1. Trang chủ
  2. » Thể loại khác

Foreign direct investment (FDI) in vietnam upstream petroleum sector

76 401 0
Tài liệu được quét OCR, nội dung có thể không chính xác

Đang tải... (xem toàn văn)

Tài liệu hạn chế xem trước, để xem đầy đủ mời bạn chọn Tải xuống

THÔNG TIN TÀI LIỆU

Thông tin cơ bản

Định dạng
Số trang 76
Dung lượng 10,91 MB

Nội dung

Trang 1

rY OF FOREIGN TRADE

Trang 2

HANOI UNIVERSITY OF FOREIGN TRADE FACULTY OF BUSINESS ENGLISH

FOREIGN DIRECT INVESTMENT (FDI) IN VIETNAM UPSTREAM PETROLEUM

SECTOR

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

BACHELOR OF ART IN BUSSINESS ENGLISH

Student’s name: Vu Thi Hong Hanh Class: A2 K40 -BBE

Trang 3

ACKNOWLEDGEME

1 am deeply indebted to many people who have unceasingly assisted me in completing this thesis

1 would like to acknowledge my deep gratitude to Ms Phuong To Tam

(M.A), lecturer at the Foreign Trade University for her invaluable instruction corrections, comments, criticism, suggestions, and assistance during the

development of the thesis

In carrying out this thesis I have spent many times working closely with

many people in British Petroleum Pipeline of the Company Ltd, and staff in

World Bank who provide me with useful information, especially special thanks to Mr Hoang Tran Thong, a commercial analyst of BP who have led me to a plentiful source of information

J also wish to extend my thanks to teachers in English Faculty and Foreign

Trade Faculty, who impart me with basic knowledge on foreign direct investment

in English

IT would like to convey my thanks to my Potential group in A2K40BBE for their friendship and support

Trang 4

ABSTRACT

Gas industry has been playing an important role in the national economic

development Foreign direct investment (FDI) contributed to this success and is regarded as the most important factor of the development of the gas industry in the future FDI in Vietnam’s upstream Petroleum sector is a strategy to boost the gas

industry The analysis of the gas industry will be identified systematically

The thesis helps readers have better understanding of the overall of

Trang 5

TABLE OF CONTENTS

INTRODUCTION

1 Rationale of the study

2 Objective of the study 3 Research Questions 4 Scope and focus of the study 5 Methodology

6 Structure of the thesis ad

CHAPTER 1: OVERVIEW OF THE VIETNAM GAS INDUSTRY AND FDI IN UPSTREAM PETROLEUM SECTOR

1.1 The introduction to FDI in Vietnam’s upstream Petroleum sector 4

1.1.1 Introduction of FDI in Vietnam Gas market -‹ we 4

1,1.2.The environment for foreign investment

1.2 Overview of Vietnam Gas Industry

1.2.1 The Gas industry

1.2.2 The competition for Gas

1.2.3 Petro Vietnam’s organisation and the monopoly roles in

petroleum industry eel 1.2.4 The position and structure of gas industry within the overall

petroleum industry “22 CHAPTER 2: FDI IN VIETNAM’S UPSTREAM PETROLEUM SECTOR

Trang 6

2.2 Operational issues and challenges in the oil and gas secfor 33

2.2.1 Legal framework

2.2.2 Bureaucracy (Process in adimistration)

2.2.3 Protection of investment return

2.2.4 Existing legal contracts

2.2.5 Communication of information .sccseceeeeeeenenees 2.3 Gas market and opportunities for development 2.3.1 The development of the gas market 2.3.2 Gas value chain

2.3.3 Opportunities for development 2.3.4 Exploring options for the Petroleum market CHAPTER 3: RECOMMENDATIONS

3.1 Recommendations to Vietnamese government 60

3.1.1 Improving regulations and legal framework, and administrative

system 60

3.1.2 Consolidating and rationalizing the gas industry structure, and

govermental management won OL

3.2 Recommendations to Vietnam gas industry

3.2.1 Increasing exploration and development of oil and gas resources

Trang 7

LISTS OF FIGURES AND TABLES

FIGURES

Figure 1: The Spectrum of Industry Structure

Figure 2: Oil and Gas Value Chain

Figure 3: The natural Gas Chain

Figure 4: Forecast structure of gas demand for 2010

Figure 5: The development of gas market in the Southest of Vietnam

Figure 6: Industry Structure: Gas

Figure 7: Some cases of netback values for gas competing with diesel

Figure 8: The current gas Value Chain

TABLES

Table 1: Mechanism for pricing Gas in some neibouring countries of Vietnam Table 2: Petroleum product prices

Table 3: Current usage of gas in the South

Trang 8

LIST OF ABBREVIATIONS

AG Associated gas Bbl Barrel

BCC Business Cooperation Contract

Bem, or bem Billion cubic meters, or billion m3 (109)

B.O.E Barrels of oil equivalent

CCGT Combined cycle gas turbines

CIEM The Central Institute of Economic Management

CL Cuu Long

CNG Compressed natural gas

Downstream Business utilizing oil & gas products

EIA Energy Information Administration

E&P Exploration and Production

EVN Electricity of Vietnam

FDI Foreign Dire ct Investment

GDP Gross Domestic Product

GGU Government Guarantee Undertaking

GT Gas Turbine

HCMC Ho Chi Minh City HN Hanoi City

HSFO High Sulfur Fuel Oil IRR Internal rate of return IT Information Technology IPP Independent Power Plant

Joc Joint Operating Company

Trang 9

LPG Midstream MMBtu, or mmBtu MMCMD MOF MOI MPI MW MOI NCS NPV OoG PSC PV R&D SOE T&D Tef Toe UNCTAD UNDP Upstream USD or US$ VAT VND VPI

