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Oct 02, 2018 / 15:50

Japan-invested refinery risks cancellation as Vietnam partner pulls out

Oversupply concerns, slow increase in gasoline demand, and financial constraints seem to be factors behind the Vietnamese partner`s withdrawal.

Japanese giant JXTG Nippon Oil & Energy's plan to build an oil refinery in south central Vietnam is on the edge of cancellation, as its Vietnamese partner, Petrolimex, is seeking to exit amid oversupply concerns.
 
A man pumps gasoline at a Petrolimex gas station in Hanoi.  Photo: Reuters
A man pumps gasoline at a Petrolimex gas station in Hanoi.  Photo: Reuters

State-controlled Petrolimex, which stands for Vietnam National Petroleum Group, last week asked for the Vietnamese government’s permission to back out of the Nam Van Phong refinery project in Khanh Hoa Province, citing funds are needed to finance other major projects.
 
“We are awaiting a response from Petrolimex” about the situation, a JXTG spokesperson was quoted by Nikkei Asian Review as saying. “But we plan to keep the project on the table as an option.”
 
A 200,000-barrel-per-day refinery, the second of its kind in Vietnam, recently came into operation, and lackluster new-car sales and the resulting slow increase in gasoline demand are also contributing to fears of an oversupply of oil products.

The project received a green light from the government in early 2008 under the Vietnamese company's initiative. It was to be JXTG's first overseas oil refinery construction project, according to Nikkei.

The project, initially estimated to cost a total of $4.4 billion to $4.8 billion, was to build a refinery with an annual production capacity of a combined 10 million tons of liquefied petroleum gas, gasoline, kerosene and diesel.

JXTG Nippon Oil & Energy and Petrolimex signed a memorandum of understanding on the project in 2014. In 2016, the Japanese company purchased an 8% stake in Petrolimex for about $175 million.

Petrolimex, which now controls around a half of the country's gasoline retail market, has craved a refinery of its own. The funding and technological fronts from JXTG, a JX Holdings unit eager to expand abroad amid shrinking demand back home were hoped to make the partnership a successful.

Vietnam's two existing oil refineries, Dung Quat in Quang Ngai province and Nghi Son in Thanh Hoa province, were built with the help of tax breaks from the government.

Petrolimex apparently could not secure enough such support, in what some view as a key factor in the decision to call off the JXTG project, Nikkei said.

In addition, concerns over oversupply are seen as a factor in the government's reluctance to offer aid. If Nghi Son Refinery boosts production, about 90% of domestic gasoline demand could be supplied by the country's two refineries, according to local media reports.

At a meeting last week, Deputy Minister of Finance Do Hoang Anh Tuan backed Petrolimex’s plan to withdraw from the project. Meanwhile, Vice Minister of Planning and Investment Nguyen Van Hieu said there was no longer rush to build a third oil refinery like before with the two now operational, Thanh Nien newspaper reported.