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The Vietnam Oil and Gas Corp. (PetroVietnam) has admitted that poor preparations are to blame for the long delays to and the higher cost of the country’s first oil refinery project.

“The poor preparations are a subjective reason for the lengthened negotiations with a foreign consortium led by France’s Technip,” said PetroVietnam chairman Pham Quang Du.

He said in an interview before a Government report on the progress of the project was delivered at the ongoing National Assembly session that the longer-than expected talks were also due to the huge number of construction items, many of them quite new to PetroVietnam.

A lot of changes to the project were made when the two sides got down to the negotiating table, he said. This has led to the cost of the project rising from the originally planned US$1.5 billion to US$2.5 billion.

In mid-May, PetroVietnam finally signed an engineering-procurement-construction (EPC) contract with the Technip-led consortium to build the main component of the Dung Quat refinery project in the central province of Quang Ngai.

The value of the contract is estimated at around US$1.56 billion, sending the estimated cost of the entire project up to some US$2.5 billion.

Asked about the timing of the signing of the deal, Du said to some extent, this timing was significant as work on the component that made up 60% of the cost of the project began.

This also did away with worries that the project had come to a complete halt, he said, noting it was better late than never as the project was of national importance.

In 1997, the low-grade A83 gasoline and industrial diesel oil made up the majority of the refinery’s output under the original plan but these two products were later banned from circulation, resulting in changes to technology and product lines.

Due to these changes, the cost has jumped, he said, addÂ*ing that moreover, the cost estimates were based on crude oil prices when the project was mapped out.

In 1997, the crude oil price was some US$20 per barrel and fell to US$10-12 a year later, but has now rocketed to about US$50, he said.

This has affected the refinery construction cost and to make matters worse, there have been many projects to build oil refineries elsewhere in the world, thus causing equipment supply to fall short. This shortfall has in turn had an impact on oil prices.

Asked whether PetroVietnam would continue to export crude oil extracted off the country’s southern coast or use the entire output for local refining, Du said the company would supply part of the output for the upcoming refinery and export the rest.

Under an oil industry development plan for the next 10 to 20 years, annual crude oil output is projected at 18-20 million tonnes, which is enough for the refinery to process and for export, he explained.

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