 Vietnam pays heavy price for petrochemistry industry
VietnamNet - 7/29/2015 3:28:17 PM
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Vietnam has vowed to develop its petrochemistry industry and has spent a great deal of money on doing so.
Vietnam has great geo-economic advantages. It is situated on international transport routes and has abundant oil reserves. And it serves as the gateway providing petrochemical products to large markets such as China, South Korea and Japan.
However, it does not have advantages in labor force and technology.
In order to successfully attract investors to the industry, it has to offer large investment incentives.
Part 1: From Dung Quat to Nhon Hoi
Binh Son Company, the developer of Dung Quat, the first oil refinery in Vietnam, located in the central province of Quang Ngai, has many tax incentives.
Binh Son can enjoy preferential import tariffs 7 percent lower than the normal tariff on petrol, 5 percent on LPG and 3 percent on petrochemical products.
The preferential tariffs have been applied since 2009 and will only end in 2018 under a Prime Minister’s decision.
Binh Son also enjoys the preferential corporate income tax of 10 percent for 30 years, or 15 percent longer than other enterprises in the Dung Quat Economic Zone.
It can enjoy a four-year tax exemption and 50 percent tax reduction for nine years after it has taxable income from Dung Quat Oil Refinery.
In 2010-2014, the preferential import tariff helped Dung Quat Oil Refinery escape from a VND27.6 trillion loss, according to PetroVietnam.
Dung Quat has contributed big money to the local budget, which has kicked off a race among cities and provinces to set up oil refineries.
Eight petrochemistry & oil refinery projects have been licensed so far, located in Thanh Hoa to Can Tho provinces.
Meanwhile, at first, Vietnam planned to have three refineries only in Quang Ngai, Thanh Hoa and Ba Ria – Vung Tau provinces.
Besides Dung Quat and another small refinery named Cat Lai in HCM City, which are both under operation, the other six projects are still on paper.
These include mammoth projects such as Nhon Hoi in Binh Dinh province capitalized at $22 billion and Nghi Son in Thanh Hoa ($9 billion).
What concerns economists is how high the investment incentives the government would be. In principle, once Dung Quat gets investment incentives, others will be able to.
After arguments about the necessity of Nhon Hoi project and the capability of the investor, the Prime Minister in late 2014 agreed to add it to the list of oil refineries to be developed by 2025. Investment incentives have been offered to the investor.
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