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Issue No. 16
January 1999

A Periodic Report to Our Clients
(higher numbers indicate more recent dispatches)

See VVG's new monthly feature on Current Economic Indicators

Current Dispatches

Dung Quat Refinery Authorized:  The Ministry of Planning and Investment in early January granted approval for the $1.3 billion oil refinery in the Central region of Vietnam.

The Russian-Vietnamese joint venture, with a 25-year operational license, smooth the way for groundwork construction of Vietnam's very first oil refinery. Also known as the Viet-Russia Refinery, this has been an often rocky and perplexing project stymied over the last 10 years by a series of deadlocked partnership negotiations and collapsed capitalization deals.

History of the Refinery.  Following the pull-out of Total (France), potential partners in a multi-national consortium included Petronas (Malaysia's Petroleum National Bhd,) South Korea's LG Group, USA’s Conoco Inc and Stone and Webster, and the PRC’s Chinese Petroleum Company and China Development Corporation.

All backed out, claiming the inability to build and operate the refinery at a profit in the Central Region.

Originally planned for southern port city Vung Tau, French oil giant Total withdrew from the refinery project in 1995 after the site was changed to Dung Quat, considered too distant from oil supplies and too isolated from consumer markets to be economically viable.

After completing a multi-million feasibility study, the Petronas / Conoco group did not receive guarantees of costs of crude, and the price of finished product they considered necessary to receive a reasonable return on its investment, and pulled out.

In the aftermath of breakdowns in lengthy talks with these potential partners, Vietnam resolved to go-it-alone. The plan to construct the refinery independent of foreign backing was often touted by the State, but skeptically received by many world investors.

The Russians Are... Here. Following high ranking exchange visits by the Russian and Vietnamese political leaders, the eventual Russian partner was finally lured into the process late last year. Petro Vietnam and the Russian Foreign Economic Association (Zarubeznheft Group) from Russia are to hold equal stakes in the undertaking. This is the same partnership that is still working the 11 year-old Bach Ho fields that are expected to produce the bulk of the crude petroleum to be refined at Dung Quat.

Planned to have an initial capacity of 6.5 million tonnes of crude oil per year, the refinery is expected to become operational within four years, according to Petrol Vietnam. There is no current indication if the original scope of the production plans have held firm, been increased, or scaled back.

Using 1992 dollars, the original Total project was valued at $1.2 billion. Total backed out following Vietnam’s inability to agree to increase the value of the project to $1.5 billion in 1995 dollars. The 1999 value of the licensed $1.3 billion project is substantially lower than the $1.2 billion original project.

The date of projected commissioning of the plant was not included in the recent announcement. This may be due to the absence of an announcement as to where the hard-currency-strapped Vietnamese and Russian nations will obtain the $1.3 billion to build the plant.

If, as, and when the plant is commissioned, it is projected that in the first five years the refinery will process sweet crude oil products and various petrol types including DO, FO and LPG, later diversifying into sour production of hydrocarbons and bitumen for asphalt.

Current Production of Crude. According to a Petrol Vietnam spokesperson the nation consumed between six and seven million tonnes of imported refined oil last year, but the new refinery will meet domestic demand and preserve valuable foreign currency reserves.

Petro Vietnam also announced that the Government has expressed interest in construction of a second refinery to completely satisfy burgeoning domestic demand, expected to top 12 million tonnes annually by the 2005. Last year Vietnam produced 12.5 million tonnes of crude oil, with expectations of a record 14.5 million this year. Currently all refined oil products are imported.

The Viet-Russia Refinery joint venture is licensed for operation in Quang Ngai province, with total investment capital of $1.3 billion that includes legal capital of $400 million for each partner. The State announce earlier that the remaining $500 million would come from State revenues. That financial plan currently seems unrealistic to many international investors.

Petro Vietnam has 34 oil and gas exploration and development contracts, worth more than $3 billion with the Viet-Russia Refinery being the 14^th joint venture involving Petro Vietnam.  

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Oklahoma To Beef-Up In Vietnam:  The State of Oklahoma will explore in late January the possibility of getting involved in oil and gas development and other sectors as well as exporting its "robust and hearty" beef to VN. More than 35 representatives of State and private businesses from Oklahoma will arrive here on January 18 on a six-day fact-finding trip.

The delegation is to be led by Democrat Oklahoma State Senator Billy Mickle, Majority Leader of the Senate and will include his counterpart Senator Larry Dickerson, the Chairman of the Standing Appropriation Committee.

The delegation will meet with the ministries of Science, Technology and Environment (MoSTE), Agriculture and Rural Development (MARD), and Planning and Investment (MPI). They will also hold discussions with Petro Vietnam and Electricity of VN (EVN).

