chapter 5 - key sectors

infrastructureBmi VieW

executive summaryWith inflation still on the rise and interest rates likely to remain

elevated, construction companies facing liquidity difficulties will

remain unwilling to take up large-scale projects and carry out

construction work that requires significant capital. That said, our

near-term outlook for Vietnams construction sector is bearish,

with real growth expected to slow to 4.0% in 2011. We hold a

buoyant long-term outlook for the sector due to robust economic

growth and an improving business environment for long-term

fixed asset investment. We are forecasting construction sector

growth to average 6.3% per annum between 2011 and 2015.

Major Developments:

In July 2011, Vietnam launched a pilot competitive generation

market, with the aim of gradually paying private generating

firms market rates for their electricity to spur them to boost

supply. A total of 48 of the countrys 73 power plants that have

a capacity greater than 30 megawatts (MW) joined the com-

petitive market in the same month, with 5% of their power to

be sold to Electricity of Vietnam (EVN) on a cost-based price

per hour basis.

In July 2011, EVN announced that it will invest US$39bn in

building an additional 95 power plants with a total capacity

of around 49,000MW over the next ten years. A total of 38

of these will be constructed between 2011 and 2015. To meet

this target by 2015, EVN would require investment of US$3bn

a year for new power plants and transmission infrastructure

between 2011 and 2015.

In July 2011, the much-delayed 12.5km metro rail project in

Hanoi was slated for completion one-year behind schedule in

2016, according to Railway-Technology. Continued funding for

the US$1bn project has been provided by the Asian Develop-

ment Bank (ADB) and the European Investment Bank (EIB),

along with the French government and the French Development

Agency. Once completed, the rail line will run from Hanois main

station in the citys Hoan Kiem district to the eastern Nhon area.

market overviewVietnams emergence as one of the most promising economies in

Asia, if not the world, stems largely from the Communist Party

of Vietnams (CPV) adoption of the Doi Moi market reform

policies in 1986. The gradual but steady shift from a largely

agrarian country with a high degree of state ownership and

government intervention to a market economy has stimulated

a flow of foreign investment and domestic entrepreneurship,

which are now the prime drivers of growth. For instance, foreign

direct investment (FDI) reached US$6.7bn in 2007, of which

a quarter went towards fixed capital formation, according to

data from UNCTAD.

However, Vietnams poor infrastructure has long been an im-

pediment to the countrys growth, as its developing industry

is highly dependent on sound infrastructure (especially power

and road) to operate. In August 2008, even Vietnams planning

and investment deputy minister, Cao Viet Sinh admitted that

the weaknesses in the countrys infrastructure were slowing the

absorption rate of FDI.

Vietnams Ministry of Planning and Investments has released a

list of 60 urban infrastructure projects to be implemented between

2009 and 2016. The total estimated investment required for the

projects is US$12bn. The projects range from new water and

sanitation infrastructure to new roads and traffic systems, and

will be implemented in 15 provinces across the country. Around

18 of the proposed projects on the list will be funded by official

development assistance (ODA) from Europe, Japan and the Asian

Development Bank (ADB), while the ministry said that the rest

will come from the private sector through public private

partnerships (PPPs). Infrastructure bonds are another option,

but this idea has not gained much support from the government

thus far. However, as the capital requirements for projects in

energy, utilities and transport increase, infrastructure-specific

bonds may become more popular.

Vietnam has indeed been making noteworthy efforts to attract

investment, and the government has made infrastructure a priority

investment area. The country is undeniably in need of signifi-

33Business Monitor international ltd www.businessmonitor.com

Chapter 5:Key sectors

cant infrastructure investment, and PricewaterhouseCoopers

(PWC)s executive director for South East Asian infrastructure

(quoted in the Saigon Times) affirmed that Vietnam will need to

increase the levels of infrastructure investment at twice the growth

rate of GDP to increase its overall national competitiveness.

industry ForecastEnergy And Utilities Infrastructure:The energy and utilities

sector is seeing more moderate but rising levels of growth, and

BMI is forecasting the industrys value to grow by an average

of 4.1% y-o-y between 2011 and 2015.

Although the investment in the transport sector will continue

to overshadow spending on energy and utilities, the value of

the power plants and transmission grids sector will increase in

the coming years, with real growth averaging 4.0% annually

between 2011 and 2015. Vietnams power consumption is indeed

expected to rise sharply in the coming years in light of both posi-

tive economic and demographic growth. The government will

therefore need to step up the countrys power generation to meet

growing demand and avoid a real risk of persistent electricity

shortages, which could in turn deter foreign manufacturers from

using the country as an export base and force them to direct

investment elsewhere.

Vietnam faces a critical power supply crunch, with the state-

owned electricity firm, EVN, announcing in 2010 that it was

unable to implement necessary power projects due to a shortage

of capital. Between January and November 2010, Vietnams

electricity demand for industry and construction rose by 18.7%

y-o-y, while EVN was only able to increase its electricity

production by 14.5% y-o-y, according to local media reports.

As such, the country had to rely on electricity purchases from

foreign countries (ie China) to meet this shortfall an option

that is becoming increasingly costly. In May 2011, China raised

its electricity sales prices to Vietnam by 13% to US$0.058 per

kWh in a new agreement signed between the two countries,

reported Intellasia. Vietnam is likely to import around 4% of its

national electricity from China in 2011 in order to meet growing

domestic demand. The new price has been backdated to January

2011, meaning Vietnam will have to pay the difference for the

intervening months.

In July 2011, EVN announced that it will invest US$39bn in

building an additional 95 power plants with a total capacity of

around 49,000MW over the next ten years, 38 of which will

be built between 2011 and 2015. To meet this target by 2015,

EVN will require investment of US$3bn a year for new power

plants and transmission infrastructure between 2011 and 2015.

We believe that investor demand is significant in Vietnams utili-

ties market. However, private investment has been limited due

to the bureaucratic obstacles and rigidity of the internal market.

