MOSCOW - Vietsovpetro (VSP) was once the
symbol of a strong economic partnership between
two Cold War allies, Moscow and Hanoi. Nowadays,
however, PetroVietnam and Zarubezhneft, the
oil-and-gas joint venture's partners, no longer
see eye-to-eye.
Vietnam's VSP-developed
offshore oilfields are still the cornerstone of
the country's oil-and-gas sector. But the
venture's fortunes are fading fast, with crude-oil
output down by about 3
million
tons per year since 2002. Contentious disputes
over exit strategies and how best to cooperate in
the US$1.5 billion joint venture's winding-down
process have complicated VSP's current operations
and cast a shadow over its viability.
Vietnamese officials expect VSP, in
particular its so-called "White Tiger" oilfield,
to remain economically viable until some time
between 2017 and 2020. Russia's state-owned
Zarubezhneft experts, on the other hand, are
skeptical that it makes economic sense to continue
financing the field's falling crude-oil output for
that long. Zarubezhneft officials have indicated
that they are not prepared to remain privy to VSP
at any cost - hinting at their willingness to quit
the joint venture.
Between the mid-1950s
and 1990, the Soviet Union viewed Vietnam as a key
outpost of its ''socialist camp'' in Southeast
Asia and flooded its ally with concessionary
loans. Tens of thousands of Vietnamese studied in
the Soviet Union and many still speak Russian.
Moscow also supplied Hanoi's army with most of its
hardware, and Russian armaments sales to Vietnam
still amount to roughly one-third of their trade.
Since the Soviet collapse, ties between
the former allies have been overshadowed by the
repayment of Vietnam's ruble debt to the former
USSR, inherited by Russia. In September 2000,
Vietnam and Russia signed an agreement cutting the
Soviet-era debt, previously estimated at $11
billion, by 85% and allowing for repayment by
2023.
But those past ties aren't making an
agreement on VSP's future any easier. Russian
Prime Minister Mikhail Fradkov's visit to Vietnam
in February failed to clinch a new deal on VSP.
The two countries did agree to create a working
group and draft a blueprint covering the joint
venture's operations after 2010, yet both sides
avoided making any concrete commitments.
Vietnamese and Russian negotiators
disagreed over contributions to the VSP's
liquidation fund, which is designed to deal with
the environmental, economic and social impacts of
the venture's eventual closure. The Vietnamese
side has reportedly asked to deduct up to $100
million a year from VSP profits to beef up the
liquidation fund. Zarubezhneft, on the other hand,
suggested selling its 50% share of the VSP assets
to the Vietnamese government, allowing them to
transfer the proceeds of the sale straight into
the liquidation fund.
Zarubezhneft still
operates on a parity basis with PetroVietnam in
the VSP venture, which still accounts for the bulk
of Vietnam's oil exports. Last year, VSP pumped
about 10 million tons of crude, most of which was
exported. But now the conflicted partners disagree
over the venture's production plans for 2006.
PetroVietnam insists on 9.6 million tons this
year, aiming to sustain a longer life for the
project, while Zarubezhneft countered that 10.2
million tons would be a more optimal level. The
plans for this year are still in abeyance.
In all, VSP has pumped 150 million tons of
crude oil over the past 20 years, and that figure
is expected to reach at least 200 million tons by
2010. VSP still represents about two-thirds of
Vietnam's total oil output. On the other hand, the
50% stake in VSP is also Russia's most profitable
state-owned asset. Russia earned some $700 million
in profits from VSP in 2005 and has booked total
profits of $5 billion since 1986.
Refined hassles In recent years,
however, the Russians appear to have become
increasingly disillusioned. In 2002, Zarubezhneft
withdrew from another major oil venture, with a
Vietnamese entity known as VietRoss, to build
Vietnam's first oil refinery, known locally as
Dung Quat. Under a deal signed in December 1998,
PetroVietnam and Zarubezhneft each held a 50%
stake in what was designed to be a 25-year
project. The refinery, which was scheduled to
begin full operations by 2004, would have had a
capacity of 130,000 barrels per day.
