Nghi Son Refinery and Petrochemical LLC (NSRP), which operates the Nghi Son oil refinery in central Vietnam, needs to push ahead with personnel, governance and financial restructuring, said Prime Minister Pham Minh Chinh.
"There need to be more Vietnamese people in the company's leadership. More decentralization of power will help sort out arising problems promptly," the prime minister noted during a working trip to the oil refinery on Saturday.
Nghi Son, located in Thanh Hoa province's Nghi Son Economic Zone, is one of two operational oil refineries in Vietnam. The other is Quang Ngai province-based Dung Quat, 92% owned by state-run Petrovietnam.
The cabinet leader asked relevant parties to conduct financial restructuring for Nghi Son, including reducing loan interest costs and using capital sources effectively.
"Thirdly, the company needs to focus on restructuring its production and business activities. It should use electricity from the national grid instead of generating oil-fuelled power at a higher cost; reduce crude oil prices and diversify crude oil sources; operate economically and efficiently; and prevent corruption and wastefulness," he stressed.
The prime minister requested the company to supply sufficient petroleum under its registered plans to serve the domestic market, contributing to ensuring national energy security.
The Nghi Son refinery is a $9 billion complex jointly owned by Petrovietnam with a 25.1% stake, Kuwait Petroleum Europe B.V. (KPE) with 35.1%, Japan’s Mitsui Chemical with 4.7%, and Japan's Idemitsu Kosan Co. with 35.1%.
It has a processing capacity of 200,000 barrels of crude oil per day, or 10 million tons a year, meeting about 35% of domestic gasoline demand.
On October 13, the plant resumed its operations after maintenance work, seven days ahead of the 55-day schedule.
However, its operations are facing large bottlenecks. Despite enjoying many incentives on taxes, infrastructure, and product consumption, Petrovietnam still has to compensate for the plant’s losses when it operates commercially, according an NSRP representative.
PM Chinh noted that out of the total capital of $8.78 billion disbursed for the project, $4.237 billion was contributed by the investors and $4.543 billion came from high interest loans.
Regarding governance, the company and the refinery operate under a joint venture contract and joint venture charter, including a board of members and a board of general directors mainly consisting of Japanese and Kuwaiti people, he said.
The project is entitled to incentives on infrastructure with state budget and advance payments from Petrovietnam. Advance payments by Petrovietnam to implement infrastructure facilities have totaled VND3,778 billion ($155.3 million).
According to its audited financial statements, the company suffered large accumulated losses, he said, adding that its pre-tax profit in recent years, especially in 2023, has improved but not significantly.
Chinh attributed this situation to the fact that when drawing up the project, the parties had not predicted all possible scenarios, especially recent global turbulences.
He cited unfavorable market developments, falling refining profit margins and lower-than-expected revenue and profit from the global energy transition trend as objective reasons behind the current difficulties.
Meanwhile, subjective reasons included many shortcomings in the management and operation of the refinery, he added.
Therefore, the PM emphasized the need for appropriate adjustments to the situation with comprehensive solutions.
Chinh said that he recently held discussions with the prime ministers of Japan and Kuwait on measures to solve problems facing the Nghi Son oil refinery on the principle of harmonized benefits and shared risks.
By the end of September 2023, the company had processed about 45.3 million tons of crude oil and produced about 36.82 million tons of petroleum products of all kinds, including 5.9 million in the first 10 months of 2023, or 83% of the year's plan. So far this year, about 27.74 million tons have been sold to Petrovietnam.
Total taxes the project has paid to the state budget to date are VND85,236 billion ($3.5 billion), including VND60,417 billion in import tax, VND3,194 billion in foreign contractor tax, VND591 billion in personal income tax, VND1,364 billion in environmental protection tax and VND19,667 billion in special consumption tax.