EVN enjoys a monopoly over distribution in Vietnams electric-

ity market. A unified tariff is applicable across the country and

artificially low, capped prices have long made it unprofitable for

foreign infrastructure companies to invest in the power sector;

mainly because most of the equipment for power stations has

to be purchased from other countries at global market prices.

Furthermore, they have been deterred by an onerous negotiating

process for pricing and distribution contracts.

Addressing those two issues is clearly within the governments

reach and could boost activity in the market, helping mitigate

some of the risks to future growth inherent in the overreliance

on EVNs investment programme.

Growing Foreign Participation:The first ever PPP in Viet-

nams power generation sector gained momentum in May 2009.

Malaysias JAKS Resources reportedly signed a memorandum

of understanding (MoU) with the Vietnamese government for

the construction and operation of the Hai Duong thermal power

station. This is a significant milestone for Vietnam. It further

indicates that opportunities to fill the investment gap left by

state-owned EVN are proliferating for independent power

producers (IPPs).

Foreign involvement in the sector has also been growing since

2010. During Russian President Dmitry Medvedevs visit to

Hanoi in October 2010, Russian and Vietnamese authorities

formally signed a U$10.6bn deal to construct Vietnams first

2000MW nuclear power plant in the Ninh Thuan province.

Atomstroyexport, a subsidiary of Russian state nuclear holding

company Rosatom will start construction of the plant, known as

Ninh Thuan 1, in 2014 and begin operations in 2020. Similarly,

in a state visit by Japanese Prime Minister Naoto Kan, Japanese

and Vietnamese authorities signed an agreement estimated to

be worth US$14.4bn to construct Vietnams second 2000MW

nuclear power plant. Known as Ninh Thuan 2, this will also

be located in the Ninh Thuan province and is expected to start

operations in 2021.

The coal generation sector has also been recently significant

attention from foreign investors in recent months. In December

2010, Doosan Heavy Industries & Construction won two major

infrastructure deals in Vietnam. The South Korean power plant

34 Business Monitor international ltdwww.businessmonitor.com

Vietnam Q1 2012

developer signed a US$1.2bn contract with AES-VCM Mong

Duong Power, an indirect affiliate of US-based multinational

power company AES, for the construction of the 1,200MW Mong

Duong 2 coal-fired power plant in the Quang Ninh province. A

week later, Doosan received a US$3bn order to construct two

coal-fired power plants in the Quynh Lap district near Hanoi

and the Long Phu district near Ho Chi Minh City.

The Mong Duong 2 plant in particular, is representative of the

growing liberalisation in the Vietnamese utilities sector, as it

is one of Vietnams first foreign-backed BOT (build-operate-

transfer) coal-fired plants. The project is 51% owned by US-based

multinational power company AES, with POSCO Power, an

affiliate of South Korea-based POSCO, and China Investment

Corporation owning the remaining 49%. Aside from being built

and operated by foreign companies, the project is financed by

foreign banks. In July 2011, twelve foreign banks led by France-

based CIC and Germany-based DZ jointly agreed to provide

more than US$1.46bn to for the US$1.95bn Mong Duong 2

project, with the banks expected to provide the first disbursement

by August 2011, according to the operator, AES-VCM Mong

Duong Power. Among the twelve banks, Korea Eximbank

is expected to be the largest debt financier of the project, with

Korea Trade Insurance Corporation providing commercial

guarantees and political risk cover. The Mong Duong 2 plant

is expected to commence operations in late 2014. Besides the

Mong Duong 2 plant, three other coal-fired plants (Phu My

3, Mhy My 2.2, and Hai Duong) are being implemented by

a foreign independent power investors under BOT contracts.

Hydropower Indispensible But Problematic: Hydropower

provides more than a quarter of Vietnams electricity. There is a

stable stream of investment into increasing hydropower capacity

as rising coal prices in Asia render coal plants costly to operate.

However, hydropower has proven to be an unreliable source of

electricity, largely due to the severe droughts that have plagued

Vietnam in recent years. In 2010, droughts caused water levels

in 17 key hydroelectric reservoirs to decline sharply, and the

amount of electricity generated was greatly reduced, according

to EVN Chairman Dao Van Hung. Droughts continued to af-


KeY sectors

taBLe: enerGY & utiLities inFrastructure inDustrY Data2008e 2009e 2010e 2011f 2012f 2013f 2014f 2015f

energy and utilities infrastructure industry Value as % of total infrastructure 36.4 30.8 28.8 28.6 27.7 27.4 27.4 27.5

energy and utilities infrastructure industry Value, Vndbn 5,921.70 15,565.10 18,480.00 21,316.90 24,076.90 26,739.90 29,632.00 32,800.30

energy and utilities infrastructure industry Value, us$bn 1.0 0.9 1.0 1.0 1.2 1.4 1.5 1.7

energy and utilities infrastructure industry Value real Growth (%) 12.5 -2.2 9.5 1.4 3.2 4.8 5.3 5.7

energy and utilities infrastructure industry Value as Percent of total construction (%)

16.6 14.1 13.3 13.0 12.6 12.5 12.3 12.3

Power Plants and transmission Grids infrastructure industry Value as % of total energy and utilities

90.5 89.4 89.8 89.7 89.5 89.4 89.4 89.4

Power Plants and transmission Grids infrastructure industry Value, Vndbn 14,408.70 13,914.30 16,591.70 19,123.10 21,551.60 23,911.50 26,487.30 29,322.30

Power Plants and transmission Grids infrastructure industry Value, us$bn 0.9 0.8 0.9 0.9 1.1 1.2 1.4 1.6

Power Plants and transmission Grids infrastructure industry Value real Growth (%)

11.9 -3.4 10.1 1.3 2.9 4.7 5.3 5.7

Power Plants and transmission Grids infrastructure industry Value as % of total infrastructure

32.9 27.5 25.9 25.7 24.8 24.5 24.5 24.6

Power Plants and transmission Grids infrastructure industry Value as % of total construction

