Japanese-led consortium chosen for Vietnam oil refinery work

Japanese company Idemitsu Kosan Co. and its partners have chosen an international consortium to take on the engineering, procurement and construction (EPC) contract for a large-scale oil refinery project in Vietnam.
The international consortium includes JGC Corp., Chiyoda Corp., Technip Group, SK Engineering & Construction Co. and GS Engineering & Construction Corp.
It will be the first time that Japanese companies have been involved in both the construction and operation of an oil refinery in a foreign country.
The Nghi Son oil refinery will be built in the northern Vietnamese province of Thanh Hoa at a cost of US$9 billion. It is the largest amount ever invested in a single infrastructure project in the Southeast Asian country.
“(The Nghi Son refinery is) a national project that holds the key to Vietnam’s future economic development,” Vietnamese Prime Minister Nguyen Tan Dung said January 27 during a ceremony to sign the EPC contract in Thanh Hoa province.
Nghi Son will be Vietnam’s second oil refinery. Domestic demand for petroleum products amounts to around 350,000 barrels per day (bpd), but the existing facility has a refining capacity of only 150,000 bpd.
The Nghi Son refinery, which will be able to process 200,000 bpd, is expected to play a key role in the development of Vietnam’s petrochemical industry.
Japanese companies have to date suffered a number of setbacks in large oil-related projects abroad. Mitsui & Co., for example, was eventually forced to withdraw from the Iran-Japan Petrochemical Co. (IJPC) project in 1989 because of instability related to the 1979 Iranian Revolution and the 1980-88 Iran-Iraq War.
The Nghi Son refinery project itself did not get off to a smooth start, and there are likely to be future hurdles.
The plant is scheduled to start commercial operations in the summer of 2017, three and a half years later than initially planned.
The delay was caused by the protracted negotiations between the Vietnamese government and financial institutions on currency conversion rates for the project.
The security situation in Vietnam is relatively stable. But officials at many Japanese companies often cite “Vietnam risks” involved in doing business in the communist party-ruled country.
Those risks include high inflation, which hit an annual rate of 18% in 2011, the time involved in securing regulatory approval, frequent legal changes and a lingering culture of bribery in the central and provincial governments.
Vietnam has an abundant supply of cheap labor, but many Japanese and foreign investors in the country struggle to find sufficiently skilled workers, such as managers and engineers. Idemitsu Kosan plans to open a vocational school in Thanh Hoa province to train engineers to work at the new refinery. (February 11, 2013)