Energy-hungry Vietnam awaits first refinery

Vietnam, desperate to meet energy needs expanding at about twice the rate of its booming economy, is putting the final touches on its first oil refinery, with a second soon to follow.

The facility in central Dung Quat has been on the cards for more than a decade, but political spats, construction delays and even the make-up of the soil at the site have left the project in limbo.

Now, with authorities keen to cut imports of petroleum products as energy consumption soars, officials at state-run PetroVietnam and French oil services group Technip say the refinery should be operational by next year.

"We are very confident," said Dinh Van Ngoc, the deputy manager of the Dung Quat project for PetroVietnam, adding that production would begin in the first quarter of 2009.

The facility is expected to churn out 6.5 million tonnes a year from 2009 -- or a third of the communist country's needs.

With the economy growing at 8.5 percent in 2007, and energy demand on the rise, authorities are keen to cut down on costly imports. Last year, Vietnam spent eight billion dollars to import 12.55 million tonnes of refined oil.

Bruno Le Roy, the Technip engineer managing the construction site, says the refinery is "60 percent finished" -- but that progress has been a long time coming.

Launched 10 years ago at an initial price of 1.5 billion dollars, Dung Quat finally became a reality in 2005 after several foreign partners including French giant Total pulled out -- costing PetroVietnam another billion dollars.

The project first stalled over the proposed location of the refinery: Dung Quat in central Quang Ngai province -- far from both Vietnam's off-shore oil reserves and its commercial capital Ho Chi Minh City in the south.

Authorities are hoping that the refinery and the industrial zone built around it will create job opportunities for more than 20,000 people in the middle of the agriculture-heavy region.

"The only reason to build it in Dung Quat was to develop the centre," says Tony Foster, an attorney specialising in energy issues at law firm Freshfields Bruckhaus Deringer.

Last year, residents of Quang Ngai province had a per capita income of 500 dollars -- well below the 800-dollar national average.

Then, several more months were lost when the composition of the soil at Dung Quat did not match the specifications provided by PetroVietnam, forcing Technip to rethink the plans for the refinery's foundation, according to Le Roy.

The state-run Vietnamese group -- under pressure from Hanoi, which wants to see the refinery onstream as soon as possible -- placed the blame on Technip, saying it had not paid close enough attention to the details.

"We think our project is small for them," Ngoc said.

But Le Roy counters that the problem stems from the booming construction industry in Vietnam, saying there are simply not enough workers to complete the project. He has 8,000 workers at present, but needs 2,000 more.

"Quang Ngai is a region with no industrial tradition," Le Roy says. "The building materials arrive in either Ho Chi Minh City or ports near Hanoi. They then must be transferred here. Workers also must be brought in."

The Dung Quat project is "important both politically and from an energy security point of view," Foster notes.

"But most economists would say it was not the right way to do it."

PetroVietnam will have another chance to get things right with the Nghi Son refinery, to be built with companies from Japan and Kuwait for a total of six billion dollars.

The plant, to be operational by 2013, will have a targeted capacity of 10 million tonnes a year, and is to be located about 200 kilometres (125 miles) south of Hanoi in Thanh Hoa province.

Vietnam's Prime Minister, Nguyen Tan Dung, has said the refinery would create about 10,000 jobs and would mostly supply the north, noting the facility was "crucial for energy security."

PetroVietnam -- its sights obviously set on export markets -- is mulling plans for a third refinery in the south of the country.

Source: AFP