15.1 12.6 11.9 11.6 11.3 11.1 11.0 11.0

oil and Gas Pipelines infrastructure industry Value as % of total energy and utilities

4.5 4.5 3.2 3.3 3.1 3.0 2.8 2.7

oil and Gas Pipelines infrastructure industry Value, Vndbn 716.5 707.5 594.9 696.7 744.0 791.7 838.4 883.6

oil and Gas Pipelines infrastructure industry Value, us$bn 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

oil and Gas Pipelines infrastructure industry Value real Growth (%) 27.0 -1.2 -25.1 3.1 -3.0 0.2 0.4 0.4

oil and Gas Pipelines infrastructure industry as % of total infrastructure 1.6 1.4 0.9 0.9 0.9 0.8 0.8 0.7

oil and Gas Pipelines infrastructure industry as % of total construction 0.7 0.6 0.4 0.4 0.4 0.4 0.3 0.3

Water infrastructure industry Value as % of total energy and utilities 5.0 6.1 7.0 7.0 7.4 7.6 7.8 7.9

Water infrastructure industry Value, Vndbn 796.5 943.3 1293.3 1497.1 1781.3 2036.7 2306.4 2594.4

Water infrastructure industry Value, us$bn 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Water infrastructure industry Value real Growth (%) 12.5 11.4 27.9 1.8 9.2 8.1 7.7 7.5

Water infrastructure industry as % of total infrastructure 1.8 1.9 2.0 2.0 2.1 2.1 2.1 2.2

Water infrastructure industry as % of total construction 0.8 0.9 0.9 0.9 0.9 0.9 1.0 1.0

e/f = BMI estimate/forecast, Source: BMI Research

fect Vietnam during the dry season in 2011, particularly in the

countrys Northern provinces. As a result, Vietnam is reliant

on electricity imports from China to meet the shortfall an

expensive option. In July 2011, ten northern provinces were

living on 1,000MW of imported hydro power from China

around 4.7% of the total power generation.

The environmental effects caused by hydropower plants are also

increasingly becoming a concern. In April 2011, The Vietnamese

Department of Industry and Trade cancelled 39 hydroelectric

projects in the province of Lao Cai, Intellasia reported. Envi-

ronmental concerns, such as deforestation and the destruction

of natural landscapes, have been cited as reasons for the deci-

sion. The cancelled plants ranged in capacity from 0.63MW to

6.6MW and were part of a total of 122 hydroelectric projects

previously approved by the province. At present, the country

has 1,021 hydropower projects, with a combined capacity of

24,246MW, over 36 provinces and cities.

The government of Vietnam announced plans to test a new BOT

tender model for electricity projects, with the launch of the tender

for the Nhhi Son 2 coal-fired power plant taking place in June

2010. The nebulous regulatory and legal environment govern-

ing Vietnams power sector is rendering the BOT/independent

power plant (IPP) model almost unworkable. The situation is a

product of state-owned EVNs monopoly on the entire power

supply chain and Vinacomins monopoly over fuel (coal) sup-

ply, both of which have hindered the development of private

participation in the power generation sector.

Keen to see the power generation sector grow, Vietnams ministry

of industry and trade said that plans for the development of the

13 power projects (which were previously rejected by EVN) have

been finalised and will now be submitted to the government for

consideration. Under the latest plans, EVN will instead invest in

two projects with an overall capacity of 2,000MW, and the rest

of the projects will be financed by investors. It should be noted

that while EVN had faced major challenges in the domestic

credit market, these challenges will be similar, if not greater, in

the private sector. The private sector will need to overcome the

problems posed by additional red tape and negotiate pricing and

distribution contracts with EVN (since EVN has a monopoly

over distribution), a process that itself is reportedly challenging.

Nuclear Still In The Works: Vietnam has also taken the first

step towards nuclear. Vietnams nuclear ambitions stretch back

to the 1980s when the country first considered developing the

technology. In 2006, the government announced plans to develop

2,000MW of nuclear generating capacity in the province of Ninh

Thuan, with construction due to start in 2014, and expected to

take around five years.

The National Assembly has approved the resolution calling

for the construction of these plants and now, pending further

clarification, the resolution will be submitted to Prime Minister

Nguyen Tan Dung, for final approval. The resolution estimates

that the cost of construction of the plants will be approximately

VND200trn (US$10.8bn). However, BMI calculates that com-

pleting the plan would cost Vietnam in the region of US$50bn,

prompting the obvious question where will the funds come

from?

Wind Potential Unrealised: Vietnam has one of the largest

potential markets for wind power generation in South East Asia.

The country enjoys favourable climatic conditions and could

harness wind energy due to its long coast line and unobstructed

access to long-duration winds from vast oceans. A recent report

from the World Bank stated that Vietnams wind power potential

is estimated to be around 713,000MW. Two central provinces,

in particular the Ninh Thuan province and the hilly region of

Binh Thuan province have proven to be especially prolific

for wind farms, as they enjoy higher average wind speeds, while

suffering from fewer storms. The islands of Bach Long Vi, Phu

Quy and Truong Sa also enjoy stronger wind speeds than other

parts of Vietnam, making them ideal locations for the construc-

tion of large-scale wind farms for the islanders.

However, Vietnams potential remains largely untapped, due

to a non-conducive business environment. Only a fraction of

Vietnams wind power potential has been utilised while data

from the Vietnamese Ministry of Industry and Trade showed

that there are just 21 wind farm projects in Vietnam.

oil & Gas

executive summaryThe latest Vietnam Oil & Gas Report from BMI forecasts that

the country will account for 1.35% of Asia Pacific regional oil

demand by 2015, while providing 5.02% of supply. Regional

oil use of 26.07mn barrels per day (b/d) in 2010 is forecast to

rise to around 30.22mn b/d by 2015. Regional oil production

was around 7.92mn b/d 2010. It is set to decrease to 7.88mn

b/d by 2015. Oil imports are growing rapidly, because demand

growth is outstripping the pace of supply expansion. In 2010, the


Vietnam Q1 2012

region was importing an average 18.15mn b/d. This total rises

to an estimated 22.34mn b/d in 2015. The principal importers

will be China, Japan, India and South Korea. By 2015 the only

net exporter will be Malaysia.

