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Vietnam opens first oil refinery

VIETNAM opened its first oil refinery yesterday despite the withdrawal of foreign partners including Total SA.

The refinery, designed to meet about one-third of Vietnam's fuel demand next year, opens at a time of excess supply in refined products and slumping crude prices.

In addition, the 148,000 barrel-a-day plant is located at Dung Quat Bay in the central province of Quang Ngai, far away from the main industrial hubs and offshore oil fields.

The refinery will be operated by state-owned Vietnam Oil & Gas Group after the company pushed on alone with the project in spite of the loss of Total and Russia's OAO Zarubezhneft as partners.

Vietnam Oil & Gas, known as PetroVietnam, has had to endure years of criticism of the refinery's location, starting with Total abandoning talks in 1995, citing Vietnam's insistence on locating the plant in the center of the country, hundreds of miles from the local oil fields and industrial base.

In 1997 the World Bank said that the project would "not do anything for the economy" and the next year the International Monetary Fund said Dung Quat's value was "questionable."

Even while signing up to the project in 1998, Zarubezhneft, which operates the nation's largest oil field, called Dung Quat Bay "a very bad site." The Russian company pulled out of the venture in 2002. The following year the United Nations cited the refinery in arguing that Vietnam should move away from "low-return investments."

Poor, remote location

But Vietnamese authorities remained steadfast, insisting that the plant would indeed be built in one of the country's poorest, most remote and most typhoon-prone regions.

"We had to consider factors include economic, social and political ones before we decided to build the refinery at Dung Quat," said Dinh La Thang, PetroVietnam's chairman and a member of the central committee of Vietnam's Communist Party. "It will create momentum to improve the country's central part."

Vietnam does have crude oil to refine. In 2007 the country was Southeast Asia's third-biggest producer after Indonesia and Malaysia, at 340,000 barrels per day, according to BP Plc. While output has declined annually since 2005, that trend is likely to reverse this year, after companies bring new fields on-stream, Bloomberg News reported.


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