After their three days in Hanoi the delegation will spend two days in Ho Chi Minh City where they are to have talks with business people in the private sector. Continuing its strong interest in Vietnam, Oklahoma last year became the first US State to set up a Trade Office in Vietnam.

Also scheduled are a number of meetings with private sector representatives from the US and Vietnam, including a special presentation about the Chan May International Transshipment Seaport by the Scott International Investment Group in HoChi Minh City during which he visited the site for the future Chan May deep-sea port.

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Small Numbers of Vietkieu Get Tet Travel Cost Reduction:  Overseas Vietnamese, or Vietkieu, in Laos, Thailand, Cambodia and China, will no longer be subject to the dual-pricing system and can travel by rail, road and river in Vietnam for the same fees as Vietnamese people.

The privilege will also be available for Vietkieu in other countries whose contributions to Vietnam have been recognized by the Government. However, it is not clear from the announcement if the privilege will be extended to Vietkieu in such (i) nations or (ii) individuals, which have made recognized contributions

This decision of the Ministry of Communications and Transport will take effect on January 13.

Over 100,000 Vietkieu are expected to visit Vietnam for the Tet holiday that begins on February 16 this year. Most Vietkieu live in the United States, France, Canada and Australia, nations NOT included in the grant discussed.

The Vietnamese Overseas Committee has been working with relevant agencies to prepare concrete policies in relation to the duration of visas, residency and transportation fees for the Vietkieu. It has also co-operated with ministries of Finance and Planning & Investment to draft a decree to encourage about 300,000 professional and highly qualified Vietkieu to contribute more to Vietnam's development.

A committee official said one problem expected to be solved this year was multiple -entry visas for the Vietkieu.

In principle, Vietkieu can extend their entry visas many times. But in fact, immigration offices often require them to go outside Vietnam for a new visa after their three-month entry visa has been extended twice, causing difficulties for Vietkieu investors. The ministries of Foreign Affairs and Public Security (Interior & Defense) are reportedly working together to resolve this issue.

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Key Role In Oil & Gas Fields:  Vietnam has many coastal works underway. The East Sea Projects Management Board ("ESPMB") manages the major projects. With more than 3,000km of coastline, Vietnam boasts diversified economic projects undertaken in territorial waters that extend beyond the surface of its land area.

More and larger projects are expected in the next century.

ESPMB is the employer (i) for the road-linking Highway 1A with the Dung Quat industrial zone and the Dung Quat port in the central province of Quang Ngai and (ii) of the road linking Chan May port in the central province of Thua Thien-Hue, (iii) as well as ports and roads in Phu Quy island in the southern province of Binh Thuan and other projects in the East Sea.

ESPMB ensures the quality, speed, price and sustainable development of a major economic area - the East Sea. As an employer, it manages State investment in all projects. It is also the executive for projects in such key economic sectors as oil, gas, sea ports, and national defense.

Projects underway and their prospects beyond Dung Quat include: (i) the designing of the north-south road and the Highway 14b from Da Nang to KonTum using money from Japan's Overseas Economic Co-operation Fund, (ii) serving as an employer for national-defense projects, and (iii) the economic development and sea routes including the installation of beacons on VN's many islands.

The board prepares many projects that are attractive for both domestic and foreign investors. Further, projects deployed along the coast are associated with industrial zones.

Vietnam’s East Sea of often called by others the South China Sea.

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US Caltex Goes Solo: Oil Giant Latest US Firm To Buy Out Local Partner. Caltex has succeeded in buying out its local partner's stake in the two companies' multi-million dollar Haiphong-based joint venture.

The multinational's Singapore based Caltex Services subsidiary now wholly owns the $15 million lubricants, oil blending and grease plant which is expected to begin production next year. Referring to its purchase of the 30 per cent stake previously held by the Additives and Petroleum Products company, Caltex issued a statement reading: "The mutually beneficial change in investment status is fully supported by the local partners." However Caltex officials provided no details.

Insiders familiar with the case said the buyout bid was made after the local partner failed to secure financing it had pledged to the project. The joint venture was licensed in 1996 to operate in the Dinh Vu industrial Zone.

Caltex is the latest in the score of US companies to secure a much-coveted 100 per cent investment status in the past few months. Earlier this year, US toiletries giant Procter and Gamble (P&G) succeeded in increasing its stake from 70 per cent to 93 per cent in its $48.5 million joint venture in Ho Chi Minh city. This followed after months of wrangling and a sustained adverse campaign in the State controlled press that did not support the move.

Subsequently, both the press and the MPI took a similar adverse position when the south Vietnam branch of US soft drink giant Coca-Cola sought to buy out its partner. However, that struggle was less intense and passed muster. Shortly thereafter, Colgate-Palmolive also made a buyout of its local partner and joined the ranks of 100 percent foreign invested projects. In both cases the local partners had been struggling to provide the financing their foreign partners said was required.

