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Vietnam's Petrolimex and Kuwait Petroleum end diesel term contract: sources

[SINGAPORE] Vietnam's top fuel importer, Petrolimex, and Kuwait Petroleum Corp (KPC) have ended their long-standing diesel term contract that dates back to the 1990s since imports from Southeast Asia now attract lower duties, two industry sources said.

On top of the recently implemented trade deal covering the Association of Southeast Asian Nations (ASEAN), which makes it cheaper for importers to buy fuel from other ASEAN countries, Vietnam is moving towards cleaner fuel, the sources said. "Vietnam won't be able to lift cargoes from Kuwait due to the tax issue as the difference between ASEAN and non-ASEAN is 5 per cent," one of the sources said.

Under the ASEAN trade deal, which took effect in Vietnam from January, the import tax on diesel from ASEAN members was lowered to 5 per cent, compared with 10 per cent on diesel from non-ASEAN countries.

Under the contract, KPC supplied 840,000 cubic metres, or about 5.3 million barrels, of diesel a year. Of this, 560,000 cubic metres was 0.25 per cent sulphur diesel and 280,000 cubic metres was 500 ppm sulphur diesel, one of the sources said.

Vietnam will stop using diesel with 0.25 per cent sulphur from January 2016.

KPC's export contracts with countries such as Pakistan and Indonesia are mainly for high-sulphur diesel, traders said.

The ending of the contract may mean that Petrolimex will be in the spot market more, the source said, although it could also negotiate with other term contract partners to sell higher volumes.

The original contract between KPC and Petrolimex was signed in 1996. It was halted for about two years in 2007 and 2008 before resuming again, the source said.

Petrolimex had already skipped its third-quarter import term contract this year due to uncertainties over Vietnam's general import tariffs, which have been lowered three times since April.

Vietnam's sole Dung Quat refinery was carrying a high inventory of diesel as of late June, estimated at 120,000 cubic metres, local media reported.