However, Vietnamese managers insisted that
the refinery be situated at Dung Quat Bay in Quang
Ngai province, illogically positioned far from the
nearest crude-oil supplies and potential markets.
Hanoi's dogged insistence on that location
prompted French oil giant Total SA to abandon the
deal in 1995. Total's preferred site, near Vung
Tau, the heart of Vietnam's oil industry, was
overruled by Hanoi, which wanted to use the
foreign-funded project to promote economic
development in the country's impoverished central
region.
A consortium including South
Korea's LG Group and Malaysia's state-owned
Petronas later replaced Total in the deal. But the
group broke up two years later after PetroVietnam
rejected its demands for financial incentives,
including subsidized prices for products made at
the Dung Quat refinery. Zarubezhneft was next to
step in, but it too changed its mind four years
later. In December 2002, Vietnam reimbursed Russia
the $235 million it had already invested in the
refinery, and the $1.3 billion venture still has
not gotten off the ground.
With world oil
prices now spiking above $60 per barrel, some
energy-industry experts have second-guessed the
wisdom of Russia's withdrawal from the refinery
project, which would have been profitable with
crude prices as low as $20 per barrel. Then there
was the bureaucratic payback. After Russia's
withdrawal from Dung Quat, the Vietnamese
authorities levied extra taxes on VSP, cutting
into Russia's revenues in the venture.
VSP's Dai Hung offshore oilfield was
another notable failure. The field was first
discovered by VSP, but in 1993 Australia's Broken
Hill Proprietary Ltd (BHP) won a bid to exploit
the find. The Australian concern announced at the
time that it could yield up to 14 million tons of
crude oil a year, or 250,000 barrels a day.
After years of healthy pumping, output at
Dai Hung suddenly unexpectedly plummeted. After
spending some $250 million developing the site,
BHP exited Dai Hung in 1997. Malaysia's Petronas
Carigali later took over management of the field,
but it too failed to raise output levels and
departed in 1999. Lacking foreign interest, VSP
later took over Dai Hung and was able to pump some
300,000 tons a year, or only around 2% of what BHP
initially estimated.
Uncertain
futures In the meantime, the Kremlin has
recently moved to restructure Zarubezhneft. In
2003, the Russian government ordered
Zarubezhneft's reorganization from a so-called
state-owned unitary enterprise into a public
company, or OAO, Russia's equivalent to a private
firm. In 2004, the Russian state-controlled gas
giant Gazprom indicated it might acquire
Zarubezhneft, but for unknown reasons that deal
has not yet materialized.
Without other
projects, Zarubezhneft can hardly be viewed as a
major global oil concern. Apart from Vietnam,
Zarubezhneft has minor interests in Syria, India,
Turkmenistan, and until recently Iraq, while it
tentatively has plans for projects in such
politically volatile places as Algeria, Libya and
Yemen.
The firm was hit particularly hard
by the 2003 US-led invasion of Iraq. In Iraq since
the late 1960s, it helped to launch that country's
once-profitable Rumaila field. It had also hoped
to develop Iraq's giant West Qurna field together
with Russian oil giant LUKoil. With the current
backdrop of Iraqi volatility, Russian oil firms
have put on hold their previous hopes of Iraqi oil
riches.
In March, Nikolai Tokarev,
Zarubezhneft's chief executive officer, asserted:
"[The] Americans came to Iraq not for giving
anything to anyone." Zarubezhneft has previously
said it lost some $200 million in other
oil-and-gas-related contracts because of the Iraq
war. And with its VSP venture slowly but surely
drying up, Zarubezhneft's future looks as
uncertain as Vietnam's oil
fortunes.
Sergei Blagov covers
Russia and post-Soviet states, with special
attention to Asia-related issues. He has
contributed to Asia Times Online since 1996 and
was based in Southeast Asia from 1983 to 1997.
Nova Science Publishers, New York, have published
two of his books on Vietnamese history.
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