HANOI – Russian President Vladimir Putin has persuaded Vietnam to extend the existence of Joint Venture Vietsovpetro beyond 2010. This Joint Venture was established in Soviet times and has brought the Russian budget $5,6 billion. However, terms of profit distribution will be changed and the Join Venture will produce oil not only in Vietnam.

Yesterday Putin and President of Vietnam Nguyen Minh Triet signed a declaration of cooperation in oil and gas production. They recommended that the governments, Zarubezhneft and PetroVietnam until 2008 identify a model of cooperation beyond 2010, reorganizing the Joint Venture.

Vietnam has for many years been insisting on reducing production on the oilfields Dragon (Rong) and White Tiger (Bach Ho), referring to geologic and ecologic risks of their development. Vietnam is not satisfied with the terms of profit distribution that considered by Vietnam to be more favorable for Russia. “For 25 years of the functioning of the Venture the USSR has ceased to exist and legal terms in Vietnam and in the world have changed”, acknowledges Director of Minpromenergo department Vladimir Salamatov. According to the declaration of the Presidents, not any more the two States will be co-founders of the Joint Venture after 2010 but Zarubezhneft and PetroVietnam. The legal form of the alliance is a subject of negotiations that will be completed in about a year and a half, says General Director of Zarubezhneft Nikolai Tokarev. The working group formed by the two companies will estimate resources and assets and then it will decide if the JV will be reorganized into a Joint Stock Company or other form. “Most likely is that the contract will be similar to those which PetroVietnam concludes with foreign oil companies working in the country”, - notes Tokarev. He supposes that PetroVietnam will hold controlling stake of the new Venture and the rest of the shares will go to Zarubezhneft. The terms of tax assessment will not differ from the current ones.

Vietsovpetro will not only develop Dragon and White Tiger oilfields but it will take part in oil and gas projects in Vietnam, Russia and third countries. Zarubezhneft has already offered PetroVietnam to jointly develop two blocks of fields in Myanmar, says Tokarev. The Vietnamese also want to produce oil in Russia, he says, not excluding such a possibility. Furthermore, PetroVietnam proposed Zarubezhneft to explore its licensed blocks in Tunisia.

Vietsovpetro has been commercially effective and the reduction of Russia’s shares in its revenue doesn’t decrease the project profitability for the country, says analytic of Aton Dmitry Lukashov. This region is exclusively important, there are giant oil and gas fields and the biggest market outlets – China, South Korea, India, reminds Valery Nesterov of Troika Dialog. He considers the urge of Vietnam to revise the terms and conditions of the activities of the Joint Venture as natural: “When a country becomes stronger, it sets up more rigid claims to investors. In our country we can observe it at PSA projects, mainly at Sakhalin-2 project.

Note

Vietsovpetro was established in 1981 under an intergovernmental agreement between Russia and Vietnam, which will expire on December 31, 2010. The Joint Venture is owned by the state company PetroVietnam and Zarubezhneft on a 50/50 basis. It provides up to a third of Vietnam’s currency revenue, while Russia has made profit of $5 billion. In 2006 the Venture has earned $600 million for Russia, exceeding plan by $100 million, said First Deputy General Director of Zarubezhneft Mikhail Arustamov.