Dung Quat Refinery makes profit despite cries of impending doom

Binh Son Refining and Petrochemical Co. (BSR), a member of Vietnam’s oil and gas group PetroVietnam, which manages the country’s sole refinery, Dung Quat, made a profit in the first half of 2016, even though the government has not yet agreed to its proposals for preferential treatment.

According to PetroVietnam’s report, in the first six months of 2016 BSR earned a consolidated revenue of VND35.2 trillion ($1.6 billion) and a consolidated net profit of VND939 billion ($42 million).

The parent company alone earned a net profit of VND995.1 billion ($44.6 million).

BSR earned this profit while constantly complaining about difficulty in selling its products. 

The prices of Dung Quat’s products are calculated as the sum of similar imported products’ price and the applicable tariff rate. 

When the Vietnam-Korea Free Trade Agreement was signed, Vietnam halved the import tariff on South Korean gasoline, to 10 per cent, effective since December 20, 2015.

Meanwhile, Dung Quat’s products are still subject to an import tax of 20 per cent.

According to PetroVietnam and BSR’s earlier claims, this disparity forced a number of their local consumers to switch to imported sources.

The new tariffs are the reason most customers decreased, cancelled or delayed taking over their orders since March, even though BSR attempted to provide incentives, such as extending payment deadline or decreasing other fees.

Still, BSR claims that since the beginning of the year the refinery has been operating nonstop at 103-105 per cent of its designed capacity.

In the first half, the company produced 3.4 million tonnes of products in total and sold 3.3 million tonnes, submitting VND6.1 trillion ($273 million) to the state budget.

In 2015, BSR also made a hefty profit. PVN’s report said that in 2015 BSR’s consolidated revenue was VND94.4 trillion ($4.23 billion), while the parent company’s revenue was VND94.1 trillion ($4.2 billion).

BSR’s consolidated net profit was VND5.7 billion ($255,600), while PetroVietnam  recorded VND5.86 billion ($262,700). Return on equity was 20.6 per cent.

An economist said that the refinery has been enjoying a lot of preferential treatment from the government since it was built.

“Whenever there is a policy affecting it, the refinery refuses to improve governance and decrease production costs to decrease the price of its products. Instead, it asks for more preferential treatment,” he said.

BSR currently enjoys 10 per cent CIT for 30 years and gets to retain part of the tariff used to calculate the price of its products.

In May, BSR asked the Ministry of Industry and Trade to allow Dung Quat to calculate and decide the selling price on its own and refused the tariff rebate.

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