06-04-05 In the wake of higher petrol prices, several authorities have urged the Government to speed up the construction of the country's first oil refinery plant in the central province of Quang Ngai.
"The oil refinery in Dung Quat District could process 6.5 mm tpy of crude oil. This is of great importance because it would enable us to control prices," Pham Quang Du, president of Vietnam Oil and Gas Corporation (PetroVietnam)'s managing board, said.

In 2004, Vietnam exported 17 mm tons of crude oil but had to import 12 tons of refined oil. The country has no local refinery and must import all of its refined oil. The Government raised the retail price of petrol by VND 500 per litre, in reaction to global petrol prices.
In the first three months of the year, the Government paid VND 4,870 bn ($ 300 mm) in subsidies to domestic petrol trading companies that buy and then sell refined oil imports.

Once fully operating, the Dung Quat Refinery could meet 30 to 40 % of the domestic market's demand, Dusaid. Minister of industry Hoang Trung Hai said PetroVietnam, the refinery's developer, lacked the necessary experience to overcome the problems that have occurred during the project.
"These shortcomings have contributed to the delay of the project," he said.

Tran Ngoc Toan, former director of the Vietnam Petrol Research Institute, said that lack of capital and improper management of oil exploration, exploitation and processing have also delayed the project. PetroVietnam officials, however, have said the company could continue the project without much difficulty as the issue of investment capital had been solved.
However, many domestic and foreign petrol experts said the biggest challenge to the project is not financing but efficiency, as it relates to operational capacity, product quality and construction progress.

In Vietnam, the Ministry of Industry has oversight over crude oil exploration and exploitation while the Ministry of Finance oversees distribution of oil products.
Vietnam's National Assembly approved the construction of the Dung Quat Oil Refinery No 1 in 1997 with an investment of $ 1.5 bn. It was to be located in Quang Ngai Province, 850 km south of Ha Noi, and to be operational in 2002. However, the Asian financial crisis in 1997 and 1998 adversely affected oil prices and Vietnam's crude oil revenues plummeted. To ease the burden on the State budget, the Government later signed an agreement with Russia to develop the project and reduce its share of the investment to $ 1.3 bn.

A joint venture to develop the project was also set up with state-run PetroVietnam representing the Vietnamese side, with a 50 % stake, and ZarubezhNeft on the Russian side, with 50 %. Disagreements between the two parties on bidding, contract awards and technology led to the eventual dissolution of the joint venture in 2003 by the Government.
PetroVietnam was scheduled to negotiate with France's Technip Coflexip, Japan's JGC and Spain's Technicas Reunidas over the design, equipment and construction of major items, but negotiations dragged on for half a year without result.