Russia’s Gazprom Neft, the oil arm of top global gas producer Gazprom, said it will buy a 49 percent share in Vietnam’s Dung Quat refinery, which is the country’s first oil processing facility, and in located in the central Quang Ngai province.
The deal is part of the Gazprom’s energy pact signed with the Vietnamese oil and gas giant PetroVietnam in late 2013. It will translate to the Russian energy giant’s subsidiary acquiring a 49 per cent of the Binh Son Refinery and Petrochemical Co Ltd (BSR), the owner of the facility, and both parties will jointly upgrade Dung Quat.
“Under the main clauses of the deal Gazprom Neft receives the exclusive rights to negotiate with Petrovietnam over purchasing of a share of the refinery,” the Russian firm said in a statement.
Financial details of the transaction were not disclosed.
In addition, Gazprom Neft has reportedly asked for further cooperation with the state-owned energy group in expanding exploration and production in the country.
In a related development, the two companies on Monday signed an agreement on mutual oil and gas exploration and development on Russia’s northwest Pechora Sea shelf. It is anticipated that they will unveil the basic terms of partnership by the beginning of this year’s fourth quarter.
Another Russian energy major, Rosneft, had been in talks with PetroVietnam to acquire the stake in the Dung Quat facility. Prior to these, investors from Venezuela, Japan and South Korea had also shown interest in the plant.
Meanwhile, the Vietnamese government is making effort to lure reputable foreign investors in expanding the capacity of the oil refinery as its products are facing certain challenges in terms of tax rate. PetroVietnam alleged that oil import tax cut in the ASEAN region will make its products non-competitive. If lower tax rates are applied, the contribution to the state budget will drop dramatically. Specifically, it predicts budget losses will reach VND14 trillion ($651.16 million) this year and VND16.2 trillion ($753.5 million) each for the 2016-2018 period.
PetroVietnam stated in a filing that “this will be seriously affecting the group’s capital balance for production and business activities in the coming years.”
It is expected that by 2022, as the upgrade is completed, the Dung Quat refinery will produce 8.5 million tons of crude oil per year.
Meanwhile, Gazprom Neft’s 2014 investment program amounted to more than RUB 331 billion ($6 billion). In 2014, the company produced 66.3 million tonnes of oil equivalent, an increase of 6.4 per cent on the previous year. Production volumes at Gazprom Neft refineries increased by 2 per cent year-on-year, totalling 43.5 million tons in 2014.
In addition to Dung Quat, Vietnam has six other refinery projects: Nghi Son in Thanh Hoa ($9 billion); Vung Ro in Phu Yen ($3.2 billion); Nam Van Phong in Khanh Hoa ($8 bilion), Nhon Hoi in Binh Dinh ($22 billion); Long Son in Ba Ria – Vung Tau ($4.5 billion) and in Can Tho ($538 million). However, only the Nghi Son project is on implementation schedule, which saw a $3 billion disbursement last year and had some 11,000 workers on site.