A Japanese investor in Vietnam’s Nghi Son refinery, Idemitsu, has said that it has booked a US$263 million provision for bad debt generated by the refinery in the financial year ended March 31. This is reportedly due to increased costs on the back of rising US interest rates.

There is, however, a little more to it than that. The Nghi Son refinery’s financial challenges stem from a tangled web of regulations and agreements that have essentially made it cheaper to buy imported petrol from South Korea than from the Nghi Son refinery. This has seen the refinery struggle basically from the get-go particularly after oil prices spiked when Russia invaded Ukraine.

A group of investors connected to Kuwait Petroleum International, which has a 35.1 percent stake in Vietnam’s Nghi Son oil refinery, visited the facility in December amid speculation it could report a loss of US$1 billion for the year. 

This was followed up by reports in January, that Kuwait Petroleum International was considering waiving the interest on the loans of its partners in Vietnam’s Nghi Son refinery.

There was reportedly US$3 billion in loans outstanding at the time, US$1.8 billion of which was the remaining principal and the other US$1.2 billion interest.

Set to mature in 2029 it has been estimated that between 2023 and maturity the outstanding balance would accrue about US$360 million each year or US$2.1 billion in interest. On its current heading, the Nghi Son Refineries managers say they could not start paying the interest until 2034 and would not be able to pay the principal at all.

It’s not clear if the aforementioned debt forgiveness has as yet gone ahead.