Commitments made for expansion of Russian ties

During Vietnam’s Minister of Foreign Affairs Bui Thanh Son’s visit to Russia last week, both sides agreed to boost bilateral cooperation in a wide range of sectors

It is expected that from now until the year’s end, a series of online conferences will be organised on business and investment cooperation between localities of Vietnam and Russia, such as between Hanoi and Moscow, Ho Chi Minh City and Saint Petersburg, and Binh Thuan and Kaluga.

The fresh moves, backed by the two countries’ governments, are aimed to boost investment and trade between both countries as they are gradually curbing the spread of the pandemic.

At last week’s meeting in Russia between Vietnamese Minister of Foreign Affairs Bui Thanh Son and Kirill Dmitriev, CEO of the Russian Direct Investment Fund, both sides focused on finding ways to beef up cooperation, including the fund’s plan to promote and support direct investments between the two countries, and also with third nations.

Such investment is aimed to take advantage of the Vietnam-Eurasian Economic Union Free Trade Agreement (VEEUFTA) which has taken effect since 2016, and also helps expand both nations’ trade ties. The union includes Armenia, Belarus, Kazakhstan, Russia, and Kyrgyzstan.

The Russian Direct Investment Fund is a $10-billion sovereign wealth fund established in 2011 by the Russian government to fund leading companies of high-growth sectors in its economy.

According to a priority list for jointly-implemented Vietnam-Russia projects, 17 projects have been adopted by both countries. They will be developed in oil and gas, transport, agriculture, electricity, construction, industry, and high technology.

Fostering investment

Aimed to create new momentum for the Vietnam-Russia Comprehensive Strategic Partnership, at a meeting last week between Minister Son and his Russian counterpart Sergei Lavrov, both agreed on increasing visit exchanges at all levels, especially visits by top leaders, and on expanding and sharpening ties in all sectors, especially defence and security, and focusing on implementing key projects in the sectors of energy, oil and gas, new energy and renewable energy, while facilitating enterprises of both countries to invest in their respective territories in the sectors of agriculture and manufacturing.

Two weeks ago, State President Nguyen Xuan Phuc and President Vladimir Putin held an online talk, agreeing that both countries will soon have sturdy solutions to facilitate bilateral investment and trade flows, expand cooperation, and boost the implementation of important projects in key sectors such as energy, oil and gas, and defence.

In a bid to expand their ties, Vietnam and Russia earlier inked a series of deals, with a focus on facilitating energy cooperation and helping the former to build a major nuclear research and technology centre. Both nations also agreed to continue further boosting their energy cooperation as one of the key pillars.

For example, Russia’s NOVATEK PLC and Vietnam’s south-central province of Ninh Thuan inked an MoU to expand an integrated power project using liquefied natural gas (LNG) in the province’s Ca Na area. Meanwhile, Russia’s Zarubezhneft and Vietnam’s T&T Group also inked a cooperation agreement on expanding renewable energy sources.

Moreover, Russia’s Rosatom Group and Vietnam’s Ministry of Science and Technology also clinched an MoU on a $350 million project to construct a nuclear research and tech centre in Vietnam.

The centre will be equipped with Russian-designed research reactors, a multi-purpose cyclotron, as well as research laboratories, an engineering complex, equipment, and infrastructure to ensure the safe operation of the centre.

In addition to this project, Vietnam and Russia have vowed to continue beefing up oil and gas cooperation, with enterprises of both countries exploring oil and gas in their exploitation respective territories. They also committed to expand cooperation to other lucrative sectors such as LNG and gas power.

Russian companies have been operating in Vietnam’s energy sector effectively for a long time. Up to 30 per cent of crude oil and about 25 per cent of gas in Vietnam are exploited by enterprises involving Russian investment, such as companies of Zarubezhneft, Rosneft, and Gazprom.

According to Zarubezhneft, Vietnam plays a prioritised role in its activities.

