Russian mogul ups refinery buy-out

Gazprom Neft is closing in on its 49 per cent share acquisition in the Dung Quat oil refinery Photo: Le Toan

In his recent visit to Hanoi, Alexander Dyukov, general director of Gazprom Neft (GPN), held senior level talks with the state-run PetroVietnam on the transferral of 49 per cent of Binh Son Refinery’s stakes. During their discussion, the Russian side also floated an investment proposal to expand the Dung Quat oil refinery.

According to PetroVietnam, the two sides were keen to ready the documentation to be signed by the Vietnamese Party Secretary Nguyen Phu Trong when he visits Russia later this month. The two sides also agreed that apart from co-operation in expanding Dung Quat, GPN and PetroVietnam will make preparations for the joint exploration of a new oil field in Russia which has the expected reserve of up to 140 million tonnes.

A detailed feasibility study to expand the oil refinery was submitted to the Vietnamese government for approval in September. The expansion of Dung Quat to 10.7 million tonnes, from its current level of 6.5 tonnes per year, is vital to make the refinery’s operations more economical.

PetroVietnam confirmed that if GPN’s proposal was accepted, the upgrading work could be finished by 2021.

Negotiations between PetroVietnam and GPN began in May 2013, and in November last year PetroVietnam submitted GPN’s proposal to the Vietnamese government to buy 49 per cent of the company’s stakes in Binh Son Chemical and Refinery Company. As part of this deal, the Russian firm has demanded preferential conditions and a government guarantee.

A framework agreement was reached with GPN on co-investing in Binh Son Chemical and Refinery Company, and expanding Dung Quat refinery in November last year.

Binh Son Chemical and Refinery Company has hired PricewaterhouseCoopers Vietnam to evaluate the refinery’s assets as a basis for the coming negotiations.

GPN also has consultants in technology, trading, laws and finance such as Allens, Ernst and Young, and TPC.

Financial calculations made in 2011 valued Dung Quat at VND43,300 billion (roughly $2 billion). Estimates for the expansion of the refinery are somewhere between $1.5 to 2.5 billion.

Previously, partners from Japan, Korea, and Venezuela expressed an interest in the expansion project, but all have failed to reach an agreement.

If the GPN proposal is approved, the Dung Quat oil refinery will be supplied with GPN crude oil, as current supply from the Bach Ho oil field is waning.

GPN’s solid finances and worldwide distribution system make it a likely candidate to invest in and develop Vietnam’s first oil refinery. So far the company has built six large scale refineries with the total capacity of more than 40 million tonnes of crude oil per year.