In terms of natural gas, in 2010 the region consumed around

513.3bn cubic metres (bcm) and demand of 664.9bcm is targeted

for 2015. Production of 406.0bcm in 2010 should reach 556.7bcm

in 2015, implying net imports falling from around 112.3bcm to

111.8bcm. Vietnams share of gas consumption in 2015 is put

at 2.40%, while its share of production is estimated at 3.77%.

Exploration success has been on the rise in Vietnam, with a

growing number of international oil companies (IOCs) teaming

up with PetroVietnam and finding and developing hydrocarbon

resources particularly gas. We expect that oil and gas liquids

production of 407,000b/d in 2011 will ease back to 395,000b/d

by 2015. Consumption is forecast to increase by around 5-7%

per annum to 2015, implying demand of 408,000b/d by the end

of the forecast period. Gas production is forecast to increase

from the estimated 2011 figure of 9.0bcm to 21.0bcm by 2015

providing a basis for exports.

Between 2011 and 2020, we are forecasting a decline in Viet-

namese oil production of 23.0%, with crude volumes peaking at

just under 407,000b/d in 2011, before slipping to 313,000b/d by

2020. Oil consumption between 2011 and 2020 is set to increase

by 69.7%, with growth ranging from 5-7% per annum and the

country using 554,000 b/d by 2020. Gas production is expected

to rise from an estimated 9.0bcm in 2011 to 24.0bcm in 2020.

We see Vietnams net gas export potential turning into modest

imports by the end of the period on the back of rising demand

and steady output in the period 2016-20.

market overviewOverview/State Role: The government of the Socialist Re-

public of Vietnam controls both the upstream and downstream

segments, although gradual liberalisation is under way. In the

upstream segment, foreign companies are allowed to independ-

ently explore for oil and gas. While the presence of state-owned

PetroVietnam (PV) is required for all producing projects, IOCs

are allowed to hold majority stakes and receive a share of output.

The fuels downstream segment remains under full state control

(with the exception of LPG), although reforms proposals have

been on the table for some time. PetroVietnams downstream

subsidiary PV Oil operates the countrys only refinery, while

fuels retailing is carried out by government-run companies, such

as Petrolimex and Petec under the Ministry of Trade, Petro-

Vietnam Trading Company (Petechim) under PetroVietnam,

Saigon Petro under Ho Chi Minh City Peoples Committee,

Military Petroleum Company under the Ministry of Defence

and Vinapco under Vietnam Airlines, all of which have been

licensed to import petroleum products. Fuel prices are heavily

subsidised for political purposes.

The government has issued over 80 investment licences for oil

and gas exploration since the industry was opened to foreign

partners in 1998. More than 30 companies from around the world

now operate offshore Vietnam. However, several foreign firms

have chosen to exit the country citing regulatory problems and

disappointment at recovering smaller quantities of oil and gas

than expected.

Licensing And Regulation: Permits are awarded on a bilateral

basis, with no regular upstream bidding rounds. Amendments

to Vietnams Petroleum Law in 2000 paved the way for a more

open and transparent licensing round scheme through which

E&P projects would be offered to international investors. In

June 2008, PetroVietnam announced an international explora-

tion licensing round, which will offer seven offshore blocks

covering 50,000sq km in the Song Hong Basin off northern

Vietnam, in water depths of 60-100m. The company claims

that the blocks contain up to 5bn boe. The licences available

provide for 30-year production sharing contracts (PSCs), with

a five-year extension option, and a minimum 20% interest for

PetroVietnam. The spread of the global economic crisis, however,

led to the indefinite postponement of the round.

Overall, the government understands the importance of IOC in-

vestment in maintaining oil and gas output. The state is therefore

generally committed to establishing an attractive tax framework

for foreign energy investors. However, the negative impact of

the economic downturn on the countrys fiscal position has led

to increases in some oil taxes.

A fundamental shift in import duties came in January 2011, when

the government brought in an automatic tariff tracker. Previ-

ously set centrally by the Finance Ministry, as of January 2010

the tariffs have been based on Platts 30-day average price of

Singapore-traded WTI crude. The biggest importer Petrolimex

now publishes pricing information on its web site.

Consequently, import tariffs fell following the introduction

of the tracker in light of the rising oil prices. In January 2011,

Petrolimex cut the import tax rates on gasoline and jet fuel by


KeY sectors

half to 6% from 12%, the company said in a statement. The

import tax on diesel was reduced to 2% from 5%, while that on

kerosene was cut to 4% from 10%. The gradual relaxation of

oil product import tariffs has been made possible by the start-

up of domestic crude refining in Vietnam in early 2009, which

reduced the fiscal importance of import duties to the govern-

ment. Moreover, the build-up of refining capacity throughout

the decade should practically eliminate the countrys need to

import the main types of distillates by late 2010.

Government Policy: The upstream segment is of great impor-

tance to the Vietnamese government, with PV providing 24%

of the countrys budget and 14% of its export earnings in 2009.

Under government proposals announced in July 2009, deputy

trade minister Nguyen Cam Tu said that private Vietnamese

companies would be allowed to import and sell refined prod-

ucts as long as they met requirements to have adequate storage

facilities and terminals. In addition, the draft measure permits

oil product distributors to change pump prices by up to 7% if

world crude prices rise by more than 12%, although the state

would still intervene in the event of abnormal changes in world

prices. Currently, oil product distributors have to seek permission

from the Finance Ministry and the Industry and Trade Ministry

to change their pump prices.

The government has earmarked Petrolimex, the largest national

fuel distributor, for sale as part of its renewed privatisation

drive. Prime Minister Nguyen Tan Dung announced in January

2009 that the state was to reduce its holding in Petrolimex to at

least 75% to help balance the countrys budget. In a statement

released in January 2011, Petrolimex said the IPO would be

completed by the year-end.

