Vietnam - News and Regulations

GAS/OIL - Viet Nam, Russia boost co-operation in oil, gas

HA NOI — Party leader Nong Duc Manh made a visit to the Zarubezhneft Joint Stock Petrol Company in Moscow yesterday as part of his official trip to Russia.

Manh attended three co-operation signings between the Viet Nam National Oil and Gas Group, or PetroVietnam, and Zarubezneft. The two sides re-confirmed their decision to move the Russian-Vietnamese Joint Venture Vietsovpetro into a new stage of development.

Deputy chairman of the Russian Duma Ivan Ivanovich Melnikov and Russia's Deputy Minister of Energy Stanislav Svetlitsky also took part in the visit.

Vietsovpetro will exploit Russia's Nhenhexky oil field this year and continue to expand their exploration and exploitation of oil and gas in Viet Nam, Russia and other countries.

Vietsovpetro was considered a key model of effective co-operation, said Manh. He emphasised that the mutual co-operation in the field of oil, gas and energy played an important part in the co-operative relationship between Viet Nam and Russia.

Since it was established in 1981, Vietsovpetro has often played the leading role in Viet Nam's oil and gas industry, making big contributions to the country's economic growth while also bringing benefit to Russia.

Manh said that the joint venture project being carried out by Viet Nam and Russia in the Nhenhexky zone was a large and complicated project with a big scale of investment. The project, which was expected to introduce product by the third quarter this year, still needed a lot of effort and close co-operation from both sides and attention from both Governments.

Manh said "It is a significantly important milestone in creating trust and encouraging the two sides to seek and carry out further projects in Russia and other countries."

He also expressed his gratitude for the contributions made by many workers and experts of the former Union of Soviet Socialist Republics and Russia for the development of the Vietnamese oil and gas industry.

Separate meetings

General Secretary Nong Duc Manh on Saturday met on separate occasions with Deputy Prime Minister Alexander Zhukov, Moscow Mayor Yury Mikhaylovich Luzhkov, and Chairman of the Communist Party of the Russian Federation Gennady Zyuganov.

During his meeting with Zhukov, Manh said Viet Nam always followed Russia's great achievements and believed that under the leadership of President Dmitry Medvedev and the Federal Government headed by Prime Minister Vladimir Putin, the Russian people would achieve greater success in their national development.

Zhukov spoke highly of Viet Nam's renewal process and its positive stance in dealing with regional and international issues. He also affirmed Russia's consistent policy to treasure and promote the traditional relations and comprehensive partnership with Viet Nam.

Both Manh and Zhukov said the Vietnamese leader's ongoing visit was a good opportunity for the two countries to review almost 10 years of bilateral co-operation since the establishment of their strategic partnership, and to discuss major directions to boost further comprehensive co-operation, especially in economics, trade and investment.

The two sides applauded agreements signed between the two governments in late 2009, particularly those on oil and gas, energy and military technology, considering them as breakthroughs in their bilateral co-operative ties.

They agreed to enhance the co-ordination role of the Viet Nam-Russia Inter-governmental Committee on Economic, Commercial, Scientific and Technological Co-operation, and accelerate the implementation of signed pacts.

The officials also agreed to speed up negotiations for inter-governmental agreements on energy development, the construction of Viet Nam's first nuclear power plant and the provision of credits for the project.

The two sides promised to strengthen co-operation in regional and international forums such as the East Asia Summit (EAS), the ASEAN Regional Forum (ARF), the Asia-Pacific Economic Co-operation (APEC) and the United Nations. They made particular note of boosting co-operation in the ASEAN-Russia framework this year during Viet Nam's chairmanship of ASEAN.

Both Manh and Zhukov expressed their belief that the major directions and measures put forth during the current visit would lay an important foundation to scale up and improve the efficiency of multifaceted co-operation between the two nations.

On the same day, Manh met with Moscow Mayor Yury Mikhaylovich Luzhkov, who affirmed that the city considered Viet Nam as its priority partner over other foreign partners in economics and politics.

Moscow was willing to be a good partner with Viet Nam and was ready to help out with any difficulties, he said.

Mayor Luzhkovexpressed his wish for Moscow to boost co-operation with Viet Nam's biggest cities in terms of economics, trade and tourism, and in building metro routes.

Moscow is currently speeding up co-operation in investment, trade and construction with Ha Noi and HCM City. A Vietnamese trade centre has been built in Moscow and multi-functional Russian centres are expected to open in Ha Noi and HCM City soon.

