Bui Ngoc Bao, Chairman, Vietnam National Petroleum Group (Petrolimex): Interview

Interview: Bui Ngoc Bao

How should Vietnam position itself on the international petroleum market going forward?

BUI NGOC BAO: We need to reposition Vietnam on the international market. Currently, the country is heavily dependent on oil imports, which makes our trading ties even more important. Ten years ago, nobody understood why we set up a company in Singapore, but it was to look for new markets to trade with. Starting a refinery project in Vietnam is tricky; the future of the sector is the main issue for investors.

Singapore, despite being a small country, still became a regional centre for petroleum with three oil refineries. Meanwhile, Malaysia opened up parts of Sabah and Sarawak to become a regional petroleum hub, and is now very busy due to the higher cost of operating in Singapore compared to Malaysia. In due time, Vietnam will also play a small role in the petroleum industry in South-east Asia.

What measures can be taken to help promote greater growth in the petroleum industry?

BAO: The only refinery operating in Vietnam at the moment is at Dung Quat. In Vietnam, if ownership of a refinery business tops 30%, or an investment is above $3m, the project needs to be accepted by the National Assembly. With the uncertainty in the petroleum market, players now need to be more careful when reviewing feasibility studies before starting operations. However, due to a growth in demand brought on by the positive performance of our economy, Vietnam ideally needs three or four working refineries to meet the demands of the local market.

Has ASEAN Economic Community (AEC) integration affected Vietnam’s downstream business?

BAO: Vietnam is the second-largest oil importer after Indonesia, with trading partners from Japan, Korea, China and Singapore. However, the situation changed when the AEC was established, and today Vietnam mostly imports from Singapore. Dung Quat supplies around 30% of total consumption; however, everything produced by the refinery is under a 20% tariff. Therefore it is more advantageous for Vietnam to import from Singapore, where petrol and gas oil are now at a 0% tariff. The government may wait for further changes to occur locally and internationally before adjusting the refinery tariff. On top of this, Vietnam is upgrading the quality of its final product, while also addressing environmental priorities. Following the harmonisation of quality standards for transport fuels and biofuels in ASEAN, many countries are trying to set the allowable emissions of fuels to at least Euro 3 as defined by the EU. Vietnam needs to meet Euro 5 within the next five years.

What downstream opportunities can foreign players and service companies look forward to?

BAO: The local retail business is currently split between Petrolimex, PV Oil and Saigon Petro. When Vietnam’s second refinery, Nghi Son, comes online, Japanese company Idemitsu Kosan will also be allowed to sell their products. Most international names such as Total, BP and Chevron previously had service stations in Vietnam, but the retail side of petroleum is no longer as interesting for newcomers as it used to be. While local companies can develop the retail segment due to their network and knowledge of the market, retail profits are still very low due to scale issues.

The government of Vietnam must open up the retail market, taking into account the difficulties and technicalities brought about by an open market but also considering the opportunities for the market and the customers. We should look at what happened when historically closed retail markets, such as Japan, South Korea and Taiwan, opened up 10 years ago; many companies saw the opportunity and re-entered the retail market. In the case of Vietnam, new players must be aware that the competition is already stiff.