Since 2005, PetroVietnam has floated and sold stakes in several

subsidiaries, including PetroVietnam Drilling & Well Serv-

ices and Petroleum Technical Services. The firm appears to

be slowly privatising itself, with the government having been

mulling an international public stock offering for some time.

The global economic crisis has put plans for a large-scale pri-

vatisation on ice, but those plans began to move forward again

as of early 2011.

industry ForecastWe are using the most recent estimate of 4.40bn bbl for Viet-

nams proven oil reserves, as published in the BP Statistical

Review of World Energy, June 2011. This stands in stark

contrast to the 600mn bbl estimate provided by the end-2010

OGJ survey. We are assuming a further rise in reserves towards

4.65bn by 2013, thanks to an upsurge in activity and success

in the upstream oil segment. PetroVietnam expects to find up

to 110mn boe between 2011 and 2015, with partner compa-

nies such as Soco International and Premier Oil set to make

useful contributions through recent oil finds. Gas exploration,

particularly in the northern basins, is still in early stages. Gas

reserves are estimated at 617bcm, but we see scope for a rise

to an estimated 620bcm in 2011/12.

Two discoveries were announced in Vietnam in September 2010.

The Hoang Long Joint Operating Company (HLJOC), a joint

venture involving PetroVietnam and Soco, hit hydrocarbon

reserves in south eastern Vietnam while Malaysias Petronas

Carigali discovered oil and gas in northern Vietnam. The HL-

JOC announced that its Te Giac Den (TGD)-2X appraisal well

encountered hydrocarbons at a depth of about 4,450 metres (m).

Soco is targeting about 100mn bbl of probable reserves (P50)

for the TGD-2X well. The Petronas oil and gas discovery was

made further north. The well is located in blocks 102 and 106

in the Song Hong Basin and initial estimates suggest it could

produce 6,300b/d.

Oil Supply And Demand: Vietnams rapid emergence as an

oil producer after the start-up of the flagship Bach Ho (White

Tiger) oilfield in 1987 progressed steadily until 2004, when

production dropped sharply from a peak of over 400,000b/d

to only 337,000b/d in 2008. This trend has now been reversed,

following the start-up of several new fields in 2009 and 2010.

Oil production in 2010 was 373,000b/d according to the EIA,

having grown by 7.8% y-o-y. Although we believe this recov-

ery has the potential to continue throughout 2011 with output

rising to a new peak of almost 407,000b/d, we see little scope

for further increases and expect production to decline to only

313,000b/d by 2020.

The main oil producing area is offshore the southern coast: the

mature Cuu Long Basin, and the less explored, deeper Nam Con

Son Basin. The biggest new development in recent years has

been the Su Tu Vang (Golden Lion) field, which came onstream

in October 2008, reaching 65,000b/d by early-2009. In October

2009, however, output collapsed to 35,000b/d without officials

providing explanation. Su Tu Vangs decline has severely

damaged Vietnams hopes of postponing the fall in national

production. The second largest recent field launch is the Rang

Dong-Phuong Dong development, which has been producing

around 37,000-38,000b/d since August 2008.


Vietnam Q1 2012

Vietsovpetro has announced plans to increase its oil output from

around 130,000boe/d in 2010 to 140,000boe/d in 2015, revers-

ing a long-term production decline trend. PetroVietnam plans

to start up production at the Te Giac Trang (White Rhino) oil

field and the second phase of Dai Hung (Big Bear) in August

2011, followed by Chim Sao (Blackbird) in September.

Oil consumption volumes have been rising steadily for more

than 20 years, in line with economic growth. With oil production

having begun to falter in 2004, there is now a real risk that it

could be overtaken by consumption in the near future, turning

the country into a net oil importer by 2015.

Gas Supply And Demand: Natural gas production is on the

rise, although so far there is limited domestic demand and in-

frastructure. Over the near to medium term, gas consumption

should move in line with rising gas supply. A growing supply

surplus implies meaningful regional gas exports by pipeline, if

infrastructure projects proceed. Over the longer term there are

plans to import gas in the form of LNG as power demand grows

beyond domestic supply capabilities. We believe Vietnam has

the potential to boost gas production to 21bcm by 2015, with

limited further long-term growth available.

PetroVietnam has said that it plans to spend US$1.3bn on

building a second gas pipeline from the Nam Con Son Basin

to southern Vietnam, according to state media reports. The

planned US$1.3bn pipeline would transport gas 400km from

blocks 05.1 and 05.2 in the Hai Thach and Moc Tinh project to

land, from where it would be sent to power plants in the Phu

My district of the Ba Ria-Vung Tau province. Planned capacity

is 6bcm. The new pipeline would boost onshore gas supply by

30-40%, according to PetroVietnams general director, Phung

Dinh Thuc, to 10-11bcm per annum.

Gas discoveries in south western Vietnam have encouraged

the construction of pipelines to feed the rapid expansion of the

countrys power generation capacity, particularly at the Phu

My complex. Vietnam is also boosting the use of associated

gas production.

In March 2010, Chevron signed a deal with PetroVietnam to

build a pipeline from its operated offshore assets in the Cuu

Long Basin to southern Vietnam. Under the deal, Chevron,

PetroVietnam and PTTEP of Thailand will spend US$1bn

to build the 400km pipeline, which will be the longest in the

country. The pipeline will run from production platforms about

250km off the coast to power plants in Can Tho City, with

offshoots supplying power and fertiliser plants throughout the

south western region. The pipeline will have carrying capacity

of 6.4bcm a year.

The total cost of the Vietnam Gas Project is estimated at

US$4.3bn and Chevron expects to begin production in 2014,

two years behind the original schedule, with output potentially

reaching 5.1bcm per annum. While the initial volumes have been

earmarked for local industrial customers, Chevron is proposing

to construct an interconnector to Malaysia and Thailand, an

option highlighted in PetroVietnams press release on the Can

Tho pipeline deal.