Manh spoke highly of Moscow's significant development, including many new architectural and traffic projects that have made the city more civilised and modern.

He stressed that since the two countries set up diplomatic ties 60 years ago, the Russian Federation in general and Moscow in particular have always stood side by side with the Vietnamese people during the war time and the current national development process.

Moscow has assisted Viet Nam with training officials and experts who have made great contributions to the development of the country and were currently holding important positions in all sectors, he said.

Viet Nam would never forget that assistance and would constantly consolidate and develop the traditional friendship, comprehensive co-operation and strategic partnership between the two nations, the Party leader stressed.

Manh also hosted a reception for a delegation of the Communist Party of the Russian Federation (KPRF) led by Chairman Gennady Zyuganov.

Manh congratulated Chairman Zyuganov and his delegation on the achievements that the KPRF has attained so far to overcome challenges and sustain its position as a significant political force in Russia.

He expressed his belief that with sensible leadership and high unanimity, the KPRF would continue to strengthen its firm position in Russia's socio-political life, and in international communist and workers' movements.

The KPRF leader meanwhile praised the great historical achievements that Viet Nam has made over the past 25 years of renewal under the leadership of the Communist Party of Viet Nam (CPV).

Those achievements demonstrated the vitality of communism, he said, adding that they were valuable theoretical and practical contributions by the CPV to the international communist and workers' movements and a great inspiration to the KPRF and other advanced revolutionary forces in the world.

Party leader Manh then left Moscow for Saint Petersburg. — VNS

EU – VIETNAM COOPERATION - Landmark PCA deal ready to bring the EU much closer

Vietnam and the European Union are close to clinching a significant agreement which will bring the two bodies closer together.

EU companies are transforming into stellar business partners within Vietnam's industrial landscape

James Moran, head of the EU's negotiation team, said good progress was made and both sides had agreed to more than 80 percent of the total 60 articles in the Partnership and Cooperation Agreement (PCA), during the eight round of negotiations.

Moran, who is also Asia director in the European Commission directorate general for External Relations, led the EU delegation including representatives from EU headquarters, the EU in Hanoi delegation and EU member state representatives.

The two sides discussed important articles of the PCA, including general principles, non-proliferation of weapons of mass destruction, migration as well as remnants of war, legal cooperation, small arms and light weapons, market economy status, generalised system of preferences (GSP), taxation, labour and employment.

"We are on the homestretch of negotiations. I am confident that we [both sides] will be able to conclude negotiations later this year," Moran said. Political, security, immigration, labour and economic issues needed further work, said Moran.

"This time we have not concluded the migration issue yet. We certainly have a little bit more to do by finding a suitable compromise about legal and illegal migration," he said. "We do need to find a way where we can better manage problems of illegal migrations on both sides," Moran said.

Vietnam and the EU started PCA negotiations in June 2008, to update the expired bilateral Cooperation Agreement that Vietnam and the European Community signed in 1995, which was not modern enough.

The new agreement will promote a more mature and comprehensive Vietnam-EU relationship and strengthen bilateral cooperation in a wide range of sectors beyond traditional development aid and commercial ties.

In a recent meeting to review Vietnam's international integration works in the first half of 2010 held recently in Hanoi, deputy prime minister Pham Gia Khiem instructed the Vietnamese negotiation team to accelerate talks to enable both sides to reach the PCA deal in October in Brussels, where prime minister Nguyen Tan Dung will attend the 8th Asem Summit.

"I certainly hope that both sides will be able to conclude the PCA negotiations this year. It will be a wonderfully symbolic benchmark for the Vietnamese and European people to see just how far bilateral relationship have come," Moran said.

Vietnam and the EU will celebrate their 20th anniversary of diplomatic relations in November, 2010.VNS

POWER INFRASTRUCTURE/ FINANCING - EVN set to launch $1b international bond issue

The government of Vietnam has agreed in principle to provide guarantees for State utility Electricity of Vietnam (EVN) to sell $1 billion worth of corporate bonds on international markets to mobilise much-needed capital for power projects.

The move comes after the government turned down an EVN proposal that the government should sell bonds in foreign currency on global markets to raise funds for lending on to the energy giant as was done with Vietnam Shipbuilding Industry Group (Vinashin).

In the middle of June the government endorsed the EVN bond sale but required the company to formulate an issuing plan based on the prescribed criteria.

EVN said in a statement that it would launch the debt paper in the fourth quarter of the year.

