PetroVietnam likely to bear huge losses for Nghi Son oil refinery

Vietnam National Oil and Gas Group (PVN) would have to offset VND1.8-2.5 trillion (US$80-110 million) in annual losses for Nghi Son oil refinery when it starts operation.

Local media cited the Department of State Budget under the Ministry of Finance as saying that the oil refinery in Thanh Hoa Province will start a test run between November 2016 and June 2017, and will begin its commercial operation a month later. The plant is expected to run at full tilt in 2020.

Work started on Nghi Son oil refinery at Nghi Son Economic Zone in the north-central province in 2013. Its investor is Nghi Son Oil Refinery and Petrochemical Co Ltd.

The oil refinery is 25.1% owned by PVN, 35.1% by Kuwait Petroleum International Ltd. (KPI), 35.1% by Japan’s Idemitsu Kosan Co Ltd and 4.7% by Mitsui Chemicals. 

The Government pledged to offer the plant import tariffs of 7% on refined oil products, 5% on liquefied petroleum gas (LPG) and 3% on petrochemical products. PVN also pledged to acquire Nghi Son oil products.

If the oil price stands at US$45 per barrel in mid-2017, Thanh Hoa Province’s domestic budget revenues will come mainly from special consumption tax and value added tax.   

In 2017-2020, budget collections from the two taxes will exceed VND5.8 trillion and that from Nghi Son oil refinery will increase steadily from 5% to 34.2% of the province’s total.

Meanwhile, when the plant starts commercial operation next year, the State budget revenues will edge down by VND1.37 trillion in 2017, VND10.93 trillion in 2018, VND10.63 trillion in 2019 and VND14.11 trillion in 2020 due to tumbling import and export taxes.

Regarding the impact on PVN, the enterprise will have to offset losses of a combined US$1.54 billion in 10 years if oil stands at US$45 a barrel. Losses will shoot up if oil prices rise further. 

According to a PVN report, it must invest over VND3.83 trillion in components of the oil refinery. The firm expects to earn roughly US$716 million in profit in 10 years if oil reaches US$45 per barrel. 

If the oil price leaps to US$50 a barrel, PVN’s profit will fall to US$641 million in 10 years.


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