Liquefied petroleum gas

Oil & gas transportation and storage business Million British thermal units

Million Cubic Meters per Day Ministry of Finance Ministry of Industry Ministry of Planning and Investment Megawatt Ministry of Industry Nam Con Son

Net present value

Office of Government

Product Sharing Contract

PetroVietnam, or Vietnam Oil and Gas Corporation

Research and Development

State Owned Enterprises

Transmission and Distribution

Trillion cubic feet (1012) Tons of oil equivalent

United Nations Conference on Trade and Development

United Nations Development Programme

Oil & gas exploration and production business

United States Dollar Value Added Tax

Vietnamese Dong

Trang 10

INTRODUCTION

1 Rationale of the study

Vietnam’s oil and gas industry, although young, has made remarkable achievements in its exploration and production operations, of which the gas industry has been playing an important role in the national economic development Foreign direct investment has been one of the key factors contributing to this

success, and is seen to be crucial in the future development of the oil and gas

industry, as it provides a significant source of finance, technology, and

management skills The flow of FDI into this sector, however, is declining and at

present does not exhibit any signs of changing, despite the general optimistic view

of the business environment that is characterized by a stable political system, amid a growing economy, and enhanced by the potential for further oil and gas

discoveries

This dissertation seeks to develop a strategic framework that describes the

possible directions and measures to help stimulate foreign direct investment in the

Vietnam gas industry

A thorough analysis of Vietnam’s gas industry was carried out, focusing on four areas of the applicable regulation and policies, the existing industry structure,

the gas value chain and the market structure Throughout the analysis, existing

Operational problems and challenges faced by foreign investors, and limitations with the current policies and legislation, were highlighted Obstacles and adverse impacts caused by the existing oil and gas industry structure, as well as the weak links along the gas value chain, were identified that could both hinder or

discourage foreign investors Opportunities for developing a strong gas market

were identified and discussed toward formulating a strategy for the industry

Trang 11

sound and clear policy and an appropriate strategy are developed and implemented Recommendation was made for a strategy that should if implemented, help to create confidence and comfort for foreign investors, thus

stimulating the FDI to develop the gas industry in Vietnam

2 Objective of the study

The main objective is to develop a strategic framework that describes the

possible directions and measures to help increase foreign direct investment in the Vietnam gas industry To arrive at this, FDI history and trends in Vietnam’s oil and gas exploration and production sector was reviewed and J also identify the key elements of the current gas industry development in relation to the overall] oil and gas industry

And the very important objective of this thesis is to offer recommendations

to develop the gas industry in Vietnam especially upstream petroleum sector

= Research Questions

The following key questions is addressed in the research:

i) What is the current investment climate in Vietnam for the petroleum

sector and what are the operational problems and challenges that foreign investment are facing in this sector ?

ii) What are the limitations in government policy and how do they affect FDI in Vietnam ?

iii) | What are the possibilities available for building up an attractive market for the gas industry?

4 Scope and focus of the study

The thesis is to analyze current situation of foreign direct investment in

Vietnam upstream Petroleum sector, which means that some highly important

factors related to FDI will be studied Opinions and strategic approaches

Trang 12

expressed by senior people in the industry and government officials were obtained so as to provide a practical basis for the study

Moreover, the study provides basic knowledge and also profound knowledge of the gas industry, some certain expressions and some surprising data

and figures In addition, some figures will be compared with those of other gas

developed countries in the world Thus, the purpose is to help readers to have

better understanding of the gas industry

5 Methodology

The study relies mainly on relevant articles, books, statisics, reports of the British Petroleum Exploration Company Ltd., analytical and comparative methods

to deal with research questions The study has utilized both primary and secondary data:

° Primary data, opinions and strategic approaches written in articles which are collected from National Library, Foreign Trade University Library, as well as Internet, much depending on reports of British Petroleum Exploration Company Ltd

: Secondary data was gathered from books, journals, and newspapers and

published reports available locally and on the Internet Studies and reports from

authoritative sources such as World Bank, UNDP, and governmental offices

including The Central Institute of Economic Management (CIEM), MPI, and

PetroVietnam’s Information Center, were also used

Trang 13

CHAPTER 1: OVERVIEW OF THE VIETNAM GAS INDUSTRY AND FDI IN UPSTREAM PETROLEUM SECTOR

1.1 The introduction to FDI in Vietnam’s upstream Petroleum sector 1.1.1 Introduction of FDI in Vietnam Gas market

Economic reform in Vietnam was launched in 1986 followed by the

enactment of the Law on Foreign Investment one year later Since then the

significant role of FDI has emerged in Vietnam’s economic development In 2001, FDI companies contributed 13.3% to GDP, 35% to industrial output, 23% to

export and 25% to total state budget revenues The oil and gas sector alone has

significantly contributed to state revenue In 2002, oil export value was US$ 3.27 billion, accounting for 19.6% of the total export revenue for the country This has

brought about a growth in workshops and research focusing on the importance of FDI and how to make Vietnam more attractive for FDI Oil and gas exploration

was identified as a priority area both from the Government’s and foreign

investors’ perspectives for the attracting of FDI

Oil and gas potential reserves in Vietnam is said to be significantly high,

with an estimate of 3.75 billion barrel of oi] equivalent (B.O.E), of which gas

accounts for more than 50% However, Vietnam is facing an uphill struggle to discover oil reserves big to replace the expected decline in the current output from the old production fields Foreign investors say oil is not only hard to find off

Vietnam's shores, but the geology is difficult and service costs are high, making the government's fiscal terms for exploration and production seem all the less

