a few years ago. The price of land skyrocketed after that. I think the Big C supermarket (formerly known as Cora) will be built in this area. A road is being constructed linking Can Tho to the sea.

Sapa is a very nice place. Even the pickiest person, like my sister in Florida, likes it. She loves Sapa's orchids. I like sitting in a cafe with the view watching the town everchaning scenes (fog in, fog out) and its interesting people. The last time I went up there in 2002, the road between Lao Cai and Sapa was being constructed. It was completed two years ago, in time for Sapa's 100-year-old birthday.