VietNamNet Bridge – Experts say they are not quite sure about the feasibility of the Nhon Hoi oil refinery when asked about the prospect of the project.

According to international consultancy firms, nowadays, when the profit from oil refinery in the world and in South East Asia is low, the oil refinery projects in Vietnam would be feasible if they have some features as follows.

First, they need to have big capacity of over 15 million tons per annum at least. Second, they have high proportions of petrochemical products.

The third requirement is that the investors are financially capable enough to ensure the smooth arrangement of capital and borrow capital from credit institutions. Especially, they need to have the right to take initiative in distributing products.

As for the Nhon Hoi oil refinery project, the two first requirements can be met. The refinery is expected to have the capacity of up to 30 million tons a year, and a high percentage of petrochemical products.

However, the feasibility of the project remains questionable.

Experts have expressed their worry about the sources of the crude oil supply for such a big refinery.

In order to minimize risks and ensure the stable operation, 80 percent of the material supply for newly operational refineries need to be guaranteed by the long term contracts, while the other 20 percent can be bought on the market via short term contracts.

The proportion could be 50-50 after a long period of stable operation.

The investor of Nhon Hoi plans to buy crude oil from the Middle East. However, it is still not sure if this can come true, once China also aims to the supply sources in the region.

In case of Nghi Son oil refinery project, the crude oil supply was also once a problem which was only settled when the Kuwaiti national oil and gas corporation promised the long term supply of crude oil.

The second question relates to the market development. It is foreseeable that the domestic oil and gas product market would be saturated by 2020. Meanwhile, the Vietnamese oil refineries would have to compete in the international market with the big companies.

The foreign companies have a great advantage over Vietnamese that their amortization period has ended, thus allowing them to have lower production costs.

The distribution mechanism in Vietnam may not be the thing the investors want. To date, the domestic product still has been put under the control of the State. The mechanism being applied by the Dung Quat oil refinery in pricing products should not be applied to the joint ventures with foreign partners.

If the State requests oil refineries to sell products at below the import prices and if it compensates the importers’ loss, it will also need to apply similar policies for foreign investors.

Meanwhile, if investors cannot distribute their products on the domestic market, their profits would be lower than the acceptable levels.

Regarding the investment capital of the project, of the total $28.7 billion, 60 percent, or 16-19 billion dollars would be sourced from the loans. Meanwhile, in Vietnam, no credit institution is big enough to provide such a big loan.

The investor would need the government’s guarantee to give support to the investors to ensure their solvency. Meanwhile, this is unclear for Nhon Hoi project.

At present, the Dung Quat oil refinery does not fully operate under a market mechanism. The performance of the refinery much depends on the mechanism the State imposes on it, especially the product pricing mechanism.

TBKTSG