Vietnam’s vocal but repressed pro-democracy movement has been gripped in recent weeks by events in Venezuela, pining that a similar uprising against dictatorship may one day sweep their own nation.
But Vietnam’s ruling Communist Party, whose ties to Venezuela’s still-ruling socialist government are cousinly, is focused more on the huge sums lost to apparent fraud in a deal between PetroVietnam and Venezuela’s state-run Petroleos de Venezuela (PDVSA).
This month, Vietnam’s Ministry of Public Security opened an investigation into alleged corruption at state-owned PetroVietnam over a now-stalled billion dollar project to tap petroleum in Venezuela’s Orinoco Belt, one of the world’s largest oil reserves.
This week, anti-graft inspectors demanded that PetroVietnam and its subsidiary, PetroVietnam Exploration Production (PVEP), hand over relevant documents for a probe into whether corruption and other misdeeds took place before the Venezuela-based project was ditched in 2013.
Although PetroVietnam never actually drilled for oil in Venezuela, reports say the firm spent close to US$500 million on exploration, with much of that sum disclosed only belatedly to the Communist Party-led government.
Launched in 2010, PetroVietnam’s Venezeula-based Junin-2 project appeared to be doomed from the start. Potentially worth $12 billion if oil could eventually be extracted, it was overseen by PetroMacareo, a joint venture between PVEP and Venezuela’s PDVSA.
PVET was to put up $1.2 billion in investment, as well as $584 million in “contract bonuses” to PDVSA for “government licensing and exploratory rights.” However, these so-called bonuses weren’t disclosed by PVEP in its financial statements to the Vietnamese government, according to local media.
Moreover, in order to avoid possible oversight from the National Assembly – a requirement on investment projects above a certain financial limit – PVET reduced its share of the project’s capital from $965 million to $537 million. At that lower investment level the deal did not need legislative approval and thus went ahead without scrutiny.
Though many in government raised questions at the time, no investigation was launched.
Many agencies were under the thumb of then prime minister Nguyen Tan Dung, who rose up the party ranks via alliances with powerful state enterprise directors, including at PetroVietnam, and in return allegedly turned a blind eye to their corrupt practices.
By December 2013, however, it became clear to many senior politicians in Hanoi that the Venezuela venture was too risky and should be halted to avoid further losses.
PetroVietnam only reported last year in its financial disclosure statements losses worth $460 million in the project, most of which was incurred from previously undisclosed “contract bonuses” paid to PDVSA.
The corruption allegation, while still unproven, would be the latest in a series of costly scandals at PetroVietnam. The investigation, meanwhile, is wrapped up in a wider anti-corruption purge that is making big waves inside the Communist Party.
Party General Secretary and President Nguyen Phu Trong, has moved to clean up the Party’s rank and file with an emphasis on purging Dung’s ex-associates, including inside PetroVietnam. Anti-corruption trials have proven to be popular with the Vietnamese public and a major source of legitimacy for Trong’s leadership.
The anti-corruption push is just as much about economics as politics. Analysts argue that Trong’s clean-up has not gone far enough to genuinely reform the moribund and loss-making state sector, a perennial drain on state coffers.
Although PetroVietnam recently announced that its revenue topped $4.8 billion for the first two months of this year, around 8% higher than predicted, by all independent accounts the energy concern is in financial free-fall.
Those financial troubles, in turn, are being driven by failed ventures overseas, which PetroVietnam has pursued in earnest in recent years as indigenous fuel sources dry up or are embroiled in territorial disputes with China in the South China Sea.
Last week, local media reported that out of 13 offshore investments operated by PetroVietnam and PVEP, all but two are incurring heavy losses, stalled or have had their capital transferred to local partners due to unprofitable operations.
The news broke after the Ministry of Industry and Trade released a report on PetroVietnam to the State Capital Management Committee, otherwise known as the “super committee,” a body created last year to oversee 19 large-scale state-owned enterprises with combined assets worth $99 billion.
PetroVietnam’s failing foreign ventures include projects in Peru, Malaysia, Iran, the Congo, Myanmar and neighboring Cambodia. One example: the state concern reportedly spent $72 million to explore for oil reserves off the coast of Cambodia but then failed to ever start drilling in area a Singaporean concern will soon operate.
Days after the ministerial report’s bombshell release, PetroVietnam’s board accepted the resignation of its general director Nguyen Vu Truong Son, who also held senior positions at the energy giant’s many subsidiaries.
Son’s resignation was reportedly offered weeks prior, but the board only accepted it recently because of the government’s investigations into the suspect Venezuela deal, analysts say.
He’s not the first – and likely not the last – to fall. PetroVietnam’s ex-chairman Dinh La Thang, the first Politburo member to be dismissed from his position in over a decade, was arrested for financial mismanagement and violating state regulations at the state firm during his 2006-2011 tenure. He was later sentenced to 13 years in jail.
More dramatically, Trinh Xuan Thanh, another former PetroVietnam executive, was kidnapped by Vietnamese agents from the streets of Berlin, Germany, where he had sought asylum, and smuggled back to Hanoi to face trial. Thanh was later sentenced to life in prison for “asset embezzlement.”
The dragnet around PetroVietnam could yet widen. In December, the Ministry of Public Security ordered the arrest of Do Van Khanh, a former director general PetroVietnam subsidiary PVEP. A month later it issued a warrant for the arrest of Vu Thi Ngoc Lan, PVEP’s deputy general director.
Both cases are thought to be part of the Ministry’s second investigation into historic economic mismanagement at Ocean Commercial Bank, more commonly known as Ocean Bank, a partly state-run lender with ties to PetroVietnam.
Son, the former PetroVietnam chairman, as also formerly general director of Ocean Bank. When the bank was founded in 2007, PetroVietnam was a major shareholder.
The Ocean Bank scandal, arguably Vietnam’s largest ever corruption case, erupted in 2015 when the State Bank of Vietnam was forced to take over the lender after it reported losses worth $445 million, roughly half of its total outstanding loans at the time.
Prosecutors attributed the losses to financial mismanagement, a crime under regulations for state-run firms, and embezzlement. Following investigations into the bank’s activities in 2016, dozens of former executives were sentenced to prison or fined in late 2017.
Ha Van Tham, former chairman of the Ocean Group, the bank’s parent company, and formerly one of Vietnam’s most wealthiest high-flying tycoons, was sentenced to life imprisonment.
Ocean Bank’s former chief executive officer, Nguyen Xuan Son, was given the death penalty for his role in the scandal. His family is now reportedly trying to raise the $1.6 million the ex-banker was ordered to repay to commute his death sentence to life in jail.