~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Vietnam oil promises now a dim memory

HANOI- When Prime Minister Phan Van Khai promised disgruntled foreign oil executives last July that Vietnam would create a new climate for energy sector investment, a wave of relief swept through the room.

Khai said the Ministry of Planning and Investment, state oil monopoly Petrovietnam and the customs department would work out solutions to a perceived myriad of woes.
But, almost a year later, little has changed.

``The general mood is gloomy...a sort of resignation among firms that they hope the things to come will be better,'' said one oil executive.
Last year communist-ruled Vietnam, a minor world producer, pumped 12.6 million tonnes of crude and set a 1999 production target of 14.5 million tonnes.
In 1998 it introduced a new exploration vehicle -- Joint Operating Companies (JOCs) -- to replace existing strict Production Sharing Contracts (PSCs) in some areas.
Once reserves were ascertained it was hoped JOCs would be converted into production joint ventures between Petrovietnam and foreign investors. It was reasoned JOCs would help Petrovietnam become a major player through their extra hands-on experience.
One deal has been signed with a group led by U.S. firm Conoco, but the overall industry response to JOCs has been lukewarm, with most majors favouring PSCs rather than having to cope with the added burdens of forming separate entities.

COMPLAINTS STILL RIFE

Hanoi insists it is striving to make life easier for all foreign investors in the country.
But oil firms still complain about arcane bureaucracy, restrictive policies and rules, a punishing fiscal regime and the prospect of diminishing returns.
Add to this that Vietnam has so far failed to live up to its promise of significant easily recoverable oil reserves together with low international oil prices, and the trend has been for exit strategies rather than investment plans.

``I think people are disenchanted but I think that is reflected in the industry as a whole,'' said lawyer Michael Polkinghorne, the Bangkok-based Coudert Brothers partner responsible for Indochina.
``It's just that when the industry is going through a hard time, those countries where things have been considered rather difficult have tended to suffer.''

FOREIGN COMPANIES EXIT

In the past few years The Broken Hill Proprietary Co Ltd, British Gas (BG Plc), LASMO Plc, Occidental Petroleum Corp, Texaco Inc and Total SA have left.
Others have looked to sell PSC stakes or withdrawn from negotiations with Petrovietnam.

Malaysia's Petroliam Nasional Bhd (Petronas) recently exited the ill-fated Dai Hung field, to be replaced by Vietsovpetro, an 18-year-old joint venture between Hanoi and Moscow. The Malaysian firm still operates the Ruby Field, believed to be profitable.
Exxon Corp will shut its Vietnam upstream operations in August.

``(Vietnam) has significantly failed to live up to potential similar to other East Asian countries which were hyped up in the late 1980s and which led to a stampede of oil companies,'' said Ian Cross, Asia-Pacific director for IHS Energy Group.
As Vietnam opened to foreign investment in the late 1980s, oil firms charged in looking to secure a slice of the promise hinted at by finds registered by U.S.-based Mobil shortly before the end of the Vietnam War in 1975.

``The number of licences issued from 1988 to 1992 boomed, but have since declined, and drilling activity is now at its lowest levels for many years,'' an oil executive said.
In the past decade Petrovietnam has signed around 34 PSCs with 50 firms. Petrovietnam has yet to respond to requests for details on operating deals, but it is believed the figure is less than 15.

VIEWS ON FUTURE VARY

An industry analyst with U.K.-based Wood Mackenzie said Vietnam needed to relax its strict fiscal regime.
``In the current climate, where nobody's really sure which way the oil price is going, there probably won't be many companies willing to take the risk of actually investing in (Vietnam),'' he said.
But Polkinghorne said as firms left, fresh opportunities were created for those that stayed behind.

``Many of the problems are more apparent than real,'' he said. ``I have noted the tenacity of some oil companies who I would have thought would have walked away a long time ago but who have stuck around.''

Reuters - May 27, 1999.