PetroVietnam risks losing hundreds of millions of dollars invested abroad

A recent report prepared by the Ministry of Industry and Trade on the state-run oil and gas group (PVN) says most of the 11 projects were implemented in the 2009-2012 period.

In particular, PVN’s Junin 2 oil exploration and extraction project, operated by subsidiary PetroVietnam Exploration and Production Corporation (PVEP), is on the verge of losing all of its invested capital.

PVEP was then led by Nguyen Vu Truong Son, who has just submitted his resignation as general director of PVN.  

Project Junin 2 in Venezuela was granted investment certificate in 2010 to extract 200,000 barrels of oil a day on a 247.8 km2 area.

The total investment for the project was estimated at $12.4 billion, 60 percent of which would be raised through loans, 20 percent from PVN, and 20 percent from a Venezuelan state-owned oil and gas corporation.

By 2013, PVEP had disbursed $65.5 million in this project, but in December the same year, the Vietnamese Prime Minister suspended the investment, citing the project’s lack of progress.

Meanwhile, PVN had also disbursed $442 million to its Venezuelan partner, a separate commission for the exploration of Venezuela’s oil resources. The agreement signed requires the Vietnamese side to pay a $584 million commission, simply for the exploration of the oil fields regardless of whether the project is later deemed feasible or not. It is yet to pay the remaining $142 million.

In total, PVEP has lost at least $507.5 million in the project..

“Venezuela is facing very difficult times, with economic decline and high inflation rate leading to a large disparity between quoted costs and actual costs of hiring Venezuelan services. Prices have increased ten-fold, so it is impossible to continue,” said Phung Dinh Thuc, former PVN chairman.

In addition to the Junin 2 Venezuela project, a series of other overseas investment projects of PVN in Peru and a few Southeast Asian countries have not been productive, and several have had to cease operation.

In 2012, PVN invested $674 million in a joint venture oil extraction project in Peru, and in 2017, poured $75.5 million into another investment project in this country.

However, in its latest report, the Ministry of Industry and Trade has evaluated both these projects at risk of not being able to recover their capital. The ministry has proposed to the Prime Minister that both projects are sold.

PVN’s exploration and exploitation projects in Southeast Asia have not done much better, like the $292 million SK-305 extraction project in Malaysia, which began in 2007 and was stopped in 2015.

Similarly, an oil and gas project that began in 2008 in Myanmar was also stopped in 2017.

PVN currently has an $82 million project in Iran that was temporarily halted in 2018 after a long period with insufficient productivity.

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