Trang 14

still very young and the full development of the country’s gas resources will

largely depend upon the ability of the government and foreign investors to move

existing gas development projects forward To accomplish this a large amount of

foreign investment is needed; and it has not yet arrived Vietnam, in its Strategy for

Social - Economic Development, adopted by the Ninth National Congress of the

Communist Party in April 2001, indicated that the country needs to invest US$ 60

billion over the period 2000-2005 to sustain an average growth rate of GDP of

7.5% per annum With a realization rate of 40% this means Vietnam will have to attract US$ 30 -35 billion during the period 2000-2005 FDI is expected to contribute US$ 12 billion to the implemented investment (Le Dang Doanh, 2002) In the oil and gas sector, annual production output is targeted at 22 -24 million tons in oil equivalent for the year 2005, and 27-30 million tons for year 2010 This will require an increased exploration output and increase the average reserve to about 50 million tons annually, which equates to an investment in the range of US$ 150-200 million per year This is a challenging goal but achievable if the country is prepared to continue reforms, improve its investment climate and become more competitive with other regional economies

1.1.2 The environment for foreign investment

1.1.2.1 Political and legal

Since the implementation of the renovation policy in 1988 market liberalization is allowed in general with Governmental intention to encourage

foreign investments However, the key economic sectors such as petroleum and

energy industries are still regulated by the Government which presents significant

political influence for any oil and gas development projects

PetroVietnam (PV) is assigned a state management role to supervise all foreign operators’ activities and advise the Government on petroleum regulatory issues At the same time, they can also participate as a partner in any oil and gas

Trang 15

will be a headache and a key factor preventing PV from achieving the highest efficiency in their operations In addition, gas producers will not sell their product

directly to any end user, but have a gas sale contract signed with PV who will then

further trade it to the ultimate gas users i.e power plants 1.1.2.2 Economic

Following the financial crisis in Southeast Asia, Vietnam’s economy has

recovered and recorded a GDP growth of about 7% for the three year period 2000- 2002 The Customer Price Index (CPI) increased by 4% in 2002 compared with

2001 after remaining unchanged for the previous three years (The Central Institute

of Economic Management, March 2003) High profit tax rate (average 50%) for

petroleum production and revenue from crude oil export (about 15-17 million tones/year for the last decade) contributed a major portion to the country’s income

and especially hard currency A large portion of energy generation is much

dependent on the seasons for hydro and coal resources for thermo - electricity

Whilst energy demand is seen as growing an average 12% a year for the next ten years, especially in the South where more economic and industrial operations are taking place

1.1.2.3 Social and cultural

An open market economy and industrialization activities has resulted in a trend of people migrating into industrial towns and cities looking for new jobs and

exploring opportunities for higher income An awareness of, and responsibility toward, the environment and society evelopment has been enhanced among the population, although a notable difference can still be observed between cities and

countryside areas 1.1.2.4 Technological

The overall low level of technology and productivity might be a result of

the lack of investment for R&D and inherent use of the old Russian and East-

Trang 16

management in the past also hindered the pace of technological change in the

country

1.1.2.5 Environmental

Specific requirements for environmental management and impact

assessment process and system for most development projects are set by law and related legislation A regulation on the use of lead -free fuel was also put into

effect from October 2001

While limitations are set to require more caution and investment for the

energy and petroleum industries, opportunities are opened for the gas industry which could offer a low cost and clean, environmentally friendly alternative for power generation in Vietnam

1.2 Overview of Vietnam Gas Industry

1.2.1, The Gas industry

1.2.1.1 The overall of oil and gas industry structure

According to Grant, the underlying theory of how industry structure drives

competitive behavior and determines industry profitability is provided by industrial organisation economics (Grant, 1998, p.54) He has identified four types of industry structures as shown in Figure 1

Trang 17

One extreme of this spectrum is presented by the theory of monopoly the existence of which is explained by Mills et al as due to

@

(ii)

Government legislating for a monopoly supplier,

or one firm establishing a dominant position in a market to such an extent that the competition is forced out According to the structural

features in Figure 1 Vietnam oil and gas industry would appear to be approaching the monopoly type The Vietnamese government

controls both the upstream and downstream oil and gas industries

The Vietnam Oil and Gas Corporation (PetroVietnam) a government-owned company is the only firm authorised to conduct

all upstream activities and is under the direct control of the Prime

Minister’s office Any petroleum exploration and production activities by foreign investors must be conducted in cooperation with PetroVietnam

PV has only one joint venture in upstream oil exploration and exploitation This is the VietsovPetro joint venture with Zarubezhneft, the overseas oil company

of the former Soviet Union, which began operating the Bach Ho field in 1986 Except for one very recently licensed Joint Operating Company (JOC), all other

relations with foreign oil companies in upstream development have been via

Product Sharing Contract’s Under these terms, PV acts somewhat like a landlord

while the foreign oil company takes on the risk and cost of exploitation and

exploitation It then receives a share of the oil lifted As with natural gas, PV is

currently the only company with the right to buy gas from the PSC operators at the wellhead then sell it to users such as Electricity of Vietnam (EVN) for power

generation, after it has been transported to shore with tariff being charged for the

gas transportation services

Trang 18

1.2.1.2 The value chain

a The oil and gas value chain in general

Value chain analysis has been widely adopted as a method of achieving an

understanding of how the activities of the organisation underpin its competitive

advantage Also, the linkages in the value chain, which show relationship between the activities, are very important As pointed out by Johnson and Scholes (the

author of a book), one of the key features of most industries is that very rarely

does a single organisation undertake all the value activities from the product

design through to distribution to the final consumer There is usually specialization of roles and any one organisation is part of the wider value system which creates a product or service Much of the value creation will occur in the supply and distribution chains, and this whole process needs to be analysed and understood

