Wednesday, 26 Jun 2019

PetroVietnam - giant SOE and notorious loss-making business

Updated at Sunday, 17 Mar 2019, 06:09
The Hanoitimes - PetroVietnam has dozens of loss-making projects abroad and many senior officials in jail.
Vietnam National Oil and Gas Group (PetroVietnam-PVN), one of the biggest state-owned enterprises in the country of nearly 100 million people, is known for both contributions to the economy and notorious loss-making operations. 
Oil and gas exploitation is PetroVietnam's core business. Photo: PVN
Oil and gas exploitation is PetroVietnam's core business. Photo: PVN
According to the government’s Decree 07/2018/ND-CP, PVN specializes in (1) searching, exploring, and exploiting oil and gas; (2) gas industry; (3) power industry; (4) processing, storage, and distribution of petroleum products; (5) petroleum services, petrochemical development, and refinery to be a dynamic and strong financial enterprise with high competitiveness, contributing to national development and defense.

PVN has a registered capital of VND281.5 trillion (US$12.24 billion) with two subsidiaries, 14 members in which it holds stakes of more than 51%, five companies with less than 51% stakes, 12 project management boards and branches, two representative offices, one institute, one university, and one vocational training school. 

Loss-making projects 

The Tuoi Tre newspaper reported that PVN has 13 overseas investment projects with only two making a profit namely Nhenhexky in Russia (with an investment of US$533.2 million) and one in Algeria (with an investment of US$1.26 billion).

The remaining 11 projects are in troubles including those already shutdown, causing big losses, the Thanh Nien newspaper reported. 

In Venezuela: PVN incurred a loss worth US$500 million by investing in Junin 2 oil field from 2010. The newspaper reported that the project cost an investment of US$1.82 billion. 

In Peru: in 2012, PVN approved PVEP’s investment project via buying a 52.6% stake at Perenco Peru Limited’s PPL Bahamas for US$647.4 million. Currently, the project is believed to face capital loss. The unallocated costs are estimated to hit US$514 million. PVEP, which stands for PetroVietnam Exploration Production Corporation, is an upstream arm of PVN.

In late 2011, PVN approved PVEP’s investment project in Block 39 in Peru with a total investment of US$323.6 million. As of 2017, PVEP had invested US$75.5 million in this project. Currently, the project is suspended and PVEP plans to transfer above projects.

In Congo: PVEP invested more than US$30.3 million in Block Marine XI following the investment approval in 2009. 

In Myanmar: PVEP invested in Block M2 at the end of 2008 but it was then unable to finish the project as the investor failed to pay enough tax to the host country, owed contractors, and unable to finish the project after the deadline, according to Thanh Nien. 

In Malaysia: in 2017, PVEP decided to raise investment to US$292.2 million in Block SK305. The project has been warned of inefficiency by domestic agencies.

In Vietnam: besides a series of troubled projects abroad, PVN has bogged down in five big projects domestically with millions of dollars each. 

Dinh Vu Polyester project in the northern city of Haiphong cost an investment of VND7 trillion (US$304 million), suffers a loss worth VND1.7 trillion (US$74 million) and is now stalled. Dung Quat Shipbuilding Industry Company Ltd was transferred to PVN in 2010 from debt-ridden Vinashin. 

Dung Quat Ethanol Plant in the central province of Quang Ngai (with an investment of VND1.9 trillion or US$83 million), Phu Tho Ethanol Plant (VND2.4 trillion), and Binh Phuoc Ethanol Plant (US$81 million) are either unfinished or suspended due to inefficient operations, according to Thanh Nien

The online Nong Thon Ngay Nay newspaper reported another long-stalled project: Thai Binh 2 Thermal Power in the northern province of Thai Binh has consumed an investment of VND41 trillion (US$1.78 billion). Kicked off in 2010, it is expected to put into operation in 2017. So far, the plant remains under construction. 

PVN also lost VND800 billion (US$36 million) when it invested in OceanBank, which is struggling with bad debts.

PetroVietnam's building in Hanoi. Illustrative photo
PetroVietnam's headquarters in Hanoi.
Unstable revenues and profits 

PVN’s revenues have been dropping for recent years. 

Its revenues hit VND406 trillion (US$17.65 billion) in 2013. In 2014, the figures fell 6% to VND381 trillion (US$16.56 billion). In 2015, it plunged 23% to VND293 trillion (US$12.74 billion). In 2016, it dropped 20% to VND234 trillion (US$10.17 billion). The revenue in 2017 was at VND271 trillion (US$11.78 billion) and hit VND627.8 trillion (US$27.3 billion) in 2018.  

The group's profit was at VND42.4 trillion (US$1.84 billion) in 2012, then rose to VND46.2 trillion in 2013. The figure fell to VND42.9 trillion in 2014, VND30.7 trillion in 2015 and plunged to VND16.6 trillion in 2016 (down 61% from that in 2012). The profit climbed to VND38 trillion in 2017 and VND47 trillion in 2018. 

Liabilities: PVN’s liabilities accounted for roughly 38% of its equity in the 2012-2016 period. In 2017, the liabilities reached VND342 trillion (US$14.87 billion). 


PVN's General Director Nguyen Vu Truong Son. Photo: VOV
PVN's General Director Nguyen Vu Truong Son. Photo: PLO
PVN’s General Director Nguyen Vu Truong Son has submitted a resignation letter to the group’s Board of Directors, local media reported. 

His resignation has to be approved by the State Capital Management Committee and the prime minister.

Reasons for the resignation have not been disclosed but a series of PVN’s loss-making investment projects began at the time he was general director of PVEP between July 2009 and February 2012, and deputy general director of PVN from February 2012 to March 2016. 

Former PetroVietnam Chairman and Politburo member Dinh La Thang. Photo: VOV
Former PetroVietnam Chairman and Politburo member Dinh La Thang. Photo: VOV
Earlier in 2018, PVN’s former Chairman Dinh La Thang, who was also a Politburo member, was sentenced to 30 year in prison. Phung Dinh Thuc, former chairman and former general director of PVN, was sentenced to six years behind bars. Nguyen Xuan Son, former deputy general director of PVN, was sentenced to death. Ninh Van Quynh, former chief accountant of PVN, received a sentence of 23 years in jail.  

They were punished for charges of “deliberately breaking regulations on state economic management, causing serious damage”, “influence peddling”, and “property appropriation.” 

Trinh Xuan Thanh at a court. Photo:
Trinh Xuan Thanh at a court. Photo: VNA
Meanwhile, former Chairman of PetroVietnam Construction Corporation (PVC) Trinh Xuan Thanh, who had sought asylum in Germany, got a life sentence for “deliberate infringlement” and “embezzlement.”
Linh Pham
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