Russian ties remain strong despite rocky deals

May 18, 2016 | 11:54

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Vietnamese enterprises are increasing efforts to set foot in Russia to find investment opportunities as well as expand their operations.

As a result, Vietnam’s overseas direct investment in Russia has exceeded Russian direct investment in Vietnam.

As of now, Vietnamese enterprises have poured over $2.93 billion in 20 projects in Russia. One of the key projects is a $2.02 billion oil and gas exploration and exploitation project, invested by the Rusvietpetro-a joint venture between Zarubezhneft and Vietnam’s oil and gas group PetroVietnam.

Furthermore, Rusvietpetro also invested $125 million in another oil exploitation project in Russia.

Another large Vietnamese project in Russia is the $190 million Hanoi Moscow Trading Centre.

In addition, TH Milk Food Joint Stock Company of Vietnam (TH Group) plans to develop a $2.7 billion hi-tech concentrated dairy, cattle breeding, and fresh milk production project in Moscow, which will contribute to increasing Vietnamese enterprises’ presence in Russia.

Covering an area of 140,000 hectares, the project will be developed in three phases from 2015 to 2016. The first phase’s construction, with a total capital of $500 million invested by Nghe An Tate & Lyle Sugarcane and Sugar Limited Company-a TH Group subsidiary, is expected to kick off on May 18.

The first phase will combine a material area of 50,000 hectares, a dairy plant with a capacity of 800 tonnes per day, and a cattle breeding production factory with an annual capacity of 400,000 tonnes per year. Besides, Nghe An Tate & Lyle Sugarcane and Sugar Limited Company will develop a distribution chain with over 300 TH True Mart stores throughout Russia.

Once completed, the $2.7 billion facility will be Vietnam’s largest agricultural and food processing project in Russia. It will house a total number of 350,000 cattle, producing 5,900 tonnes of milk per day, equalling 1.8 million litres annually.

“TH Group believes in the success of the Vietnamese dairy industry in general and TH Group in particular in the Russian market. The Vietnamese dairy industry has numerous opportunities to penetrate the Russian market, especially after the Russian government put an embargo on European’s agricultural products, including dairy products in August 2014.”

Meanwhile, Russia’s direct investment in Vietnam is decreasing.

As of April 20, Russian investors had 113 valid projects worth $1.08 billion in Vietnam. In the first four months alone, Russian direct investment in Vietnam reached $70,000 in three projects only.

There has been a marked decrease by half in Russian registered direct investment when Russia’sBus Industrial Center Ltd. had its investment certificate for a $1 billion bus, car, and agricultural equipment production complex revoked by the Nhon Hoi Economic Zone Management Board.

Previously, Gazprom Neft, the oil arm of Gazprom, announced to stop talks with PetroVietnam to buy a 49 per cent stake in its Dung Quat refinery.

However, there were positive signals in Russian direct investment in the first four months of 2016. Notably, in March, Vietnam's State Capital Investment Corporation (SCIC) and Russian VTB Group signed a Memorandum of Understanding (MoU), which will allow both companies to expand investment between the two countries.

The MoU between the parties will create a framework for facilitating investment opportunities for VTB Group’s clients in SCIC-related companies and projects. In turn, VTB will introduce SCIC and its partner companies to attractive investment options in countries where it is present. As part of the agreement, VTB Group will assist SCIC and its linked companies to raise investment capital on international markets and act as a financial advisor in debt and equity deals.