The overall value chain for the oil and gas industry is illustrated in Figure 2 which

shows all the related activities from upstream through downstream to the final customers

Trang 19

Figure 2: Oil and Gas Value Chain Downstream

-Geophysical -Crude oil & Refining of -Pipeline -Inventory -Marketing Evaluation & Gas production Crude Transportation Management -Demand Forece Design -Gathering & -Product Barge & -Product Blending -Pricing Setting

-Field development Processing Blending Vessel -Truck Dispatch -Customer Servi -Drilling Operation -Transportation ‘Transportation -Demand fulfillr

& Storage

cross functional & Support Process Areas ‹

Trang 20

b The relationship between oil and gas project

Since natural gas exploration and production are closely linked to oil exploration and production, major oil companies are involved in the natural gas

sector (UNCTAD, 2003)

As seen from the overall oil and gas value chain, oil and gas projects share some basic features, such as separation into upstream and downstream components in which the upstream consists of exploration and production and the

downstream of transportation, distribution, and consumption Moreover, the two

fuels are often in direct competition: upstream, gas competes with oil for

investment, and downstream, gas competes with oil products for customers (UNDP and World Bank, Jan 2000) However, the two sub-sectors exhibit the

following distinctive differences:

* Gas has substantially higher costs than oil between production and

market; because of its much lower specific energy content per volume, natural gas has much higher transportation costs Gas must be transported in pipelines under

pressure, and even under high pressure (i.e 100 bar), gas has a specific energy

content per volume of only about a tenth that of oil The same vessel or pipeline

thus handles at most about a tenth of the energy content in gas compared with oil

+ Gas has higher storage costs; because of its low energy density and its volatility, gas needs to be stored in sealed containment and needs much higher

volumes for the same amount of energy compared with oil

+ The economics of gas projects are highly sensitive to geographic factors: limitations of gas transport and storage make gas projects economically very sensitive to geographic factors such as distance between the production site and

the main consumption areas and concentration of demand It may be economic to

serve a given market with oil products but clearly uneconomic to serve the same

market with gas (UNDP and World Bank, Jan 2000, p.3)

Trang 21

Research, 1999) There is a significant propostion of all technically recoverable gas resources contained in the Nam Con Son (NCS) basin which is some 400 km

from the southern Vietnam market This means that infrastructure is essential in

order to develop the gas fields It was recognised that, unlike the exploitation of oil, the full development of Vietnam’s gas resources will largely depend upon the

ability of the government and foreign investors to move existing gas development projects forward (Mekong Research, 1999)

c The natural gas chain

The natural gas chain is illustrated in Figure 3

Trang 22

Figure 3 shows that, the key elements of the industry are gas production gas

transportation and consumption Again, it should be emphasized that:

+ unlike oil development, where the different participants are loosely linked,

gas operations link the participants in the gas chain rather tightly In oil, all those involved may choose their role, shape that role as they like, and test it out In the

gas chain, in contrast, the roles of the participants should be coordinated, at least

in an emerging gas industry;

+ unlike oil, where sales are single acts by nature, gas is characterised by

longterm cooperation (UNDP and World Bank, Jan 2000, p.67)

Therefore, to make it work, the main challenge is to ensure the stability of the chain from the production point to the end user (UNDP and World Bank, Jan

2000, p.50)

In Vietnam, although still very young, the gas industry is expected to play

an important role in promoting the overall development of the oil and gas industry

as well as the future national economy The industry itself has been sufficiently

built up with the main elements of the gas chain as follows:

+ Production: there are three fields currently producing Except for the small

Tien Hai field in the North with capacity of 20 million m3/year since 1981, other major gas producers are in the South These are the White Tiger associated-gas

field operating since 1995, with peak capacity of 2 billion m3/year, and the Lan Tay- Lan Do field, operating since 2002, with peak capacity expected to be 2.7

billion m3/year in 2005 The future potential producers for the period 2005-2010

will include Rong Doi- Rong Doi Tay, Hai Thach in NCS Basin, Emerald, Hai Au

in Cuu Long Basin, and Bunga-Kekwa and Cai Nuoc in the Southwest Continental Shelf

+ Transportation: the two pipeline systems currently in operation are the 142 km White Tiger associated gas pipeline with maximum capacity of 2 billion

m3/year, and the 400 km two phase Nam Con Son pipeline with peak capacity of 7

Trang 23

pipeline of 2 billion m3/year (as a continuation from NCS pipeline) and a low pressure distribution pipeline of 0.7 billion m3/year in the Southeast, and a 332 km

pipeline of 2 billion m3/year in the Southwestern region

+ Consumption: power generation will remain the biggest gas consumer in Vietnam At present, except for the minor usage of gas from the Tien Hai field for the local ceramics manufacturing, power plants are the unique customers in the

gas chain Future end - users up to 2010 are expected to be chemical - urea

production plants, and other industrial users

At this stage, the development of gas industry in Vietnam is linked completely with the power industry, as gas-fired power plants are the ideal

customers which can consume large volumes of gas with a long-term commitment

and at a relatively high price Thus the current gas chain for Vietnam could be presented as in Figure 4 that also integrates the elements of the power chain into

the chain: gas production-transport-distribution-power generation-transport of

power-distribution of power-final use of power 1.2.1.3 The gas market structure

a Pricing — the key element to shape the gas market

While in developed gas markets with perfect competition, such as the US and Canada, the price of gas is determined by the balance between supply and

demand, or gas prices reflect the ability of supply to meet demand at any one time

