February 26, 2009 / 12:08 AM / 11 years ago

RPT-FEATURE-In Vietnam, politics weigh on investment decisions

(Repeats story that moved at 0000 GMT)

By John Ruwitch

DUNG QUAT, Vietnam, Feb 26 (Reuters) - The $3 billion Dung Quat oil refinery, Vietnam’s biggest investment project to date, has been the source of many things for young mother Tran Thi Yen.

It has brought new roads to the sandy shoreline where Yen, 25, lives in an isolated region of central Vietnam. It has also attracted an army of workers from afar, including one who Yen, a petite woman with a warm smile, married.

And the flurry of construction on the refinery that officially opened last week also handed Yen a business opportunity on a silver platter. Last year, she built a roadside karaoke parlour that is already turning a profit.

“The only thing here before was sand,” she said holding her chubby seven-month-old baby.

The Vietnamese government may view cases like Yen’s as proof its decision to build the refinery here was visionary, bringing economic opportunity to one of Vietnam’s poorest regions.

But economists and political analysts have criticised the refinery project as, perhaps, the mother of all examples of how politics interferes with economic decision-making in Vietnam.

The refinery, which took 15 years to build, was shunned by overseas investors as economically unviable due to its location in an isolated area, far from oil reserves. In the end, state oil monopoly Petrovietnam was forced to go it alone.

“It demonstrates that investment in the state sector is not very sensitive to economic considerations”, said Jonathan Pincus, dean of Ho Chi Minh City’s Fulbright Economics Teaching Program.

Since “doi moi” reforms started in 1986, Vietnam’s ruling Communist Party has been slowly extricating itself from direct control over economic activity. Thousands of state-owned companies have been “equitised”, a euphemism for privatised.

Still, politics can have a direct influence on investment projects to varying degrees depending on the sector, said Melanie Beresford, an associate professor at Macquarie University in Australia.

“They have a strategic view of industries that are essential for national development. Energy is obviously one of these ... as are some of the other basic industries,” Beresford said.


The newly named Vo Van Kiet Street, after the late Prime Minister Vo Van Kiet, is a dusty strip of tarmac that stretches 23 km (14 miles) through the heart of the Dung Quat refinery’s economic zone to its port.

Kiet, prime minister from 1991 to 1997, is credited with the decision to build the 140,000-barrels per day refinery on the Quang Ngai coast and he is revered here.

Foreign investors pulled out over the decision to build in Quang Ngai because it was far from crude supplies and end users.

In 1995, France’s Total SA withdrew from a planned joint venture to build the refinery with Petrovietnam over the location. Then, in 2002, Russian state oil Zarubezhneft backed out due to disagreements over the plant’s distant location and technical issues.

Still, Le Van Dung, vice chairman of the Dung Quat Economic Zone Authority, which oversees a swath of land nearly twice the size of Manhattan that is home to the refinery and other projects, called Kiet a man of “great strategic vision”.

“It is the responsibility not only of the Prime Minister, but also of the government to develop the central region, which lost millions of lives in the war but now is lagging in terms of economic development,” Dung said. “Instead of handing them a fish, they must be given a fishing pole.”

Dung said tax revenues in the county have risen and GDP per capita has jumped from about $400 in 2006 to $700 in 2008.

Some observers remain highly sceptical.

“Drop a capital intensive project that has few linkages to the local economy into a poor province and the local impact is minimal,” said one expert on the Vietnamese economy, who declined to be named due to concern of repercussions for airing views that run counter to the party line.

“Meanwhile, the distance from the oil is so great that the refining margins are likely to be negative. The end result? Pay over the odds for a money losing project that doesn’t create jobs.”


Despite some immediate gains made by many in the area, such as karaoke shop owner Yen, other residents have their gripes.

A total of 7,000 households will have been moved by 2015 to make way for the economic zone and new industrial investment.

Pham Thi Sach, 59, who lives beside Vo Van Kiet Street, worries about the unknowns.

“Here we can make a few hundred thousand dong every day by going to the morning market to trade seafood, but if we move to a new place we won’t know what to do,” she said.

The environment is a concern, too, particularly for some small-scale fishermen like Bui Quang Tien.

“The noise from the refinery scares away the fish so my catch has been smaller,” he said. “In the past I didn’t need to buy gas to go fishing, I just paddled, but now I have to go out to sea farther. So it costs more.”

Many, if not most, of the workers at the plant will come from outside because local residents lack the skills, although some of the other factories that will be built in the economic zone may be able to offer more in terms of local employment.

Some lessons have been drawn from the long and torturous Dung Quat experience, even if the Party line has been unswerving in its praise.

The country’s next two refineries, which will be bigger, are planned to go up in the much more advantageous locations of Nghi Son, just south of Hanoi, and Long Son, near the commercial hub of Ho Chi Minh City.

In addition, the foreign partners in the Nghi Son project, which is the less desirable location of the two, are being allowed to take part in refined product distribution, something Total and Zarubezhneft were denied and which might have made the Dung Quat project palatable.

Additional reporting by Nguyen Nhat Lam; Editing by Megan Goldin

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