PetroVietnam's troubled billion-dollar investment in Venezuela probed

In a communication to the state-owned oil and gas group about its Junin 2 oil field project, the agency said its sudden change in the amount of capital and high commission were potential violations of the law.

Junin 2 is operated by PVN's subsidiary PetroVietnam Exploration and Production Corporation (PVEP), and was begun in 2010 by its then general director Nguyen Vu Truong Son and PVN's then chairman Dinh La Thang.

Son recently resigned as general director of PVN, while Thang, a former political star, is serving a prison term of 30 years after being found guilty of causing losses of million-dollar in two separate trials for economic management violations last year.

According to the police, the project was mooted in 2008 with an investment of $1.24 billion.

While the project was approved by the government, the Ministry of Planning and Investment questioned the stated investment amount of $1.24 billion, pointing out correctly PVN would have to pay a commission of $584 million on top.

The ministry said the investment figure had to be raised to $1.825 billion to "realistically reflect the amount of capital invested abroad, facilitate the project's implementation and monitor the investor's settlement of financial obligations, rights and responsibilities before the state."

But since PVN’s share of the project capital was $956 million, Junin 2 had to be approved by the National Assembly. 

PVN then reduced its capital contribution to $547 million, or 29.9 percent, and the project no longer required the National Assembly's approval.

PVEP signed a contract in June 2010 with the Venezuelan Petroleum Corporation, a subsidiary of state-owned oil and gas company Petroleum of Venezuela, to establish the PetroMacareo joint venture to explore and drill the 247.8 sq.km Junin 2 oil field. 

Almost immediately the Ministry of Planning and Investment, and the Ministry of Finance issued written warnings about potential risks and low returns on investment.

Another concern they highlighted was the $584 million commission PVN/PVEP had to pay the Venezuelan partner simply for the right to explore the oil field regardless of profitability. Any violation of the contract would see the Vietnamese company forfeit its stake in PetroMacareo to the Venezuelan partner and all the money it had paid so far.

Project Junin 2 eventually was granted investment certificate in 2010 to extract 200,000 barrels of oil a day on a 247.8 sq.km area.

By 2013 PVEP had spent $65.5 million and paid $442 million in commissions, but in December that year, the Vietnamese government put the project on hold citing its lack of progress.

PVEP asked to delay paying the remaining $142 million commission until a full evaluation of Junin 2’s oil reserves was completed.

PVN's independent auditor Deloitte Vietnam has said it "could not gather adequate evidence to assess the future financial profitability of these participation fees."