Trang 24

Table 1: Mechanism for pricing gas in some neighbouring countries of Vietnam

Brunei Indonesia Malaysia Taiwan Thailand

Mech The State |The State quotes | Price of gas | Government | Prices of gas

anism | controls | prices of gas for | for prices gas are set on the

of important industrial | commercial basis of gas

pricin and small customer; | and residential production

g gas For other consumer, | sectors are and transport price is determined | quoted by costs These

through the | Malaysia prices also

negotiation State Oil need to be Company approved by with the the approval of Government the Government.P

rice for gas for other users

are set

through the

negotiation

Prices 1-1.5USD/mmBtu | 4.3USD/mmB | 7.§2USD/mm No

of gas tu Btu information

for

indust rial

sector

Price | 0.2USD/mm | 1.3-1.7USD/mmBtu | 6.4USD/mmB | 5.4USD/mm No

of gas Btu tu Btu information

for

comm

ercial

sector

Price | 0.2USD/mm | 1.3-1.7USD/mmBtu | 6.0USD/mmB | 7.86USD/mm No

of gas Btu tu Btu information

for reside

ntial

sector

Price | 0.3USD/mm 2.4-3USD/mmBtu | 3.4USD/mmB | 6.57USD/mm | 2.8USD/mm

Trang 25

In Vietnam, given the low level of development of the natural gas industry

pricing remains a new and uncertain issue At present, as most of the national gas

production is used for power generation, and this will be the case for the next

decade, the only existing prices are referenced to gas used for power generation: + transfer price of the associated Bach Ho gas sold to power generation (as of 1996) is approximately USD2.30 /mmBtu However this cannot be regarded as a market price as this is purely an internal Vietnamese government transaction and

is not conducted on a commercial basis

* The gas price of Lan Tay and Lan Do fields is around USD1.88/mmBtu at

the wellhead, with a transportation tariff of USD 0.88/mmBtu

As such, gas prices in Vietnam are still low compared with that in neighbouring countries, and not as high compared with other countries in the

world (Pham Ngoc Gian & Nguyen Tuan Phuong, Vietnam Petroleum Institute,

2003)

In general, there are two different approaches to pricing gas:

* Gas production cost: the price is calculated by accumulating all costs that the investors have to pay for the production and transportation of gas For the investors, gas must be priced so that they can obtain reasonable IRRs for every stage

* Real value of gas for the customer: the price of gas is calculated by the netback method, starting from the gas using benefit in the e nergy market

According to the economic point of view, the price of gas varies between these

two accumulated and the netback costs (Nguyen Minh Due and Tran Ngoc Toan,

2000)

As speculated by Wood Mackenzie, in Vietnam any future agreement on

gas price is likely to be related to the netback value of competing fuels at the

Vietnamese beach The most important competing fuel in Vietnam at present is

hydropower, but it is clearly difficult to determine a netback value given the

Trang 26

investment with no long-run fuel costs Gas would, however, be expected to

command a premium over hydro because it can be used as a swing fuel, as opposed to hydro which, in Vietnam, is highly seasonal Thus, gas price will be

linked to the price of High Sulfur Fuel Oil (HSFO) and a nominated consumer

price index

When assessing the main elements affecting the gas price in Vietnam, it was pointed out that :

* Gas production costs: as most of the gas reserves and reserve potential in

Vietnam are located in difficult and remote areas, production cost per unit of gas in Vietnam will be higher than that of its neighbouring countries and other places in the world

* Reliability of supply: due to insufficient source of appraisal data, and

because the gas industry is still very young, the level of reliability or the confidence in the gas supply in Vietnam is not yet as high as desirable However,

the confidence in the gas reserves in the Southern region is considered sufficient and acceptable for investment

* Confidence of market: as the gas market is not yet established in Vietnam, it could be seen as a potential for future markets, but can also be seen as a lack of

confidence in the market

+ Infrastructure: except for the two existing Bach Ho and Nam Con Son

pipelines, and a upcoming pipeline in Block B, the onshore distribution pipeline

system is very limited, thus making gas production difficult and contributing to a higher gas price

+ Financial policies: policies on financing the infrastructure and facilitating gas consumption are not yet in place, but are being developed

+ Policy for alternative products: this is not yet in place

* Other incentives on tax, investment, labor, and payment are to be

improved

Trang 27

At present, these elements are more of negative than positive impacts on gas prices and therefore put the gas industry at a disadvantage

b The gas demand

Due to the distribution of oil and gas resources, the South is, and will be,

the biggest gas consumer in Vietnam Total gas demand of power consumers occupies up to 80% of the whole market Non-power markets consist of fertilizers,

goods and foodstuff processing, construction materials and metallurgy units,

transportation etc.(Vietnam Petroleum Institute VPI, June 2002) However, the actual consumption of the non-power sector will be much dependent on the availability and price of gas and other competitive fuel alternatives, as well as the technical expertise and costs associated with their converting from existing traditional fuels to natural gas The structure of gas demand anticipated in Vietnam by 2010 is shown in Figure 4

Figure 4: Forecast structure of gas demand for 2010

Source: Nguyen Xuan Dinh et al 2003

The demand of the power generation will make up for the largest, 82% of the total,

Trang 28

The largest gas market has been formed in the Southeast area with the Phu My power complex that has been expanded to Ho Chi Minh City and the neighboring areas (VPI, June 2002)

Figure 5: The development plan of gas market in the Southest of Vietnam

(2005-2015)

Others (Ceramizs, glasses, NCV)

(Ca Mau Feliz (80,000 onnesyear COGT Co Mau 3 4(720MW) CCGT Ca Ma 1210MW) CCGT Unocal (E0MW) GT Omon 182 (500 MW) GT Tra Mon 183 MAW) Millon Cubie Meter mmN ng n8 m8

Source: Vietnam Petroleum Institute, June 2002

The demand for gas market may reach more than 1000 million Cubic Meter and this number will be much higher reaching 4500 Million Cubic Meter

