The PetroVietnam group is currently taking the lead of the state’s ethanol industry development with three factories planned to produce 300,000 tonnes per year in Phu Tho, Binh Phuoc and Quang Ngai provinces.

Five years have gone by since the establishment of a steering committee for implementing bio-fuel projects which is headed by the chairman of PetroVietnam and the projects currently in the development pipeline have seen slow progress.

At the Phu Tho biofuel plant, construction is only 78 per cent complete. This is largely blamed on PetroVietnam’s Construction Joint Stock Corporation having little experience with the engineering-procurement-construction (EPC) contract model and its own financial struggles.

In this context the project’s founding shareholders’ were split on how to address the problem and PV Oil – a PetroVietnam member – has reduced its stake to 39 per cent and therefore cannot make major decisions.

For the project, PV Oil has two options – sourcing outside shareholders who have an interest in its continued involvement or selling its stake and exiting the project, said a PetroVietnam source.

In regard to the Binh Phuoc biofuel project, although it was opened in 2013 it had to suspend production due to poor sales.

PV Oil has a 29 per cent stake in this project and the other two shareholders – Japan’s Itochu and local firm Licogi 16 – reportedly want to sell their shares, preferably to PV Oil. But the company has not decided due to the problems with the other projects.

PetroVietnam estimates that Binh Phuoc’s suspended operations will amount to a loss of around VND270 billion ($12.8 million) a year from interest, machinery amortisation and operating costs.

The Dung Quat biofuel plant in central Quang Ngai province produced 27,000 cubic metres of ethanol last year, but only 10 per cent was sold domestically and the rest was exported with limited returns.

A feasibility study done for the project put the input material (cassava) cost at around VND1,800 per kilogram with end-use ethanol fetching VND10,000 per litre on average. But during 2012-2013 the price of cassava rose by VND5,000 per kilo while ethanol only went up to VND13,000 per litre. Higherproduction cost has yielded limited returns.

Since ethanol production is new to Vietnam, EPC contractors have little experience which has led to projects having higher than expected costs and longer construction times.