Nghi Son refinery’s continuing woes lead to fuel shortage

The biggest oil refinery of Vietnam has cut output since mid-January because of a lack of funds needed to import crude oil, trigging a gasoline and diesel shortage, according to the Ministry of Industry and Trade.

In 2021, the refinery which has a capacity of processing 200,000 barrels of crude a day, or 10 million tons a year, produced 6.7 million tons of gasoline and diesel.

State-owned PetroVietnam (PVN) has a 25.1 percent stake in it, while the rest is owned by three foreign firms: Kuwait Petroleum International (35.1 percent) and Japanese companies Idemitsu Kosan (35.1 percent) and Mitsui Chemicals (4.7 percent).

Nghi Son enjoys a number of tax and other incentives.

It gets a 50-percent cut in corporate income tax for 70 years to only 10 percent following a complete waiver for the first four years after breaking even.

Its entire output of petroleum and petrochemical products and LNG will be bought by PVN for 15 years.

Besides, if Vietnam reduces import taxes to lower than the preferential rates at any time until 2028, PVN will compensate Nghi Son the difference.

An oil expert told VnExpress that the government offered Nghi Son’s investors a number of incentives to ensure energy security and get out of the then-prevailing complete dependence on imports. At that time crude oil output in Bach Ho (White Tiger), the country’s largest oil field, was decreasing rapidly.

In the three years since it began commercial operation Nghi Son has not been doing well.

According to the ministry, it has accumulated losses of US$3.3 billion and debts of US$2.8 billion.

It was this financial difficulty that has forced it to cut imports and reduce output to 80 percent since late January.

PVN also blamed the foreign partners for poor management, saying with its 25.1-percent stake it does not have the authority to make decisions.

Ngo Tri Long, former director of the Institute for Price Market Research, said it is necessary to draw lessons in negotiating foreign investment in the oil sector.

According to him, the refinery has not fulfilled its responsibilities in ensuring the supply and the obligation to supply goods according to the contract signed with petroleum trading enterprises in the market.

Nghi Son has still been operating at 55-60 percent of capacity because imported crude did not arrive until the end of February. It will operate at 80 percent from mid-March and 100 percent from early April.

But it has not spelled out plans to deliver fuel to key distributors in April and May, especially after May when its ability to maintain production remains unclear.

If the situation again deteriorates after May the ministry will instruct 10 key fuel traders to increase imports to 2.4 million cubic meters of gasoline and diesel in the second quarter.

The country’s other refinery, Dung Quat in the central province of Quang Ngai, has increased its production to 105 percent of capacity to make up for Nghi Son’s shortfall.

Binh Son Refining and Petrochemical JSC, the operator of Dung Quat, said in a recent statement it has worked hard to source additional crude supply amid the surging global prices, which have risen to their highest levels since 2014.