Speaking at a seminar on capital markets for the electric power industry in Hanoi on Wednesday, EVN deputy general director Dau Duc Khoi said, "State-owned enterprises are all cash-strapped."

He noted State companies could not take out commercial bank loans at an annual interest rate of 14-15 percent to finance power generation projects that would take four to five years to come on stream while power stations were not allowed to sell electricity at market prices.

Moreover, 80 percent to 90 percent of equipment for power stations is imported from other countries, meaning almost all input costs are decided by the market, but power tariffs are capped, thus leading to low profitability in power projects.

EVN will kick off the debt paper sale when it completes all requirements and procedures such as the credit rating for the company over the past three years; and choosing a bond underwriting and issuing consultancy, markets for the issue and an issuing date.

The sixth Power Development Master Plan estimates power demand growth of 17 percent a year in 2006-2015, so a staggering $35 billion would be needed to fund the development of new power sources to reduce recurrent power blackouts. But EVN still lacks around $13 billion to develop 37 percent of the total capacity envisaged in the master plan until 2015. (See related story on Page 2)

Along with EVN, Vietnam Coal and Mineral Industries Group (TKV) and Vietnam Petroleum and Gas Group are also planning to raise funds from international markets.

Pham Hong Thai, head of finance at TKV, said at the seminar that local capital markets had developed but not as fast and efficiently as required. There are few professional investors, so companies will find it hard to sell bonds on local capital markets, he said, indicating the rationale of international bond sales.

TKV succeeded in two bond sales worth a combined VND3 trillion in 2007 and 2009 through Citibank. It is in talks with foreign banks to select a consultant for an international debt paper issue, probably in the fourth quarter.

The sale is expected to total about half a billion US dollars or above. "We will have to go through all the steps needed to gauge market conditions before a final decision is made," Thai told the Daily on the sidelines of the seminar.

Last year TKV was internationally rated Ba3/BB by Moody's and Standard & Poor's. Thai said, "This can be seen as a passport for TKV to gain access to international capital markets."

TKV expects to need $1.5 billion to $2 billion for each coal mine so as to meet the government's requirement for boosting coal output to 100 million tonnes by 2015.

The coal mining major will also have to mobilise up to $7 billion for developing six thermo-power stations between now and 2020 with total capacity of 1,550 MW.

As for Vietnam Petroleum and Gas Group (PVN), a PVN official said the group's total financial needs in 2009-2015 were hefty, and that loans alone would amount to an estimated $10 billion.

Therefore, PVN is considering issuing $1 billion worth of bonds to partially meet its financial requirements though early this year it borrowed $1 billion from the government's international bond sales.VNS

BOT POWER PLANT - US$3.8b invested in power plant project

Khanh Hoa People Committee said that Sumitomo thermal power project in Van Phong Electric Centre would be carried out as BOT procedure.

As planed, land will be transferred to construct buildings and combine infrastructure for Sumimoto. Before, from 2006 Sumotomo Firm (Japan) ordered to invest coal-fired power plant with a combined capacity of 2,640 MW, total capital $3.8 billion, 175 hectare at My Giang village, Ninh Phuoc commune, Ninh Hoa district. Khanh Hoa province and Ministry of Industry and Trade agreed Sumitomo BOT procedure (Builing- Operating- Transferring). The Ministry will guide Sumitomo to correct the project to fix on BOT investment rules as well as procedures for negotiating BOT and to grant the certificate of investment.TBKT

FINANCING - Bond issuance horizon brightens

Limited liability companies are set to be allowed to issue bonds under a new draft decree. The Ministry of Finance (MoF) is drafting a new decree to replace Decree 52/2006/ND-CP dated May 19, 2006 on issuance of corporate bonds.

Accordingly, joint stock companies, limited liability companies and state-owned enterprises during the conversion into limited liability companies or joint stock companies will be allowed to issue corporate bonds on domestic and international capital markets.

"The draft decree provides clear governing scope on which limited liability companies are allowed to issue bonds, helping the enterprises have more options in raising finance and capital structuring," said Dang Duong Anh, executive partner of Vilaf Hong Duc law firm.

Anh said the new decree would make conditions for the MoF to supervise the private placement of the enterprises and provide an international bond issuance legal framework to enterprises. Currently, Decree 52 offers little clarity to whether limited liability companies are allowed to issue bonds.

"The draft decree on issuing corporate bonds via private placement if approved by the government will make clear this issue by allowing limited liability companies to issue bonds," Anh said.