The Danang branch of Coca-Cola is now trying to secure its Vietnamese partner’s stake. Vietnamese ministries have decided to be more flexible in the area of 100per cent foreign licenses in order to try and bring in more foreign investment.

There is a much improved openness exhibited by the State in attracting new foreign investment.  One good example is the novel approach MPI has recently taken with the Cua Lap Resort being developed and marketed by America’s Vietnam Venture Group, Inc. In this case MPI, even before licensing, has agreed to consider the investment as a fully foreign invested project, both the Master Plan and each of the many individual components of this massive $276.3 million resort community project.

The significance of the Cua Lap project lies in its site location. With more than 2 ½ miles on the East Sea of Vung Tau, over 370 acres (150 ha), and more than 1 mile of frontage on the new, 4-lane Highway 51 C. The site is 7 ½ miles (12 km) closer to HCMC than any other beach in Vung Tau. Planned as a 4-star level fully contained resort community, the project features Vietnam’s first full-scale aquarium, Vietnam’s first IMAX Theater, and the first fully integrated and culturally accurate and fully functional tourist Fishing Village.

Other components include several 4-star hotels, banquet and conference facilities for 600 in each of two locations, a marina with slips for over 100 boats, AAA-rated 18 hole golf course, multiple tennis courses, shopping center, restaurants, cinema complex, offices, apartments and luxury villas. Read more about the Cua Lap Resort.

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Copyright Treaty Signed by US: Vietnam and the United States exchanged diplomatic notes on the implementation of the copyright agreement in late December.

President Clinton signed a proclamation extending copyright protection to Vietnamese works in America completing the pact first signed in June 1997.   It is expected that Vietnam's copyright protection in Vietnam will continue its current path of improved enforcement.

This news was particularly welcome by US software and movie industry.   While Vietnam's Copyright law came into force in 1994, the enforcement of the law had been spotty to say the best..  However, Many seminars on the importance of the enforcement of the Copyright law have been held since Secretary State Madeleine Albright visited Vietnam and signed  the agreement in June 1997. President Luong ratified the agreement in December 1997.

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MPI cancels foreign licenses:  With a total value exceeding $1.74 billion, four projects that were not moving forward had their licenses revoked in the closing days of 1998.

Hong Kong's City Horse project was licensed in the closing days of 1996 with a Total Investment Capital of $997 million.

The $637 million Sao Mai Ben Dinh deep-water port in Ba Ria - Vung Tau was a Singapore investment

Thailand's Hanoi Plaza Hotel with $41 million in Investment Capital envisioned a shopping and office complex near Hoan Kiem Lake

American Rice, a $17.9 million project from the United States located in Can Tho has been suffering economic problems in spite of large exports to America.

Johnson Viglacera ceramics operation, with $13 million, is the last of the current series of licenses pulled. 

Each of these were joint venture investments which as an investment vehicle is being carefully looked at by the government due to the large number of disputes and failures.  A substantial study of this investment form is currently underway by the American Chamber of Commerce with the valuable contribution of various state agencies.  See a related article, Opportunities & Challenges to Joint Ventures in Vietnam

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Vietnam's Longest Wharf:  The new 288m (945 ft) long , 28.7m (94 ft) wide container wharf is now open in Saigon's Ben Nghe Port. Armed with new cranes, the port is now accommodating ships up to 30,000 tons.  Using steel beams supplied by South Korea's Sangyong Company, it was designed and constructed by Vietnamese companies alone. Total construction costs were approximately $5 million.

This project extends Ben Nhe wharves to 816m (over 1/2 mile).  To date, the port has loaded and unloaded over 2.2 million tonnes of goods.

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Cement Projects - Fully Foreign Owned:  Vietnam Cement Corporation (VCC), the state-owned monopoly, with three foreign invested joint venture plants, is retooling it business franchise opportunities. Addressing a meeting of potential foreign investors in Hanoi in late December, VCC General Director Nguyen Dinh Chinh stated that the State "should promote wholly foreign-invested projects in this sector."  See a discussion on joint ventures.

The three existing joint ventures are ChinFon HaiPhong, Morning Star (in Kien Giang), and Nghi Son (in Thanh Hoa).  These modern plants have a combined capacity of 5.4 million tonnes and were constructed with a total capital investment of $1 billion, to which VVC contributed $92.6 million in legal capital. See an article on the relevance between Total Invested Capital and Total Legal Capital:  Getting Started part 5.

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Vietnam Vignettes is a periodic report distributed since early 1994. It is NOT a newsletter although for the ease of linkage we have called it that.  It is a summary of domestically published  media reports from more than 17 industrial sectors that we at VVG follow and report upon for our clients. * Due to the importance of certain topics of key importance to trade with Vietnam, we will occasionally include some wire and other media reports.