New multibillion-dollar oil refinery to loss in Vietnam’s state budget
Located in Thanh Hoa Province, Nghi Son Refinery is the Southeast Asian country’s second oil refinery, with a total capital investment of US$9 billion. The first and only operational refinery is Dung Quat, located in the central province of Quang Ngai.
Nghi Son is a joint-venture between four parties: PetroVietnam, Kuwait Petroleum, Idemitsu Kosan, and Mitsui Chemicals, with each company respectively holding a 25.1 percent, 35.1 percent, 35.1 percent, and 4.7 percent stake in the project.
According to preliminary calculations from the Department of State Budget, once the refinery is fully commissioned in July 2017, the national budget will lose VND1.3 trillion (US$58.3 million) caused by a decrease in oil imports at the end of that year.
As Nghi Son Refinery begins increasing its capacity in 2018, the budgetary losses will continue to rise, reaching VND10.929 trillion ($490 million) in 2018, VND10.6 trillion ($475 million) in 2019, and VND14.1 trillion ($632 million) in 2020.
Furthermore, state-run PetroVietnam, the country’s oil and gas giant, has pledged to buy all of the refinery’s products for a ten-year period at a price equal to that of oil imports plus tariffs.
If the price of oil is $45 a barrel, then PetroVietnam will have to spend $1.54 billion purchasing Nghi Son’s products by the end of the ten-year period, while its profit as a shareholder of the project will be a meager $71.8 million per year.
The loss from this worsens if the price of oil increases to $50 per barrel, in which case PetroVietnam will be paying $179.4 million per year in purchasing and only receiving $62.8 million from dividends.
Furthermore, Nghi Son Refinery will enjoy a modest corporate tax rate of 10 percent for the entire 70 years of its lifespan, with a corporate tax exemption in its first four years and a 50 percent tax reduction for the next nine.
Dr. Ngo Tri Long, an economic expert, claimed that despite the importance of energy, any project, with the exception of national defense ones, needs to have its economic effectiveness evaluated before investment.
According to Long, the project does not bring any societal benefit because it leads to a net loss in the national budget, while consumers certainly do not benefit because domestic oil prices currently depend on international prices.
“In order to ensure energy security and develop the petroleum industry, Vietnam should only favor exploration and extraction, not underwriting an entire oil refinery project like Nghi Son,” Long concluded.