Meanwhile, Hoang Gia Hiep, executive board member of Vietnam Bond Market Association, said Decree 25/2010/ND-CP dated March 19, 2010 detailed the transformation of state companies into one-member limited liability companies and management of state-owned one-member limited liability companies. However, from July 1, 2010, all state companies that failed to be equitised by that day will have to be converted into limited liability companies or even state economic groups.

Hiep said it was a breakthrough to allow enterprises issue short-term debt instruments. "Under the draft decree, the definition of bonds includes short-term debt instruments. Currently, bonds are considered long-term debts and related to investment projects. This has curbed the bond market's development and transfer instruments," Hiep told VIR.

Hiep said bond issuances would allow for financial restructuring and enterprises' capital scale increases. However, Anh said it was questionable as to whether or not foreign-invested companies had to register the issuance of the bonds under the draft decree with the Department of Planning and Investment as part of their respective investment certificates.

"It will be difficult for state management to allow foreign-invested companies to issue bonds to raise capital because it will exceed the total investment capital limitation under enterprises' investment certificates.

Anh said one of the conditions for the companies to issue international bonds via private placements was that the total value of such bond issuance must be within the total foreign commercial loan limit approved by the prime minister annually.

"It is not easy for the companies to determine whether their bond issuance falls within that limit. On the other hand, a bond is a kind of loan and enterprises can have foreign loans without this condition. Therefore, this condition should apply to state-owned companies only.

"The draft decree requires the issuers to comply with regulations on foreign loans. The question given is whether international bond issuance must be registered with State Bank if its term is from 12 months," he said.

In additional, Anh said, until now, the conditions and requirements for financial institutions such as commercial banks to act as the underwriter of a bond private placement had not been provided by the MoF which might lead to difficulties for financial institutions who wanted to act as an underwriter of a bond private placement.VINREV

FOREX - Rise in demand for foreign currencies due to increasing bank repayments

The banks said that exchange rate of over 19,200 dong per US dollar is relatively high largely due to psychological factors.

In Vietnam Bank for Industry and Trade (Vietinbank), there are about 30 percent of foreign currencies purchased by businesses to repay their previous bank loans. This rate is usually at about 20 percent in Vietinbank.

In order to avoid high interest rate, in the end of first quarter, businesses were rushing to borrow US dollars and then sell it for dong. This is now causing the reversed effect. Head of Foreign Exchange Department of Vietinbank Nguyen Thi Tu Lan confirmed that in addition to the usual foreign currency demand for imported goods payments of businesses, the purchasing demand for bank repayments is currently higher than before.

The exchange rate has remained stable through out the second quarter at around 18,950 to 19,000 dong per US dollar. Dong was sometimes even saw increase in value when the volume of dollar sold by the businesses increased rapidly. Nevertheless, in the last week of June, dollar value suddenly increased again, passed the 19,000 dong per US dollar threshold and went up to 19,100 dong and then to 19,220 dong per US dollar on July 7.

The rise in US dollar over dong exchange rate in the recent days is completely normal and within expectations. The outstanding foreign currency loans of the entire Vietnam banking system in the first six months has increased significantly over the end of last year. The three month and six month loans are due for gradual repayments by the end of the year. As a result, price for dollars inched up at a popular rate of 19,100 dong per US dollar at banks, explained Lan.

Foreign currency transactions in Vietinbank have been higher in the last three months, buying transactions averaged $300 to $400 million dollars and selling transactions were similar, up by 10 to 20 percent over the same period of last year. In the first three months, when there was shortage of dollar, Vietinbank had called for support from the State Bank. To the second quarter, the situation was improved and banks have been able to meet the essential payment needs of businesses. Foreign currency selling-buying transactions of Vietinbank currently account for 10 percent of the overall market.

Banks which have large foreign currency transactions also said that their supply and demand are stable. While there have been fluctuations in open market for over a week, banks have still maintained the exchange rates of around 19,100 dong. Particularly in Vietinbank, foreign currency status is positive although the positivity is relatively little.

The rate of 30 percent of foreign currencies purchased to repay banks is rather high. There is less possibility for it to increase further and it would tend to decrease when the previous loans have been repaid, said Lan.

The international balance of payments has seen improvement in the first six months. In addition, the State Bank has purchased a considerable amount of foreign currencies in the second quarter in order to increase foreign exchange reserves. In the first six months of 2010, the current balance account is $3.6 billion in deficit; however, the capital balance account is about $7 billion in surplus.

