WATCHING THE WORLD UNEASE AMONG JAPANESE REFINERS

Japanese government backing for an expanded Japanese-Saudi Arabian joint venture to build refineries in both countries is causing unease among Japanese refiners not party to the deal.

The joint venture among Saudi Arabian Oil Co., Nippon Oil Co., Nippon Mining, Caltex, and Arabian Oil Co. began life last year with plans to build a 300,000 b/d export refinery at Jubail in Saudi Arabia's eastern province and turn a mothballed 42,000 b/d refinery at Kudamatsu in Yamaguchi prefecture, Japan, into a sophisticated 150,000 b/d plant.

NATIONAL PROJECT

Following talks involving the Japanese and Saudi Arabian governments, a formal agreement has emerged to boost the additional capacity in Japan committed to the joint venture to 450,000 b/d from 150,000 b/d and give the work the status of a national project.

Increasing the joint venture's Japanese capacity to 450,000 b/d will be achieved by including Nippon Oil's 150,000 b/d Muroran plant in northern Japan. In addition, Nippon Mining's 85,000 b/d Chita refinery in Central Japan will come under the ownership of the joint venture. It will be expanded to 150,000 b/d.

Reports from Tokyo suggest that investment by the joint venture partners in Japan alone will total $8 billion - $3.6 billion to acquire the Muroran and Chita units and $4.4 billion for expansion of Kudamatsu and Chita.

Other Japanese refiners are concerned at the extent of the new capacity and national project status. The latter will ease the path to concessionary loans from Japanese government backed institutions and to construction approvals.

The prospect of substantial added capacity comes while the Japanese downstream business is still adjusting to market liberalization promoted by the Ministry of International Trade and Industry.

For many years developments in the Japanese market were guided by MITI. Companies' freedom of action was restricted by measures such as a government ceiling on refining capacity, which is to end at the end of March.

Downstream companies now fear that the government-to-government accord that led to the expansion and enhanced status of the Saudi-Japanese joint venture will provide MITI with the vehicle to maintain its hands-on policy toward refining and marketing.

Some of the most outspoken criticism of the deal has come from the Japanese media. Nikkei Weekly, an English language version of the Nihon Keizai Shimbun business newspaper, noted that some western nations resisted oil producer inroads into the downstream business because Arab business ethics place political considerations on a par with economics.

FUNDAMENTAL TREND

The newspaper pointed out that privatization and deregulation form a fundamental trend not only in European but also in Asian countries, including Japan, and that strategic industrial fields such as petroleum are no exception.

If the joint venture is to be based on a true mutual reliance, the newspaper said, both governments need to establish clearly before the projects begin that business and politics do not mix.