Refining/Oil Products Trade: Once completely reliant on

oil product imports, Vietnam is embarking on a large-scale

development of its refining industry. Vietnamese refining is

of particular interest to companies from major oil producing

states eager to gain a foothold in a rapidly expanding market

and ensure an outlet for less expensive crude oil blends. Japan

has also shown considerable interest; faced with stagnating fuel

demand and a supply glut at home, it views Vietnam as a strong

potential market for fuel products.

After almost a decade of delays, Vietnam bought the 140,000b/d

Dung Quat plant, its first refinery, onstream in February 2009.

Dung Quat currently processes valuable sweet domestic crudes,

mainly from the declining Bach Ho field, reducing oil export

potential.

To secure alternative supplies for the refinery, and maximise

the revenues from the premium Bach Ho blend by exporting

the crude, PetroVietnam has held talks on enabling the plant

to process sour blends of foreign crude by building a US$1bn

desulphurisation unit. It has also held talks with companies in-

cluding Anglo-Russian JV TNK-BP and national oil company

Petrleos de Venezuela (PdVSA) on crude deliveries. In April

2011 PdVSA agreed to help PetroVietnam expand the refinery by

100,000b/d. On the back of Dung Quats successful commission-

ing, Vietnam is pushing ahead with the expansion of its refining

industry. Currently at least five new refining projects are being

considered by domestic state companies and foreign investors.

In January 2010, PetroVietnam said that its experience at Dung

Quat convinced it that only refineries of more than 200,000b/d

are worth its while. This means that no state funding will be

available to smaller refining projects. Smaller projects, however,

could still be pursued by private companies, both domestic and

foreign. PetroVietnam is currently involved in two more large

refining projects. The first is the 200,000b/d Nghi Son plant. It


KeY sectors

is being developed in partnership with Japans Idemitsu Kosan

and Mitsui Chemicals, and Kuwait Petroleum Corporation

(KPC). FEED was completed in late-2009.

The third refinery due on stream is the Long Son project. The

200,000b/d plant is due to become operational in 2014-2015,

and in our forecasts we have assumed that the latter date is the

more likely. Technip, along with Japanese engineering com-

pany JGC Corporation, has been awarded a US$5bn contract

by PetroVietnam to construct the refinery. Once complete, the

refinerys capacity will be more than 200,000b/d. The agree-

ment awaits finalisation.

Taiwans Formosa Heavy Industries in September 2009 an-

nounced that it received preliminary government approval to

build a US$12.5bn refining and petrochemical complex in the

Vung Ang Economic Zone. The project has planned capacity

of 300,000b/d.

In July 2008, Petrolimex and China Petroleum and Chemical

Corporation (Sinopec) announced plans to build an oil refinery

in the countrys central Khan Hoa province. The 200,900b/d

facility will produce LPG, gasoline, kerosene, diesel, polypro-

pylene, benzene and some other products. The plant should come

onstream in 2013, according to the government. Preliminary

investment capital of VND4.4-4.8bn (US$260,000-280,000)

has been committed to the project.

Revenues/Import Costs: The value of crude exports, as-

suming an OPEC basket oil price of US$101.90/bbl in 2011,

US$97.50.00/bbl in 2012, US$92.50 in 2013and an average of

US$90.00/bbl in 2014 onwards, would fall from an estimated

US$2.99bn in 2011 to an import bill of US$416mn by 2015.

However, medium-term refinery timing remains very uncertain.


Vietnam Q1 2012

taBLe: oiL & Gas HistoricaL Data anD Forecasts2008 2009 2010 2011f 2012f 2013f 2014f 2015f

oil Proved reserves, mn barrels 4,730.00 4,500.00 4,400.00 4,400.00 4,500.00 4,650.00 4,557.00 4,465.86

oil Production, 000b/d 337.07 345.59 373.18 406.6 402.35 398.03 395.97 395.16

oil consumption, 000b/d 284 293 310.58 326.11 342.41 362.96 384.74 407.82

oil refinery capacity, 000b/d na 140 140 140 140 240 340 540

oil net exports, 000b/d 53.07 52.59 62.6 80.5 59.94 35.07 11.23 -12.66

oil Price, us$/bbl, oPec Basket 94.28 60.96 77.39 101.9 97.5 92.5 90 90

Value of net oil exports, us$mn (BMi base case)

1,826 1,170 1,768 2,994 2,133 1,184 369 -416

Value of net Petroleum exports, us$mn (BMi base case)

1,826.11 1,170.20 1,832.50 3,063.55 2,294.18 1,916.78 2,527.01 1,844.01

Value of net oil exports at constant us$50/bbl us$mn

968.49 959.75 1,142.41 1,469.03 1,093.82 640.02 205.03 -230.99

Value of net oil exports at constant us$100/bbl us$mn

1,936.98 1,919.50 2,284.83 2,938.07 2,187.65 1,280.04 410.07 -461.99

Value of net Petroleum exports at con-stant us$50/bbl us$mn

968.49 959.75 1,183.97 1,503.21 1,176.50 1,036.10 1,403.89 1,024.45

Value of net Petroleum exports at con-stant us$100/bbl us$mn

1,936.98 1,919.50 2,367.94 3,006.43 2,353.01 2,072.20 2,807.78 2,048.90

refined Petroleum Products exports, 000b/d (BMi)

-284 -195 -184.58 -193.11 -209.41 -134.96 -61.74 105.18

Gas Proved reserves, tcm 557 682 617 620 620 615 610 610

Gas Production, bcm 6.98 7.09 8.27 9 10.71 14 19 21

Gas consumption, bcm 6.98 7.09 8.1 8.86 10.38 12.41 14.18 15.95

net Gas exports, bcm (BMi research) na na 0.17 0.14 0.33 1.59 4.82 5.05

Value of net Gas exports, us$mn (BMi base case)

na na 64.32 69.66 161.22 732.74 2,157.95 2,259.79

Value of net Gas exports at constant us$50/bbl us$mn

na na 41.55 34.18 82.68 396.08 1,198.86 1,255.44

Value of net Gas exports at constant us$100/bbl us$mn

na na 83.11 68.36 165.36 792.16 2,397.72 2,510.88

f = forecast; na = not applicable. Source: Historical data: EIA, BP Statistical Review of World Energy, June 2010/BMI. All forecasts: BMI.


