Giant oil refinery project hits sticky patch

A senior official from the province’s planning and investment department, who asked not to be identified, told Vietnam Investment Review that Russian Techno Star Management, the project’s sole investor, was still waiting for agreements to purchase crude oil from PetroVietnam and supply refined oil on the domestic market.
Despite the delays, the developer recently increased the planned annual capacity of the refinery from three million to four million tonnes.
The official said a feasibility study for the project had been completed, but Techno Star was waiting for a deal to buy crude oil from PetroVietnam, the lone oil supplier in Vietnam, which has been struggling to build its own refineries in Quang Ngai and Thanh Hoa provinces.
“The relevant ministries are very supportive of the project; however, this might be different for PetroVietnam,” the official said.
He said PetroVietnam had not supported the Phu Yen project because the state-run giant would not benefit financially from the project.
The official added that Techno Star’s first option for buying crude oil was PetroVietnam, because importing oil from an overseas supplier would raise the plant’s operating costs.
“We have to find a final solution on the supply sources of crude oil and how the products will be distributed before submitting the feasibility study to the prime minister for approval,” the official said.
PetroVietnam offered no official comment on the matter, although a company official told VIR that based on research, a refinery of that kind would not be efficient, although the official did not elaborate.
Supplying crude oil for its two planned refineries in Dung Quat and Thanh Hoa would be PetroVietnam’s first priority, he said.
“The [Phu Yen refinery] project needs more study,” he said.
Last year, in an official visit to Phu Yen province, Prime Minister Phan Van Khai expressed support for the refinery and allowed the province to go ahead with its foreign partner to develop the project.
The prime minister said it was necessary for Vietnam to have a medium-sized oil refinery to supply petroleum to the domestic market alongside PetroVietnam’s planned refineries, which are scheduled to be operational by 2008.
PetroVietnam’s refineries, which are to have a combined capacity of 13.5 million tonnes per year, are expected to supply about 70 per cent of Vietnam’s total annual demand for petroleum products by 2010, according to officials from the state-run company.
Phu Yen provincial authorities said the Techno Star refinery, construction of which is slated to start next year, fits a government plan to set up a pipeline to transport gasoline to Gia Lai, Dak Lak and Kon Tum provinces in the Central Highlands, about 200 kilometres east of Phu Yen.
Techno Star, a subsidiary of the British Virgin Island-based International Business Corporation, increased the project’s investment capital to $500 million from an initial level of $350 million.
Construction of the refinery is expected to take three years, according to Phu Yen’s planning and investment department. The company hired Saigon Transportation Service Company as the project’s consultant.
Phu Yen is several hundred kilometres from Phu Khanh basin, which contains nine oil and gas blocks from Block 122 to Block 130. Last year, PetroVietnam opened bidding for exploration on the blocks.
Vietnam currently must import all its petroleum products because the country does not have a domestic oil refinery.