The making of Vietnam's oil giant
HO CHI MINH CITY - PetroVietnam, Vietnam's dominant state oil-and-gas group, is bidding to emerge as a new force in international energy markets. Following the proven model of China's successful state-owned petroleum companies, CNOOC, CNPC-PetroChina and Sinopec, and with an eye on Malaysia's highly profitable state-owned Petronas, PetroVietnam is leveraging off its strong domestic position to develop a growing international portfolio of energy interests and operations.
Crude-oil exports have powered Vietnam's recent rapid economic growth, representing the country's largest single export item. Yet oil production has been declining over the past two years, forcing the government to open new acreage to foreign exploration. Yet government planners have a broader energy strategy, of which PetroVietnam's international performance is crucial to the mix. The energy concern has budgeted US$6.7 billion for both new domestic and overseas exploration over 2006-10 and a further $9.7 billion for 2011-15.
In June and July, PetroVietnam took up blocks in Cuba and Peru and is bidding to take positions this year in Nigeria and Kazakhstan. The state concern has already built up minority and operating upstream interests in Algeria, Iraq, Madagascar, Venezuela and Mongolia, as well as Indonesia and Malaysia, where it first ventured overseas in 1998.
With the group building Vietnam's first oil refinery at Dung Quat on its central coast, the potential to supply downstream refined fuels for regional markets as well as the domestic market is fast emerging. Dung Quat, a $2.5 billion, 130,000-barrels-per-day project, is due to come on stream by early 2009, while two other refineries where PetroVietnam has interests are also under development.
Underpinning PetroVietnam's international and regional ambitions is a dominant, if not monopoly, position in all segments of Vietnam's petroleum industry - upstream, midstream and downstream gas and oil - along with its dual role as government regulator. Established in 1975 and now with more than 30 subsidiaries and association companies, PetroVietnam is by far Vietnam's most profitable state-owned company, with annual revenues of about $9 billion and serving as the country's largest taxpayer.
In Vietnam's emerging gas-supply industry, PetroVietnam acts as both gas aggregator and pipeline operator. In downstream retail fuel distribution, there is a little more competition with other state-owned companies, some tied into ventures with foreign companies. PetroVietnam has recently extended to the country's embryonic petrochemical industry and is now producing fertilizer.
Power generation is another area where PetroVietnam sees itself as not only a local player but an emerging force in the wider Mekong region. The company operates a new 700-megawatt gas-and-oil-fueled power plant at Cau Mau, at the country's southern tip, and it recently formed a partnership with the state utility Electricity Vietnam (EVN) for power-plant development in neighboring Cambodia and Laos.
Its growing ventures into power production are a mark of its fully integrated ambitions, as most of the world's leading petroleum companies tend to view electricity as an only marginal business. At the same time, the scale of Vietnam's power needs are huge, with the latest government master plan calling for a rapid and colossal increase in installed generation capacity, rising from the current 12,000MW to 51,000MW by 2015. If accomplished, that expansion will at today's prices mean about $60 billion in capital costs alone for the new power plants.
The government is encouraging state-owned entities such as PetroVietnam and the coal and minerals group Vinacomin to take on the role of power producers to help EVN meet those goals. Foreign power producers are also being sought, but the government still prefers that wherever possible, local entities are at the core of development and operation and maintain majority control in perceived strategic economic sectors.
Market-driven overhaul
Like China, Vietnam aims to temper its reliance on foreign majority-controlled companies to drive its industrial development. As a result, the government is pushing reform and modernization of several large state-owned companies, including PetroVietnam.
They are being encouraged - again similar to China - to secure foreign capital through stocks and bonds raised via the local and fast-growing stock market. Several of its subsidiary companies are listed on the local bourse, including its fertilizer and chemical arms, and overseas listings have been mooted.
Hanoi is now bidding to re-gear its various state enterprises into market-oriented, internationally competitive firms, and PetroVietnam is at the forefront of the government's plans. Its revenues are large by international standards because of Vietnam's large upstream production and high oil prices, and a strengthening international credit rating is supporting new investments. The group is looking to international bond markets to raise finance, possibly as early as next year.
Vietnam is currently Southeast Asia's third-largest oil producer, trailing only Malaysia and Indonesia with an average output of 360,000 barrels per day. Because Vietnam lacks refining capacity, at least until Dung Quat comes on line in early 2009, it is also one of the region's largest crude-oil exporters - perhaps the largest. The group books its own production as well as the production share it gains from the operations of its various foreign contractors and joint-venture partners, some of which PetroVietnam has worked with for decades.
These include Russia's Zarubezhneft in the long-standing Vietnasovpetro joint venture, which operates Vietnam's largest oilfield, known as Bach Ho, offshore of southern Vietnam. Other leading foreign upstream companies in Vietnam are ConocoPhillips, BP, Petronas, Chevron, the Korean National Oil Corp, and Talisman Energy, which operate as contractors to PetroVietnam under production-sharing arrangements. PetroVietnam's upstream arm usually takes a minority interest in foreign-led operating consortiums, arrangements that often entail substantial technology transfer.
PetroVietnam appears to be taking its expansionist cues, at least partially, from other Southeast Asian state-owned oil-and-gas giants, particularly Malaysia's highly profitable Petronas. Established in 1974, Petronas is Malaysia's largest company, earning $44 billion in revenues last year from 60 ventures in 26 different countries. International operations, not including Malaysia's energy exports, now contribute about 35% of the group's total revenue.
While benefiting in its role as regulator from production-sharing revenues, Petronas also worked hard from its early phases to develop internationally competitive operational capacities. PetroVietnam, likewise leveraging its domestic monopoly strength, is trying to follow suit by developing its operating capabilities through its partnerships with foreign companies.
PetroVietnam, of course, is not alone in its international pursuits. Other regional national oil companies are trying to emulate the Petronas model and the group's ability to profit from international operations. Indonesia's Pertamina, Thailand's PTTEP, the Singapore Petroleum Corp, and the Brunei National Oil Corp are all angling to develop more business overseas.
Southeast Asia's national oil companies are different animals from the big international private petroleum groups such as Shell, BP, ExxonMobil, Chevron and the like. Some energy analysts note that a good number of today's multinational oil companies likewise evolved from state companies, as in the case of France's Total and Italy's ENI.
National oil companies often command far greater petroleum reserves, particularly as a result of production-sharing systems where they include reserves in their portfolio operated by contractor companies as well as what they operate themselves through their own upstream arms. And there can be no doubt that their connections with government can assist their business even it they are not being used as a direct arm of government policy.
The fact that Petronas hails from predominantly Muslim Malaysia probably has helped it secure interests in Sudan, Chad and Iran. PetroVietnam, on the other hand, is playing on its old ideological links with Communist Party-ruled states. Those old fraternal ties came in handy for the recent deal PetroVietnam inked in Cuba, building on a cooperative agreement the two sides first signed last October. Indeed, Vietnam's hard stand against invading US forces in the 1960s and 1970s is winning energy deals with other Latin American countries antagonistic to Washington or in the line of fire of its counter-terrorism policies.
Venezuela's anti-US president Hugo Chavez visited Vietnam in July 2006 to sign a cooperation agreement between PetroVietnam and Venezuelan state oil company PDVSA. On the back of this, PetroVietnam has partnered into a PDVSA-led upstream project in Venezuela, and in return the Venezuelan state concern is looking at investment in Vietnam's embryonic oil-refining segment.
It's all part of an emerging, non-aligned energy alliance that PetroVietnam and others are slowly forging to give the Western energy majors a healthy new market challenge.
By Andrew Symon - Asia Times - September 24, 2007.
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