The surplus international balance of payments is the foundation for the policy makers to believe that the foreign exchange market is stable. The State Bank confirmed that the foreign currency liquidity of the entire banking system is safe, capable of meeting repayment needs and it would satisfy most foreign currency needs of the economy.VNEXPRESS

INSURANCE - Financial investments account for 74 pct of BIC's profit

Of the total 36.298 billion dong profit before tax of BIDV Insurance Company (BIC) in the first six months, profit from financial investments alone was 27.046 billion dong, accounting for 74.5 percent.

BIC has recently announced the business results of the first six months of 2010.

According to the announcement, upto 30 June 2010, total assets of the company reached 3270.071 billion dong, up by 175 percent over the same period of 2009, and up by 80 percent compared to early 2010. Owners' equity of BIC reached 548.621 billion dong, up by 18 percent over the same period of 2009. Total professional reserve funds reached 207.671 billion dong, up by 40 percent over the same period of 2009 and up by 17 percent compared to early 2010.

The total turnover of the company in the first six months was 346.146 billion dong, up by 62 percent over the same period of 2009; of that insurance premium revenues reached 238.512 billion dong, up by 69 percent over the same period of 2009.

For efficiency ratios, the total profit before tax of BIC reached 36.298 billion dong, up by 81 percent over the same period of 2009. Of that, profit from insurance business reached 8.889 billion dong and from financial investments reached 27.046 billion dong.

In the first six months, revenues from Bancassurance of BIC reached nearly 30 billion dong, accounting for 14 percent of total turnover (including services that commercial banks are insurance agents only). The company is currently providing about 10 insurance products through BIDV and other connected banks such as SeaBank, North Asia Bank, Orient Commercial Bank, VRB Moscow Bank and Techcombank, etc.

BIC continued to expand its business network in the first six months, with the establishment of 12 regional offices in major provinces and cities, bringing the total regional offices of BIC to 50, additional to the 19 branches that have already been in stable operations.

According to BIC, the above-mentioned results have created a favourable condition for the company to carry out its plan for Initial Public Offering (IPO) in this third quarter, and prepare for the transformation into joint stock company in the beginning of the forth quarter and be officially listed in early 2011.TBKT

ECONOMY - Big challenges to continue for Vietnam in 2010: EU

Vietnam achieved strong economic resilience in 2009 and early 2010, but its big challenges are expected to continue this year, says the "2010 EU Trade Counsellors Report," or Green Book 2010, which was launched on Wednesday.

The annual report is jointly produced by Delegation of the European Union to Vietnam and the Hanoi-based embassies of EU member states. It says Vietnam successfully weathered the global economic crisis whose negative impact, albeit partially mitigated by appropriate government action, will continue to be felt throughout the year 2010.

In 2009 and early 2010, Vietnam's biggest challenges were seen to be imbalance of national accounts, inflation and trade deficit.

"The government of Vietnam deserves credit for the country's relatively successful economic performance in 2009 and early 2010. In the context of world trade contraction and economic crises, GDP growth in Vietnam was maintained and export performance, although declining, remained above the regional average partly as a result of bold policy measures taken by the authorities," said head of the European Union Delegation to Vietnam Sean Doyle.

Despite 5.32 percent GDP growth in 2009 and improvements in certain sectors and regions, the country's weaknesses, however, are exposed by the global economic crisis, says the report.

Therefore, there's a need for swift re-structuring, in particular, of SOEs, to bring about sustainable growth and increased competitiveness.

The "2010 EU Trade Counsellors Report" also concurs with other analysts that Vietnam might have missed the opportunity to restructure its public sector, which continued to produce less, export less and create less employment than private companies and foreign-invested enterprises in 2009.

In addition, the stimulus measures, while necessary to maintain growth, is said to have gone a bit too far, as they appear to have provided a cushion to uncompetitive SOEs and stoked inflationary pressures for 2010 and beyond.

Detailed analyses of the regulatory environment as well as main developments, challenges and opportunities of the country's key economic sectors such as garments and textiles, footwear, fisheries, pharmaceuticals and banking are also provided in the report.

For the year 2010, Vietnam is suggested to focus on spurring its competitiveness, requiring vision and commitment from authorities for a massive overhaul of its state industrial sector and a resumption of the privatisation process.

Besides, in order to narrow trade deficit, the country is recommended to invest more resources in facilitating the establishment of a local supply chains for its export-oriented industries, instead of focusing on reducing imports of consumer products.SGTD

Oliver Massmann

Duane Morris Vietnam LLC