Dung Quat oil refinery seeks same treatment from government as rival

By Nguyen Hoai   November 7, 2018 | 12:09 am PT
Dung Quat oil refinery seeks same treatment from government as rival
Dung Quat oil refinery in Quang Ngai Province, central Vietnam. Photo courtesy of Binh Son Refining and Petrochemical Company
Authorities in central Quang Ngai Province want more concessions for their Dung Quat oil refinery to match those given to a competitor.

In a petition to the government, the province Chairman, Tran Ngoc Cang, said the petroleum market is suffering from a supply overhang and low prices since a second refinery -- Nghi Son – went on stream.

By the end of September Thanh Hoa Province-based Nghi Son had sold nearly 1 million cubic meters of products, exacerbating the excess supply, though much of its products are going into warehouses rather than consumed, he said.

The current domestic supply would see it exceed demand by 0.8-1 million cubic meters in the case of each kind of product. 

"Nghi Son oil refinery has been selling its products in the domestic market since May 2018, just when the market demand was low and the supply from imports and [Dung Quat] was high."

Quang Ngai authorities also listed the difficulties faced by Dung Quat, the country’s first refinery, due to differences in tax policies applicable to import of crude oil by the two refineries.

The tax rate is 5 percent if the crude is imported from countries like Azerbaijan and Libya which do not confer most favored nation status on Vietnam.

However, Nghi Son imports without paying any import tax, which has greatly affected Dung Quat.

The Quang Ngai petition also has a table comparing the policies applicable to Dung Quat and Nghi Son.

One such policy provides Nghi Son with bonuses of 3 percent for petrochemicals, 5 percent for LPG and 7 percent for gasoline and oil for selling in the domestic market. Dung Quat is no longer entitled to these bonuses.

Dung Quat is struggling to upgrade or expand due to the lack of a government loan guarantee, the provincial authorities said.

The work has been delayed also because the Ministry of Natural Resources and Environment has yet to approve its environmental impact assessment despite complying with all the requirements.

Complaining that all this adds up to inequitable treatment for their refinery, the Quang Ngai authorities asked for the same preferential tax treatment as Nghi Son.

They asked for Dung Quat to be allowed to continue producing products meeting Euro 2 emission standard until its upgrade and expansion are completed. 

They also wanted the government to give financial autonomy to enterprises to ensure they are competitive in the market.

Cang sought a replacement mechanism for the government guarantee so that the company could raise funds in the capital market and early approval for the environment report from the ministry.

Dung Quat was Vietnam's first oil refinery, built in 2009 at a cost of $3 billion. Its capital was increased to nearly $5 billion in 2015.

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