€ The gas supply

Gas reserves in Vietnam occur mainly in the following areas

+ Song Hong Basin: this has large potential in gas but has not been

sufficiently invested

+ Cuu Long Basin: here most of the discoveries were oil, with associated

Trang 29

+ Malay- Tho Chu Basin: the natural gas reserve is approximately 123 bem

Production capacity could be about 4 — 6.5 bem/year in 2009 -1012

With regard to gas transportation, in the near future there will be two main

pipeline grids in South Vietnam

+ The Southeast grid consists of Bach Ho and the NCS gas pipeline systems

with a total capacity of up to 9 bem/year The pipeline Phu My — Ho Chi Minh City is under construction to meet the gas consumption and market expansion in

the Southeastern region

* The Southwest grid with PM3-Ca Mau pipelines, with a designed

capacity of 2 billons cubic meters/year, is planned to come into operation in 2005- 2006 Additionally the shoreward pipeline from Block B with capacity of 2-3.7

bem/year is under investigation

+ Recently, PetroVietnam started considering the inter-connection of the

Southwest and Southeast pipeline systems

1.2.2 The competition for Gas

According to Porter (1980) the profitability of an industry is determined by the five forces: the rivalry amongst existing firms in the industry, the threat of

substitute products and services, the threat of new entrants, the bargaining power of suppliers, and the bargaining power of buyers For the gas industry in Vietnam,

the following situation is recognised:

+ Barriers to entry: in addition to the high costs inherently associated with gas production ((UNDP and World Bank, June 2000), foreign operators who set up operations in Vietnam fall under a different, and more expensive, regulatory regime compared to other non-petroleum investors

Also, given the unproven substantial reserves, Vietnam becomes an expensive

place to operate in (Mekong Research, 1999)

+ Threat of substitutes: Three substitutes for gas are coal, hydropower, and

Trang 30

+ Strength of suppliers: because PV has a monopoly of the upstream oil and

gas industry, any supply agreement at present must be carried out through negotiation with them in Hanoi In addition, the current supply/demand imbalance

and the formation of the Ca Mau Power- Fertilizer Complex have introduced

competition into gas pricing in Vietnam This situation requires gas suppliers to come up with more flexible policies and appropriate solutions to stimulate gas consumption and to further expand the gas market (VPI, June 2002)

+ Strength of buyers: PV is the only company with the right to buy gas from

the operators (Mekong Research, 1999)

+ Existing rivalries: the current players are PV, BP, KNOC, Conoco Philips in the South east basins and Unocal, Fina in the Southwest basins

1.2.3 Petro Vietnam’s organisation and the monopoly roles in petroleum industry

PV is a state - owned enterprise (SOE) established in 1990 after the elimination of the oil and gas ministry In 1995, it was established as a state

company under the legal purview of the Law of State Enterprises and the Law of Organisation of the Government It is structured as a holding company and currently includes twenty-one state enterprises and institutions PV supervises and

manages the operations of its subsidiaries and institutions through a comprehensive system of approvals and controls (PetroVietnam, 2001) Unlike

most other SOEs, PV does not report to a Ministry but remains firmly under the

control of the Prime Minister’s office, or the Office of Government The

organisation chart, including details of the headquarters and subsidiaries of PV

According to the Petroleum Law, the State Management Authority is responsible

for regulating the petroleum industry, including the gas sector The government,

however, is leaning heavily on PV to perform functions reserved for the authority The law grants PV a preferred operational position in the upstream market requiring that it be a signatory to contracts that it later administers As such, there

Trang 31

exists a potential conflict of interests in the industry International oil companies

would be more comfortable dealing with a government agency than a state

company (World Bank, 1998)

In fact, there were strong reactions by foreign investors during the interviews about the existing roles assumed by PV One director (A1) said “I think

PV should not be left a monopoly It should not play a double role It cannot be a

profit making corporation and also act on behalf of the government, because the industry wants a separate role One of the constraints of the industry is the

compromise that PV is their partner, compulsorily, and also plays the role of supervising on behalf of the government”

In theory, PV does not have the right to make regulations, own oil and gas, develop government policy, or fix prices In the absence of other institutions, however, the government has asked PV for help on these matters Even PV finds this a hard task to carry out, as expressed by a general manager (A11) “in fact this

causes a difficulty for PV as it is too big a task It sometimes really puts PV into a

difficult and embarrassing position, wearing two hats, one is commercial and one is regulatory”

PV has been active in establishing itself along the entire value chain of the

petroleum industry It is empowered with a monopoly on all the upstream

activities of both the oil and gas sectors, being the only Vietnamese company

responsible for carrying out all Product Sharing Contract negotiations with foreign investors

The downstream of the oil sector, although remaining government- controlled and highly regulated, and being almost restricted to foreign participants, has a more diverse range of domestic participants These companies are all owned

by either the central or local government, including Petrolimex, Petechim, Petec,

Saigon Petro and Unapco, which undertake activities on import and supply of petroleum products, as well as gasoline distribution and retailing operations

Trang 32

only area in which market entry has been deregulated and opened to private and

foreign participants

In the downstream of the gas industry, PV has also been made the

monopoly gas trader, as well as investor in, and supervisor of, gas transmission

pipelines, and gas processing and distribution operations No legal basis yet exists

for regulating gas pipelines or gas processing and distribution operations As such, the general view of foreign investors suggests that the current oil and gas industry

structure does exhibit constraints to foreign investment that is in conflict with Vietnam’s need and desire to attract more foreign funds to develop the entire industry Two foreign directors (A2 and A3) pointed out that Vietnam should look

at an option to free up this downstream industry and allow broad participation in

this area For the gas sector, it was argued by director Al that “what they’ve done in Liquefied Petroleum Gas LPG, why shouldn’t it be in the gas?”

