Idemitsu, Mitsui to build major oil refinery in Vietnam

To deal with volatile prices and remain competitive, Idemitsu Kosan Co. and Mitsui Chemicals Inc. will jointly build an oil refinery in Vietnam, the first such large-scale facility abroad by Japanese companies, officials said Thursday.

The complex, expected to start operations at the end of 2013, will be constructed together with Kuwait Petroleum International Ltd. and the Vietnamese company Petrovietnam.

An estimated 580 billion yen will be invested for construction costs.

The goal of the plan is to cater to rising demands for petrochemical materials and products in Vietnam and nearby countries, the Japanese companies said Thursday.

A joint company will be established in June to map out the details of the project. The company will have a capital of 20 billion yen, with Idemitsu and Kuwait Petroleum International investing 35.1 percent each, Petrovietnam 25.1 percent, and Mitsui Chemicals 4.7 percent.

About 70 percent of the construction costs will be procured through project financing. The remainder will be covered by the companies involved, depending on their ratio of investment.

Idemitsu is expected to provide about 60 billion yen, while Mitsui will shoulder about 8 billion yen, company officials said.

The planned refinery is expected to have a processing capacity of 200,000 barrels a day, about the same level as a midsize plant in Japan.

The companies plan to import low-cost heavy oil and produce higher-priced gasoline, petrochemical material paraxylene and other materials using state-of-the-art devices at the refinery.

The refinery is projected to produce 6.185 million tons a year of gasoline, kerosene and other petroleum products, which will be sold in Vietnam, where demand is surging thanks to the country's economic growth.

Vietnam, which currently does not have a refinery complex, relies on imports of gasoline, kerosene and other petrochemical materials.

Petrochemical materials, whose annual production at the refinery is expected to be around 980,000 tons, will be exported via Mitsui Chemicals to other Asian nations.

Idemitsu officials said Vietnam approached them in 2004 about the oil refinery plan.

"Our basic projects will shrink if we concentrate only on those in Japan," Idemitsu President Akihiko Tenbo said, explaining the reason for joining forces with Vietnamese and Kuwait companies. "We decided to form closer ties with oil producing countries through joint ventures in order to ensure a stable supply of crude oil."

Idemitsu currently has a stake in a refinery project in Qatar, but the share is only 10 percent, making the Vietnam complex its first major overseas oil refinery project.

Mitsui Chemicals' objective in investing in the Vietnam project is to secure a steady supply of raw materials at low prices for use at the company's production centers in Thailand, Singapore and Indonesia.

The company has been concerned about great fluctuations in prices of raw materials used in CDs, DVDs, covers for automobile lights and PET bottles.

Other companies are also trying to ensure a steady supply of raw materials because of fluctuating prices triggered by high crude oil prices and speculative funds.

Sumitomo Chemical Co., for example, is building a large plant in a joint venture in Saudi Arabia, while Asahi Kasei Corp. plans to build a plant in Thailand.(IHT/Asahi: March 29,2008)