Vietnam’s oil giant PVN in hot water for series of loss-making offshore investments

Nearly a dozen overseas projects invested in by state-owned Vietnam Oil and Gas Group (PVN) and its oil exploration subsidiary PVEP are either loss-making or at risk of incurring losses worth billions of U.S. dollars, a recent report compiled and released by the Ministry of Industry and Trade, shows.

PVN, wholly owned by the central government, is one of Vietnam’s largest oil producers, with activities covering all operations from oil and gas exploration and production to storage, processing, transportation, distribution and services.

The corporation is one of the country’s pioneers in making investments in oil and gas projects overseas, with 13 offshore projects in South America, Europe, Africa, Western Asia, and Southeast Asia.

Eleven out of the 13 investments are currently in the red or at risk of incurring losses, according to the trade ministry's report.

PVN’s largest offshore investment, made via its subsidiary PVEP, fully known as PetroVietnam Exploration and Production Corporation, is in the ‘Junin 2’ heavy oil extraction project in Venezuela.

Between 2010 and 2015, PVEP poured approximately US$1.82 billion into the project as part of a joint investment with the state-run Venezuelan Petroleum Corp (CVP).

Junin 2 was expected to extract 200,000 barrels of crude oil daily after the second phase of investment.

In December 2013, the then-prime minister ordered that PVEP halt the investment until further review after seeing little progress on the mega-project.

The Corruption, Economic and Trafficking Crimes Department under the Ministry of Public Security has sent an official dispatch to PVN requesting the submission of all documents related to its Junin 2 investment by March 20 for investigation.

PVN has also contributed $1.29 million to a joint investment with Moscow-based Gazpromviet to study and launch oil exploration and extraction projects in Russia, but so far the project’s effort has borne no fruit.

In 2017, PVN asked for government permission to withdraw its money from the investment, a request that was turned down.

The Vietnamese government at the time asked that PVN re-negotiate terms with its Russian partner to prevent additional costs from arising.

PVEP also invested 8.5 percent of the total investment in an oil and gas exploration project in the Republic of the Congo, known under the name of ‘Marine XI’.

In June 2017, PVEP asked to transfer the entire equity to another party after seeing that it was a bad investment.

In Iran, PVEP has poured more than $82 million into developing the Danan Block Project, which is currently suspended due to several issues.

In early 2018, PVN asked for government permission to transfer one hundred percent of its share of investment into Block PM304 in Malaysia, and terminate other projects on Block XV and Block SK305 off the Malaysian coast.

In Myanmar, PVEP has made three investments into Block M2, Block MD2, and Block MD4, all of which are now under re-consideration due to doubts of their effectiveness.

After investing $72.4 million into a project to explore oil fields in Cambodian waters, PVEP failed to launch any extraction projects and is now being forced to transfer extracting rights to a foreign partner.

To clean up the mess on these 11 projects, the Ministry of Industry and Trade has compiled a list of PVN subsidiaries, including PVEP, that are up for re-organization and privatization by 2020.

This week, the member council of PVN convened a meeting to review and approve the resignation of its general director Nguyen Vu Truong Son, who had submitted a letter of resignation, a source told Tuoi Tre (Youth) newspaper.

The reason for Son’s resignation is unclear.

Son, 57, was general director of PVEP from 2009 until 2012, when he was promoted to deputy general director of PVN.

He has been PVN general director since 2016.

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