Vietnam and Russia’s strong energy
Vietnam and Russia are warming up bilateral economic cooperation. Ngoc Linh reports.
"Nowadays, Vietnam is our biggest trade partner in Southeast Asia and Russia is the biggest trade partner of Vietnam in Eastern Europe.”
Melikov Sergey Fedorovic Deputy chief representative of Russia Trade Office in Vietnam Vietsovpetro this year marks the 28th anniversary of its establishment and the Vietnamese-Russian oil exploration and exploitation joint venture has become symbol of traditional friendship between Vietnam and the former Soviet Union, now Russian Federation.
To date, Vietsovpetro has produced more than 185 million tonnes of crude oil from White Tiger, Dragon and Big Bear oilfields. About 80 per cent of Vietnam’s produced oil and gas comes from Vietsovpetro, making Vietnam the third biggest oil producer and exporter in Southeast Asia.
Vietsovpetro’s total crude-oil turnover up to now has come up to $33 billion, contributing $20.2 billion to Vietnam’s state budget, or 22-25 per cent of state income. The joint venture also brought $5.6 billion profit to the Russian party. According to Vietsovpetro, the Russian party recovered its initial capital by mid 1996, while the Vietnamese party recovered investment in 1993.
The presence of Vietsovpetro is a reminder that Russia, or Soviet Union in the past, was Vietnam’s largest economic partner. To maintain Vietsovpetro, the governments of Vietnam and Russia two years ago signed an agreement lengthening the lifetime of this joint venture till 2030.
Bilateral trade is rising
The bilateral economic relations went quiet after the collapse of the Soviet Union in 1990s. However, as Russia has come back in a big way to become one of the largest economies in the world, it is warming up economic relations with Vietnam.
Over the past five years, Russia-Vietnam bilateral trade turnover spurred nearly three times, surpassing $3 billion, according to statistics of Russia Trade Office in Vietnam. In the first five months of this year, the turnover reached $1.46 billion, up 54.5 per cent year-on-year. Russia is exporting machineries and industrial equipment to Vietnam while Vietnam sells agricultural products, electronic devices and electric equipments to Russia.
Melikov Sergey Fedorovic, deputy chief representative of Russia Trade Office in Vietnam, foresees the two countries could reach $3.5 billion of trade turnover a year based on this momentum.
“Bilateral trade between Vietnam and Russia, after the sudden decline in 1990s, is sustainably growing,” he said.
Certainly, if compared to other trade partners of Russia or Vietnam, this number is modest. While Vietnam accounts for only approximately 0.4 per cent of Russia’s total import and export turnover, Russia also contributes a very small part to Vietnam’s international trade with approximately 1 per cent.
“But if you look at these numbers in a regional aspect, it is a different picture. Nowadays, Vietnam is our biggest trade partner in Southeast Asia and Russia is the biggest trade partner of Vietnam is Eastern Europe,” said Fedorovic.
Vu Tien Loc, chairman of Vietnam Chamber of Commerce and Industry, said the current results were still far below the special relations between the two countries. “Russia used to be our largest market. So, we need to make it continue to be a big market for Vietnam exporters at this time,” said Loc.
An obstacle hindering the bilateral trade is lack of information exchanges between Vietnamese and Russian businesses. But, more trade and investment promotion forums held in Vietnam and Russia will address this issue.
This week, Vietnamese President Truong Tan Sang will pay an official visit to Russia under the invitation of Russian President Vladimir Putin. Many Vietnamese enterprises will accompany Sang and a business forum will be held in Russia like a bridge for Vietnamese and Russian businesses to discuss future opportunities.
“We are stepping into a new height in bilateral relation,” said Fedorovic. He said the bilateral trade turnover could reach $12 billion in 2018 thanks to the joining of Russia into World Trade Organization and a future free trade agreement between Vietnam and an alliance of custom offices in Russia, Belarus and Kazakhstan, which is under negotiation.
Foreign direct investment follows up
Vietsovpetro is the most successful project, but is not the only Russian direct investment project in Vietnam.
TNK-BP, the third largest oil and gas company in Russia and among the 10 largest private oil companies in the world, late last year acquired BP’s upstream assets in Vietnam to reach out international market. TNK-BP senior vice president for international projects Boris Zilbermints said in a recent interview with VIR that he believed Vietnam was an attractive place to do business because of significant economic growth and population growth.
“Furthermore, Vietnam and Russia have a strong and close relationship. Many Vietnamese who are now working in government agencies, ministries and businesses studied in the former Soviet Union. I’ve met people from PetroVietnam who graduated from the same oil and gas university in Moscow as I did. When we talk, we always speak in Russian,” he said.
Other companies in this sector like Gazprom and Zarubezhneftegaz are also exploring oil and gas in Vietnam.
Russia has 80 investment projects in Vietnam with total registered capital of $920 million, ranking 23rd among countries and territories investing in Vietnam, according to Vietnam’s Ministry of Planning and Investment.
Fedorovic estimated the Russian capital flows in Vietnam could be around $4.1 billion including indirect investments. In Russia, Vietnamese enterprises have registered to invest in 18 projects capitalised at $967 million to date. “In the context that both Vietnam and Russia need to call for foreign investment, this result is not bad,” he said.
The investment cooperation is expected to enhance in the future with the new establishment of Russia-Vietnam joint ventures. In 2009, Russia’s VTB Bank and Bank for Investment and Development of Vietnam signed a memorandum of understanding on establishment of an investment fund.
The investment fund aimed at investing into the vital industries of Vietnamese economy, including energy, heavy, mining and travel industries. Under the terms of memorandum, the institution is to be managed jointly. Initially the fund’s budget would amount to $500 million.