Dung Quat Oil Refinery seeks help to resolve inventory excess
VietNamNet Bridge - The inventory at the Dung Quat Oil Refinery has risen to such a level that it may go beyond the refinery’s maximum storage capacity, a source from the national oil and gas group PetroVietnam has said.

Vietnam, Dung Quat Oil Refinery, PetroVietnam, tax incentives

Clients from Dung Quat are likely to cancel contracts, while others want to delay deliveries, which has posed a major threat to the oil refinery. The situation is so serious that PetroVietnam has sent a dispatch to the Government Office, the Ministry of Industry and Trade and the Ministry of Finance asking for help. 

The oil and gas group has asked to reconsider import tariff cuts to be sure that products by Binh Son Refinery (BSR), which runs Dung Quat Oil Refinery, can sell its products.

“If the import tariffs are not reconsidered, BSR’s oil consumption will meet big difficulties,” the dispatch says.

It is highly possible that clients would refuse to buy BSR’s DO under spot contracts in December because of the big difference in the import tariff imposed on DO imports from ASEAN countries (Form D) and the one BSR bears.

The difference for DO and Jet A1 (air petrol) is 5 percent, but it will be raised to 10 percent from early 2016.

The gap in the import tariff has prompted petrol importers to rush to import petrol products from ASEAN countries instead of buying BSR products. This has raised BSR’s concerns that its products could not be sold.

According to PetroVietnam, Dung Quat is expected to churn out 630,000 cubic meters of petroleum products in December. To date, clients have committed to buy 520,000 cubic meters, which means that 100,000 cubic meters of products for spot sale may not sell. 

An analyst noted that if the Ministry of Finance ignores PetroVietnam’s proposal on tariff adjustment, a lot of clients will not get deliveries in the second half of December as scheduled, but would have to wait until early 2016. 

If so, the inventory volume would be up to 190,000 cubic meters, exceeding the refinery’s storage capacity at 150,000 cubic meters.

In fact, Dung Quat, which has many investment incentives that the government offers to oil refineries, has had problems in sales. 

Not only diesel and petrol, but PP (Polypropylene) has also been selling slowly because of the stiff competition from imports which can enjoy preferential tax rates. The PP inventory volume in August 2015 was as high as 80 percent. 

Therefore, PetroVietnam has proposed to cut the import tariff to 7 percent on DO and zero percent on PP, to be applied in the last months of 2015.

In 2011, Dung Quat took a loss of roughly VND3 trillion, while in 2012, it incurred a loss of VND2.299 trillion.


Vietnam, Dung Quat Oil Refinery, PetroVietnam, tax incentives