KeY sectors

other Key sectors

Latest Forecast DataBelow are the latest forecast tables for our other core key sectors:

taBLe: autos sector KeY inDicators 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Vehicles, units [1] 23,478 33,018 33,689 37,199 40,322 43,872 48,170 52,805 57,789

Vehicles, units mn [1] 0.02 0.03 0.03 0.04 0.04 0.04 0.05 0.05 0.06

Passenger cars, units [2] 22,542 31,684 32,805 36,315 39,438 42,988 47,286 51,921 56,905

Passenger cars, units mn [2] 0.02 0.03 0.03 0.04 0.04 0.04 0.05 0.05 0.06

commercial vehicles, units [1] 936 1,334 884 884 884 884 884 884 884

commercial vehicles, units, % chg y-o-y [1] 197.1 42.5 -33.7 0.0 0.0 0.0 0.0 0.0 0.0

Vehicles, units [3] 80,392 111,946 119,460 112,224 118,824 126,562 138,656 159,496 181,478

Vehicles, units, % chg y-o-y [3] 96.8 39.2 6.7 -6.1 5.9 6.5 9.6 15.0 13.8

Passenger cars, units [4] 40,115 50,874 62,723 57,778 58,934 61,880 66,212 74,157 82,315

Passenger cars, units, % chg y-o-y [3] 71.9 26.8 23.3 -7.9 2.0 5.0 7.0 12.0 11.0

commercial vehicles, units [5] 40,277 61,072 56,737 54,446 59,891 64,682 72,444 85,339 99,164

commercial vehicles, units, % chg y-o-y [5] 129.9 51.6 -7.1 -4.0 10.0 8.0 12.0 17.8 16.2

Passenger car density, cars per 1,000 of population [6] 9.9 13.0 10.5 11.0 11.7 11.8 11.9 12.1 12.2

Notes: e BMI estimates. f BMI forecasts. Sources: 1 OICA/BMI calculation. 2 OICA; 3 VAMA/BMI calculation; 4 VAMA; 5 ACEA/BMI calculation; 6 World Bank.

taBLe: FooD & DrinK sector KeY inDicators 2008 2009 2010 2011f 2012f 2013f 2014f 2015f

food consumption, us$bn [1] 18.5 18.1 18.7 19.3 22.1 24.2 25.9 27.5

food consumption Vndbn [2] 303,602.5 322,911.6 357,537.8 397,546.3 449,199.5 479,372.6 499,291.8 515,892.8

Per-capita food consumption us$ [1] 214.8 208.8 212.7 217.3 245.7 267.1 283.3 297.6

confectionery sales, us$mn [3] 300.3 291.0 315.7 330.3 383.6 438.7 500.4 569.4

confectionery sales, Vndmn [3] 4,938,856.12 5,180,212.35 6,040,086.21 6,804,075.01 7,815,595.05 8,686,985.21 9,633,541.40 10,677,075.46

alcoholic drinks sales, us$mn [4] 1,631.7 1,576.1 1,736.9 1,948.2 2,271.8 2,619.3 3,028.1 3,494.1

alcoholic drink sales, Vndmn [4] 26,834,070.2 28,055,193.4 33,233,048.7 40,131,827.5 46,287,238.3 51,861,318.4 58,290,562.3 65,514,008.6

soft drinks sales, us$mn [5] 323.9 311.4 336.0 345.4 397.5 449.5 504.8 565.2

soft drink sales, Vndmn [5] 5,327,108.82 5,544,000.00 6,429,798.53 7,115,215.06 8,098,766.25 8,900,371.83 9,717,033.76 10,596,873.29

total mass grocery retail sales, us$bn [5] 4.4 4.4 5.1 5.5 6.7 7.9 9.2 10.7

total mass grocery retail sales, Vndbn [5] 72,391.5 78,644.7 97,826.0 112,613.3 136,265.1 156,268.4 177,442.6 200,683.4

exports of food and drink, us$mn [6] 10,585 9,706 12,168 13,099 14,338 15,839 17,520 19,403

imports of food and drink, us$mn [6] 3,479 3,206 3,886 4,138 4,534 4,974 5,463 6,005

food and drink trade balance us$mn [7] 7,106.0 6,500.0 8,281.9 8,960.8 9,803.8 10,864.5 12,057.0 13,397.5

Notes: e BMI estimates. f BMI forecasts. Sources: 1 General Statistics Office, BMI/BMI calculation. 2 General Statistics Office, BMI; 3 General Statistics Office, Company information, Trade press, BMI/BMI calculation; 4 0/BMI calculation; 5 Company information, Trade press, BMI; 6 UNCTAD, Central Statistics Organisation, BMI; 7 UNCTAD, Central Statistics Organisation, BMI/BMI calculation.


Vietnam Q1 2012

taBLe: pHarma sector KeY inDicators 2010 2011f 2012f 2013f 2014f 2015f

Pharmaceuticals sales, us$bn [1,3]

1.713 1.889 2.244 2.690 3.191 3.742

Pharmaceutical sales, us$bn, % y-o-y [1,3]

11.3 10.3 18.8 19.9 18.6 17.3

Pharmaceutical sales, Vndbn [1,3]

32,772.999 38,902.128 45,716.457 53,258.792 61,429.992 70,162.920

Pharmaceutical sales, Vndbn, % y-o-y [1,3]

19.7 18.7 17.5 16.5 15.3 14.2

Health expenditure, us$bn [1,4] 7.93 8.63 10.12 11.89 13.83 15.91

Health expenditure, us$bn, % y-o-y [1,4]

9.0 8.9 17.3 17.4 16.4 15.0

Health expenditure, Vndbn [1,4] 151,755.17 177,860.35 206,294.63 235,426.27 266,316.80 298,271.93