“The most effective project of Zarubezhneft is the joint venture Vietsovpetro, which was established in 1981 in accordance with the Intergovernmental Agreement on a parity basis with PetroVietnam,” the group said on its website.

Currently, Russia’s largest oil and gas companies work in Vietnam, and PetroVietnam in Russia. Joint companies – such as Vietsovpetro, Rusvietperto, and Gaspromviet – successfully extract hydrocarbons. Vietsovpetro accounts for about a third of Vietnamese oil production.

Vietsovpetro reported that in the first eight months of this year, the firm exploited 2.14 million tonnes of oil, exceeding 5.4 per cent of the eight-month plan. Its gas output hit 55.8 million cubic metres, surpassing the plan by 8.4 per cent. The company’s total revenues reached over $1 billion, exceeding 123.3 per cent on-year. It contributions to the state budget stood at $525.5 million, equal to 127.1 per cent as compared to the same period last year. Profits for both sides hit $163 million, exceeding the targets by $52.9 million or up 130.7 per cent on-year.

So far it is reported that Vietsovpetro has fulfilled all revenue goals for 2021 – including its contribution to the state coffers and profits in September – three months earlier than the initial plan.

According to figures from the Vietnamese Ministry of Planning and Investment, Russia has currently 149 valid investment projects in Vietnam, registered at $953.7 million. Russian projects are implemented in oil and gas, manufacturing, mineral exploitation, transport, telecommunications, and fishery.

Vietnamese investors are also boosting investment in Russia, with 22 projects registered at about $2.81 billion. The biggest Vietnamese project in Russia is TH Group’s $2.7-billion concentrated large-scale dairy cow production initiative.

Shortly after receiving the investment certificate for this project in 2016, TH Group began the construction of a dairy farm in Moscow and another in the Kaluga region in the same year, located just under 100km south-west of Moscow. Currently, these dairy farms are taking shape and commencing operation, producing high-quality milk.

TH Group’s founder Thai Huong has set a target that over the next 10 years, TH Group will make it onto the list of top 10 milk producers in Russia. Its projects in the nation will help supplement the milk shortages there but also boost milk exports from Russia to other nations.

Expanding trade

Statistics from the General Department of Vietnam Customs (GDVC) showed that the Vietnam-Russia bilateral trade turnover hit $5.7 trillion last year, up 15.2 per cent on-year. In which the turnover from Vietnamese exports was $4 billion, while imports stood at $1.7 billion. The turnover in the first seven months of 2021 reached nearly $3.6 billion, up 23.9 per cent on-year, in which Russia’s export turnover sat at $924 million, up 13.3 per cent, while that of Vietnam increased 28.1 per cent.

It is expected that the figure will reached about $6.5 billion this year.

According to the Vietnamese Embassy to Russia, the expansion in investment and trade ties between Vietnam and Russia is largely thanks to the VEEUFTA, which can enable enterprises from both nations to boost exports to their respective markets.

For instance, Mahnakov Oleg Nikolaevich, representative of Rikonz Co., Ltd., saw the VEEUFTA as one of the key drivers for his company to look for Vietnamese distributors of its farm produce such as assorted wheat, feed, barley, oats, sunflower, and processed cereals and oil crops.

“Vietnam’s foodstuff industry is strongly growing, with a rising demand for products which cannot be sourced in that country,” Nikolaevich said. “We are looking for Vietnamese traders and processors of grain and oil crops, as well as food distributors.”

Under the FTA, Vietnam has committed to remove import tariffs for many agricultural products immediately from the union upon the deal’s entry into force, such as wheat, beef, and milk products.

According to the GDVC, thanks to the deal’s tariff cuts, in the first seven months of 2021, Vietnam’s turnover from agro-forestry-fishery exports to Russia hit $323 million, up 34.2 per cent on-year. Many items saw high export growth, such as rubber (230.8 per cent), aquatics (66 per cent), fruit and veg (47.6 per cent), cashews (59.76 per cent), pepper (71.3 per cent), and coffee (3.5 per cent).