The Vietnam Development Bank will co-ordinate the financing package, which includes US$700 million from Government bond proceeds and the remainder from French bank BNP Paribas, which is extending credit for the deal through 2020 at an annual interest rate of 3.3 percent, after a four-year grace period.

PetroVietnam will borrow the bond proceeds for a 16-year term at a fixed interest rate of 3.6 percent, after four years’ grace.

The ministry has authorised Citibank's Trust Agency in New York to collect interest on the US$700 million loan from Government bond proceeds, while the Ministry of Finance will make interest payments directly to BNP Paribas.

The financing will be allocated to the Dung Quat Oil Refinery Plant No 1, which began operating at full capacity last month. The plant has imported 5.7 million tonnes of crude oil and processed nearly 5 million tonnes so far, delivering over 4.7 million tonnes of refined products to the market.

To ensure repayment, Circular No 114/2010/TT-BTC issued by the ministry late September 23 requires PetroVietnam to give highest priority to servicing the loans under this package. If it falls past due, the Ministry of Finance will require other lenders to freeze existing and further credit to the oil giant.

The ministry is preparing further risk-management plans to ensure repayment of the US$1 billion debt at maturity and is guaranteeing ultimate repayment to the State budget.

However, following the recent troubles of debt-laden shipbuilder Vinashin, PetroVietnam is expected to set an example as the best economic group in Vietnam.

Last week, the Government instructed the Ministry of Finance to consider Vinashin's request for US$300 million in Government bonds to service its debt to French bank, Natixis.

If this proposal is approved, the US$1 billion in capital raised by Vietnam's second overseas sale of Government bonds – offering higher yields than the lower-rated Philippines and Indonesia – would go to Vinashin and PetroVietnam.

The bonds were expected to offer a yield of 6.95 percent and a nominal interest rate of 6.75 percent.

The bond sale was originally conceived to provide capital for energy and infrastructure projects that would support growth in an economy suffering from a shortage of foreign exchange.