The power sector has achieved a better and more rapid progress in the

institutional reforms, compared with PV, in which the monopoly distribution

function Electricity of Vietnam (EVN) is being equitized through diversified

ownership of assets, and its double role (like PV's) is being separated The

international consultant (A6), on comparing these two SOEs, commented that “the government has managed to separate the two things in the case of the power sector, but has not managed to do that in the oil sector, and has not managed to do

that in the gas sector”

1.2.4, The position and structure of gas industry within the overall petroleum industry

The Vietnam’s oil and gas industry commenced in 1981 with production

from the small Tien Hai C gas field (with a reserve estimate of 1.3 bem) in the

Northern province of Thai Binh The gas was used to serve the local industries

such as ceramics, white cement, and high quality glass However, the idea of industry-scale gas utilization has only been formulated since the beginning of the

Trang 33

nineties when the associated gas production of Bach Ho (White Tiger) field

became significant (over 1 bem per year) and was wastefully flared (PetroVietnam, 2001)

This Bach Ho associated gas utilization project, that commenced operation

in 1995, was followed by the Nam Con Son natural gas project, which was regarded as the backbone of the gas industry in Vietnam The first gas was achieved at the end of 2002

The gas industry, although new, is recognised as having a very important

and special role in national economic development The general manager in charge

of the Gas and Power sectors in PV (A10) was very enthusiastic when talking about the role played by this very young industry He gave a very simple comparison with the oil industry to highlight the main contributions of each

* Oil has been produced since 1986 from the Bach Ho Field As it is

offshore, floating production and storage facilities were used and oil is sold internationally from offshore There is no doubt that oil production has been, and will be, a very key source for hard currency and revenue to the state budget

Nevertheless, despite the long term planning for refinery and petrochemical

projects, Vietnam to date has no refinery plant, and needs to import petroleum

products i.e gasoline, fuel oil ete for domestic consumption

+ Gas, despite requiring a large capital investment and being dependent on availability of infrastructure and market, when brought to shore it is drawing along

with it many other industries that use gas, and “forces” their development It creates and facilitates a wide range of industries, including power generation, LPG and condensate processing and utilization, ceramics, building materials, urea

production etc Besides contributing a significant portion to the state budget, it has

helped reduce the need for importing LPG and to some extent petroleum product

such as gasoline as a result of new condensate processing capacity

The contribution by the gas sector to the state budget increased

significantly recently Revenue from the gas sector last year, as disclosed by a

Trang 34

commercial manager (A12), was estimated to be about 24% of the total revenue generated by the whole petroleum industry In addition, she said “it helped

generate new jobs and thus positively dealt with the big social issue of

employment”

The gas industry is faced with the big constraint of financing The only two sources of funds that the gas industry currently depends on are foreign investment, and revenue from oil production As revealed by the Gas Vice -president (A8),

most of the finance loans for gas projects, such as the PM3 Ca Mau pipeline and the B-Omon pipeline, are guaranteed through oil revenue In addition, associated

gas production from Bach Ho and Rang Dong in Cuu Long basin could be stopped

anytime if oil production stops With regard to the industry structure, PV and its subsidiary PetroVietnam Gas Company (PVGC) have been designated the stewards of gas sector development, as well as the monopoly gas trader PV, being

a fully operational holding company, has to pass its internal cash flows to

government and operates on budgets reassigned from the state every year Thus it

relies on the state subventions for capital investments, or requires approvals of OoG/MPI/MoF on any project financing While awaiting the Southwest gas master plan and the regional link to be executed, the existing gas industry structure

Trang 35

Figure 6 : Industry Structure : Gas

Offshore Cuu Long Production

Private Sector And PV-JV

Processing

PV/Private JV Gas Processing

Ba Ria Power Plant Consumption Power (EVN/IPP) | Fertilizer (Private) Phu My 1-4 Consumption: Power industries

Source: WB Report No.19037-VN Dec 2001

Nam Con Son

Gas distribution Center Gas Processing

HCMC

Other

From the foreign investors’ point of view, in order to remove the barriers for

existing and potential industry participants to pursue development in the gas

sector, there needs to be “a clear vision and desire as to how the gas industry structure will look like in the future”, set by the government prior to establishing

and implementing the appropriate measures for improvement

The Vietnam gas master plan developed in March 1996 also indicated that

clarifying the role and function of PV will allow a more straightforward assessment of the options of the industry structure, both offshore and onshore

Trang 36

* Monopoly state gas trader/transporter, which is unregulated/self regulated

Gas sales are made to all consumers (including large users such as power stations

and process plant) by negotiated price or against set tariffs as appropriate

+ Monopoly state gas trader, including to large consumers A separate onshore transmission and distribution business would be controlled by a separate entity, possibly but not necessarily state-owned There would be separate published tariffs for transportation; gas sales would be handled as above External

regulation of the transportation business would be required (as it is a natural monopoly) unless it is state owned

+ Producers contract directly with consumers Onshore transmission and

distribution system would be owned by a separate entity which obtains revenues through a set of published tariffs, and is subject to regulation Within this

structure, it may be appropriate institute a state gas trading organisation to act as a

Trang 37

CHAPTER 2: FDI IN VIETNAM’S UPSTREAM PETROLEUM SECTOR

2.1 The current status of FDI in Vietnam’s Upstream Petroleum Sector

2.1.1 Regulations and Policies

The legal basis for foreign paticipation in the Vietnam Petroleum industry is the Law on the Investment This was enacted on 29 December 1987 and includes guarantees against expropriation and guarantees that profits can be remitted This law was amended several times on 30 June 1990, 12 November

