New multibillion-dollar oil refinery to create loss in Vietnam’s state budget
A multibillion-dollar oil refinery to begin operating next year in north-central Vietnam will cause millions of dollars in loss to state coffers every year, the Department of State Budget has said.
Nghi Son is a joint-venture between four parties: PetroVietnam, Kuwait Petroleum, Idemitsu Kosan, and Mitsui Chemicals, with each company respectively holding a 25.1%, 35.1%, 35.1%, and 4.7% stake in the project.
According to preliminary calculations from the Department of State Budget, once the refinery is fully commissioned in July 2017, the national budget will lose VND1.3 trillion (US$58.3 million) caused by a decrease in oil imports at the end of that year.
As Nghi Son Refinery begins increasing its capacity in 2018, the budgetary losses will continue to rise, reaching VND10.929 trillion (US$490 million) in 2018, VND10.6 trillion (US$475 million) in 2019, and VND14.1 trillion (US$632 million) in 2020.
Furthermore, state-run PetroVietnam, the country’s oil and gas giant, has pledged to buy all of the refinery’s products for a ten-year period at a price equal to that of oil imports plus tariffs.
If the price of oil is US$45 a barrel, then PetroVietnam will have to spend US$1.54 billion purchasing Nghi Son’s products by the end of the ten-year period, while its profit as a shareholder of the project will be a meager US$71.8 million per year.
The loss from this worsens if the price of oil increases to $50 per barrel, in which case PetroVietnam will be paying $179.4 million per year in purchasing and only receiving US$62.8 million from dividends.
Furthermore, Nghi Son Refinery will enjoy a modest corporate tax rate of 10% for the entire 70 years of its lifespan, with a corporate tax exemption in its first four years and a 50% tax reduction for the next nine.
Dr. Ngo Tri Long, an economic expert, claimed that despite the importance of energy, any project, with the exception of national defense ones, needs to have its economic effectiveness evaluated before investment.
According to Long, the project does not bring any societal benefit because it leads to a net loss in the national budget, while consumers certainly do not benefit because domestic oil prices currently depend on international prices.
“In order to ensure energy security and develop the petroleum industry, Vietnam should only favor exploration and extraction, not underwriting an entire oil refinery project like Nghi Son,” Long concluded.