Health expenditure, Vnd bn, % y-o-y [1,4]

17.2 17.2 16.0 14.1 13.1 12.0

communicable, maternal, peri-natal and nutritional conditions, dalys [2,5]

3,356,937.3748 3,361,708.2029 3,366,403.0814 3,371,021.9323 3,375,564.6778 3,380,031.2400

non-communicable diseases, dalys [2,5]

6,840,703.9947 6,884,944.9674 6,928,101.6048 6,970,172.8071 7,011,157.4741 7,051,054.5058

Notes: e BMI estimates. f BMI forecasts. 1 Last Updated: 15/10/2011; 2 Data is DALYS, disability-adjusted life years; Sources: 3 Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press, BMI. 4 World Health Organization (WHO), BMI; 5 WHO, World Bank, IMF, BMI research.

taBLe: teLecoms sector KeY inDicators 2007 2008 2009 2010 2011f 2012f 2013f 2014f 2015f

number of Main telephone lines in service (000) [1] 11,166.0 14,768.0 17,427.0 16,800.0 16,212.0 15,563.5 14,941.0 14,418.0 13,913.4

number of Main telephone lines in service, % change y-o-y [1] 30.3 32.3 18.0 -3.6 -3.5 -4.0 -4.0 -3.5 -3.5

number of Main telephone lines/100 inhabitants [1] 13.1 17.1 20.0 19.0 18.2 17.3 16.4 15.7 15.0

number of cellular Mobile Phone subscribers (000) [1] 45,024.0 74,872.0 98,224.0112,691.0123,960.1132,637.3139,269.2143,447.2144,881.7

number of cellular Mobile Phone subscribers, % change y-o-y [1] 138.3 66.3 31.2 14.7 10.0 7.0 5.0 3.0 1.0

number of Mobile Phone subscribers/100 inhabitants [1] 52.9 86.8 112.5 127.5 138.9 147.1 152.9 156.0 156.1

number of Mobile Phone subscribers/100 inhabitants [1] 52.9 86.8 112.5 127.5 138.9 147.1 152.9 156.0 156.1

number of Mobile Phone subscribers/100 inhabitants, % change y-o-y [1]

135.5 64.3 29.6 13.3 8.9 5.9 4.0 2.0 0.0

number of internet users (000) [1] 18,551.0 20,834.0 22,780.0 26,784.0 31,093.0 33,366.0 34,967.3 35,641.1 36,108.0

number of internet users, % change y-o-y [1] 26.3 12.3 9.3 17.6 16.1 7.3 4.8 1.9 1.3

number of internet users/100 inhabitants [1] 21.8 24.2 26.1 30.3 34.8 37.0 38.4 38.8 38.9

number of internet users/100 inhabitants, % change y-o-y [1] 24.8 10.9 8.0 16.1 14.9 6.2 3.8 0.9 0.3

number of Broadband internet subscribers (000) [1] 1,294.0 2,049.0 2,967.0 3,644.0 4,081.3 4,489.4 4,803.7 5,380.1 6,187.1

number of Broadband internet subscribers, % change y-o-y [1] 150.3 58.4 44.8 22.8 12.0 10.0 7.0 12.0 15.0

Notes: f BMI forecasts. Sources: 1 World Bank (International Telecommunications Union (ITU)), BMI research.


Bmi GLoBaL assumptions

taBLe: DeFence & securitY sector KeY inDicators 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

defence expenditure, Vndmn [1] 28,735.0 34,848.0 36,180.050,270,440.959,077,007.566,677,265.575,335,502.284,729,578.394,858,052.5

defence expenditure, Vnd, % change y-o-y [1]

39.6 21.3 3.8 138,845.4 17.5 12.9 13.0 12.5 11.9

defence expenditure, % of GdP [2] 2.5 2.4 2.5 2.6 2.6 2.6 2.6 2.6 2.6

defence expenditure, Vnd per capita of population [2]

337.4 404.2 414.5 568,914.7 661,768.9 739,438.4 827,258.7 921,452.8 1,021,846.9

defence expenditure, Vnd per serv-iceman [2]

54,921.6 66,605.5 - - - - - - -

defence expenditure, us$mn, constant prices [1]

2,170.0 2,138.0 2,073.0 2,668,142.4 2,856,132.1 3,052,205.6 3,354,983.6 3,706,211.7 4,077,615.3

defence expenditure, us$, constant prices % change y-o-y [1]

28.9 -1.5 -3.0 128,609.2 7.0 6.9 9.9 10.5 10.0

defence expenditure, constant us$ per capita of population [1]

25.5 24.8 23.8 30,195.6 31,993.8 33,848.4 36,841.1 40,305.9 43,925.6

defence expenditure, constant us$ per serviceman [1]

4,147.6 4,086.4 - - - - - - -

Notes: e BMI estimates. f BMI forecasts. Sources: 1 SIPRI/BMI. 2 SIPRI, BMI calulation.

taBLe: FreiGHt KeY inDicators2010 2011f 2012f 2013f 2014f 2015f

Port of Ho chi Minh city (saigon new) container throughput, teu 2,850,000 2,973,973 3,116,251 3,278,615 3,452,792 3,755,569

Port of Ho chi Minh city (saigon new) container throughput, teu, % y-o-y 17.19 4.35 4.78 5.21 5.31 8.77

air freight tonnes (000) 186.00 195.76 206.96 219.51 232.90 248.23

air freight tonnes % change y-o-y 33.24 5.25 5.72 6.06 6.10 6.58

rail freight tonnes (000) 7,810 8,187 8,620 9,105 9,623 10,199

rail freight tonnes % change y-o-y -3.20 4.83 5.29 5.62 5.69 5.99

road freight tonnes (000) 563,406 599,863 641,689 688,532 738,564 789,140

road freight tonnes % change y-o-y 13.90 6.47 6.97 7.30 7.27 6.85

Source: BMI

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chapter 5 - key sectors

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