Japanese refiner Idemitsu Kosan Co and Kuwait Petroleum International (KPI) will today sign a $6 billion joint venture contract to set up a refinery in Vietnam.

The Nghi Son refinery in Thanh Hoa province, about 200 km (124 miles) south of the capital Hanoi, is expected to go onstream in five years, said oil monopoly Petrovietnam, which holds a 25.1 percent stake in the plant.

The refining and petrochemical complex, with a daily capacity of up to 200,000 barrels, is the country's first foreign investment in the refining sector, Petrovietnam officials said.

Idemitsu and KPI each holds a 35.1 percent stake, while a fourth partner, Mitsui Chemicals Inc, will take a 4.7 percent share in the project.

"We will sign a joint venture contract later today," a Petrovietnam spokesman said." The contract is valued over $6 billion." 
 
About 70 percent of the construction costs for the Nghi Son plant will be procured through project financing from the Japan Bank for International Cooperation.

Nghi Son refinery is designed to produce annually 2.1 million tonnes of gasoline -- 92, 95 and 98-octane grades -- 2.67 million tonnes of diesel, 790,000 tonnes of kerosene and jet fuel as well as 500,000 tonnes of liquefied petroleum gas (LPG), a feasibility study by Idemitsu showed.

Petrovietnam officials have said that products from the refinery will be used for domestic consumption and any extra barrels will be exported.

Vietnam's first refinery, the 140,000 barrels per day (bpd) Dung Quat facility -- 100 percent-owned by the government -- is scheduled to start operations in 2009, after years of delays due to fund shortages and design changes.

Unlike Dung Quat, which will use up to 80 percent of the local light sweet Bach Ho crude, Nghi Son will rely entirely on Kuwaiti crude supply.

Petrovietnam is also holding talks with several foreign firms including Venezuela' PDVSA for a third refinery with capacity of at least 140,000 bpd in the country's southern region, its top fuel consumption centre, as part of efforts to be oil product self-sufficient by 2015.

Despite being Southeast Asia's third-largest crude oil producer with output averaging 300,000 bpd, Vietnam now still relies almost entirely on oil product imports as it lacks major refineries.

In addition to the three main refineries, Hanoi has also licensed a number of smaller private refineries but none of the projects have materialised due to lack of funding and access to secure crude supply.

Last November Hanoi, which had been banning foreign firms from distributing oil products, offered to allow overseas investors in the Nghi Son project to sell directly to the domestic retail market.

To do this, Idemitsu, KPI and Mitsui Chemicals must form a joint venture retail company to sell to the domestic market.

But Hanoi said it would only open the retail market to foreign firms other than the Nghi Son investors after five years of the refinery's operation.- Reuters