Nghi Son Refinery and Petrochemicals heading for insolvency

July 18, 2018 | 11:41
Unless PetroVietnam contributes sufficient capital to its joint venture project, lenders will not disburse and Nghi Son Refinery and Petrochemicals LLC (NSRP) will default.  
nghi son refinery and petrochemicals heading for insolvency
Nghi Son Refinery and Petrochemicals LLC is the joint venture of PetroVietnam, Idemitsu Kosan, Kuwait Petroleum International, and Mitsui Chemicals

In a document sent to the Ministry of Industry and Trade (MoIT), Vietnam National Oil and Gas Group (PetroVietnam) said that the group is facing many obstacles in the process of adjusting total investment and state capital contribution at Nghi Son Refinery and Petrochemicals project.

“All the contribution capital parties are pushing PetroVietnam to complete its state capital contribution this July, as following this lenders will disburse the loans as commitments. Without the disbursement of the loans, the project will default,” quoted a paragraph of the document.

The Nghi Son Refinery and Petrochemicals project was approved on April 5, 2008 with a design capacity of 8.4 million tonnes of crude oil per year, and the total registered investment capital of $6.15 billion.

In 2013, the project was issued a fourth amended investment certificate, raising total investment to $9 billion and charter capital to $2.4 billion, while total costs were identified at $9.2 billion, including $4.2 billion from owners’ capital contribution and $5 billion from loans.

Being a wholly-state-capital group, PetroVietnam must comply with current regulations on management of investment and construction expenses. PetroVietnam asked NSRP to check and create amended total investment, however, several challenges exist related to differences between the old and new laws.

The next challenge is how to disburse the remaining contribution capital from the state in the project. PetroVietnam has asked MoIT to guide this implementation.

At the online summary meeting for the first half of the year, MoIT Deputy Minister Dang Hoang An said that the disbursement problem is complicated and MoIT will collect comments from ministries and agencies and report to higher levels.

Nghi Son Refinery and Petrochemicals is situated in Nghi Son Economic Zone, Tinh Gia District in the central province of Thanh Hoa. Its capacity for the first phase is 200,000 barrels of crude oil per day, equivalent to 10 million tonnes per year - nearly double that of Dung Quat Oil Refinery (BSR) in the central province of Quang Ngai.

It is invested by a consortium of Kuwait International Petrochemical Company (KPI, 35.1 per cent), Idemitsui Kosan (IKC, 35.1 per cent), and Mitsui Chemicals (MCI, 4.7 per cent). The rest is contributed by state-run PetroVietnam. The plant will produce LPG, gasoline (RON 92, 95), diesel (high grade, conventional), kerosene/jet fuel, polypropylene, paraxylene, benzene, and sulfur products.

The project has enjoyed numerous incentives, including corporate income tax at 10 per cent for up to 70 years. It will be compensated from PetroVietnam’s budget between 2017 and 2027 if the market tax rate is lower than the preferential tax rate of the project. NSRP is exempt from corporate income tax for four years and has to pay an average tax rate of 10 per cent for the next 70 years.

PetroVietnam will consume all NSRP’s products within 15 years at the wholesale price equivalent to the import price with 3-7 per cent added for preferential tax.

In May, NSRP’s factory produced the first batch of RON A92 petrol with capacity of 5,000cu.m, and expects to officially begin operating commercially in August or September.

By Nguyen Huong

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