1996, and most recently 9, June 2000 as a result of the Government’s efforts to

make the country a more attractive business environment destination The present law allows foreign investment through business co-operation contracts, joint ventures, wholly — foreign owned enterprises, and build — operate- transfer and build — transfer — operate, and build — transfer — investment

In order to boost foreign investment, on 7 November 1998 the Prime

Minister signed Decision No 216/1998/QD-TTg on the investment incentives for

petroleum activities with one of the following characteristics:

water depths of 200 metres or more “remote waters

- areas with special geographical, geological, economic, or technical difficulties

Under this decision the incentive terms include: + tax reduced from 50% to 32%

- remittance tax on post-tax profits reduced from 10% to 5%

* export tax on royalty oil/gas removed

Trang 38

The PSC duration can be extended to e nable commercialization of gas discoveries.This decision is an improvement to the 1993 Petroleum Law

contributing to the promotion of petroleum activities in Vietnam (PV, 2001)

The upstream oil and gas sector is regulated under the Petroleum Law of

July 6, 1993, and a follow-up implementation decree passed in December 1996 which covers petroleum exploration, development and production; they only cover pipelines to the point of delivery to a main transmission line The law deals only

with the upstream oil and gas industry; no mention is made of downstream

operations including gas processing, transmission and distribution, nor the retailing of petroleum products and LPG

The Petroleum Law allowed PetroVietnam to select contractors to be assigned acreage for oil and gas exploration and development Selection of contractors is to be based on results of competitive bidding rounds or in other ways to be announced by the government Agreements can take the form of production — sharing contracts, joint — ventures, or other contractual forms

A PSC doesnot establish an independent juridical entity, but rather allows the parties to “enter into a contractual business cooperation venture, with

production — sharing arrangement and other forms of business cooperation”, and

the law specifies model contract provisions The law and decree also specify rights and obligations of the contractors, as well as royalties taxes and fees The major changes between the old PSC format and the 1993 Petroleum Law are new

royalties on oil and gas production, new petroleum profit taxes, and new dividend transfer taxes Prior to 1993, the government share of profit from oil was the only government take in the contract and the contractor’s profit from its oi] share was

deemed net of tax, but in 1993 the authorities introduced a 50% corporation tax on profit from oil, thus making the terms less favorable

Winning bidders for exploration blocks sign contracts with PetroVietnam,

subject to the approval and issue of licenses by the Ministry of Planning and

Trang 39

bidding, block awarding, and contract negotiation takes over administration of the

Petro contract The law assigns many tasks to PV — supervising contractors receiving operational data, making periodic reports, monitoring compliance with the work programs specified in contracts, and planning development and

production after common discoveries

The law also has some restrictive terms The length of PSC is 25 years and can be extended to 30 years; the exploration period is limited to 5 years, so 7 years

in deep seas or for natural gas, with the possibility of an extension of one year 2.1.2 Development in the demand of energy

Vietnam has one of the lowest levels of modern energy consumption in the developing world : an estimated 144 kilograms of oil equivalent per capita in

1995 This level is consistent, however, with Vietnam’s GDP per capita estimated at $262 in 1995

Nearly 65% of final energy consumption consists of traditional energy

mostly in rural areas, mainly in the form of fuel wood Wood and rice straw are used extensively for cooking In the South charcoal is also used and in the north coal briquettes are used (especially in the northeast in areas surrounding coal

mines) Kerosine is used primarily for lighting in rural areas Gasoline consumption is low but growing rapidly as more private motor vehicles are introduced

Since 1980, there have been 3 phases in the development of Vietnam’s

energy sector From 1980 to 1985, the energy system was centralized Consumption of petroleum products was essentially constant and consumption of electricity grew by about 8% a year, although supplies of both were limited From

1986 to 1990, after the start of economic reform, consumption of petroleum

products and electricity began increasing And from 1990 to 1995, all types of

energy consumption increased rapidly In recent years, consumption of petroleum

products and electricity has increased by about 13% a year, and domestic coal

Trang 40

consumption has started to increase again after reaching a low in 1993 Offshore

natural gas from the Bach Ho field was brought into production for power

generation in 1994

* Electricity consumption continue to grow much faster than GDP

For purposes of forecasting the energy sector is different in each of Vietnam’s 3 main regions In particular, the central region is less economically advanced than the north and south (though it is receiving special government attention for its development) In 1995, for example, and electricity consumption in the center was 108 kilowatt hours per capita In the north, it was 154 kilowatt

hours and in the south it was 188 kilowatt hours Power consumption in Hanoi and

Ho Chi Minh City, at 550-600 kilowatt hours per capita, is much higher than elsewhere

During 1980-95 electric sales increased much faster than real GDP The

relationship over the period shows an average elasticity of electricity sales to GDP

of 1.7 - meaning that electricity sales increased 70% faster than GDP This relationship between electricity and GDP is typical among low income Asian

countries During the 1980s, only China and Myammar had elasticities below

table Thus, if Vietnam’s economy continues to develop, it is far from a stage at

which electricity demand will show relative to GDP

During 1990-95, electricity consumption grew by 12.6% a year The

highest growth rate was in agriculture, at 21.1 % per year Growth in residential

demand was second highest, at 14.7% a year Industrial demand grew much

slower until 1990 but has since picked up, to 10.2% a year The share of

residential sales in total sales has increased in recent years, reaching 36% in 1995

Electricity consumption increased significantly in all 5 distribution areas: Hanoi,

the rural north, the central region, HCM City, and the rural south In absolute terms, the greatest increase was in HCM City, where sales rose from 1.380

Ngày đăng: 09/11/2015, 08:43

TỪ KHÓA LIÊN QUAN

w