VINACHEM

Vietnamese Prime Minister Nguyen Tan Dung has agreed in principle to theconstruction of a huge refinery and petrochemical complex by Thailand's PTTin the central Vietnamese province of Binh Dinh, a senior regional politiciansaid Sunday.

"According to the latest information I have just obtained, the primeminister has formally signed a document to agree in principle the developmentof this project in the Economic Zone of Nhon Hoi," Ho Quoc Dung, vicechairman of the People's Committee of Binh Dinh province, said.

Big regional projects in Vietnam require a green light from Hanoi.

Nhon Hoi is close to the provincial capital of Qui Nhon which lies onVietnam's south central coast.

Additionally, Deputy Prime Minister Hoang Trung Hai has signed adocument allowing the Binh Dinh provincial government to ask PTT to carry outa feasibility study for the project, another Binh Dinh provincial officialsaid Sunday.

"This is an important step to legally confirm the feasibility of theproject," said Man Ngoc Ly, the head of the Binh Dinh Economic Zone Board ofManagement.

PTT's feasibility study for the project would be submitted forevaluation by the industry and environment ministries before it was sent tothe prime minister for approval, Ly added, without providing any timeframefor the feasibility study.

Construction at the refinery is expected to begin in 2016, with firstcommercial output in 2020, he said.

PTT made the proposal to build the 660,000 b/d or 36 million mt/yearproject to the Vietnamese authorities in November 2012. The total cost forthe project is now estimated at around $27 billion, slightly lower than the$28.7 billion that the Binh Dinh officials announced last year.

That huge funding demand has raised concerns in Vietnam that PTT --whose 2012 net profits were $4.2 billion on revenues of $93 billion -- mightbe unable to finance the project, Dung said.

Moreover, the project has been opposed by Vietnam's biggest energycompany, state-owned PetroVietnam, which fears that the construction of themega plant might lead to a glut of oil products in Vietnam.

PetroVietnam runs the country's only 6.5 million mt/year (130,000 b/d)refinery at Dung Quat, which meets around 30% of Vietnam's oil-product demand.

PetroVietnam is planning to build two more 10 million mt/year plants(200,000 b/d), one at Nghi Son in the northern province of Thanh Hoa andanother at Long Son in the southern province of Ba Ria Vung Tau.

The Nghi Son unit, which is scheduled to start commercial operations inmid 2017, would be owned by PetroVietnam (25.1%) along with Kuwait's Q8(35.1%), Japan's Idemitsu Kosan (35.1%) and Mitsui Chemicals (4.7%).

PTT had the financial muscle to implement the project, and most of theconcerns about the project had been addressed, Dung said, without givingfurther details.

There is much work to do after the prime minister's approval inprinciple, including talks about possible government assistance for theproject, said Vu Dai Thang, head of the Department of Economic ZonesManagement, which is part of Vietnam's Ministry of Planning and Investment.

PTT was unavailable for comments Monday as its offices were closed for apublic holiday Monday.