China energy giant in BOT landmark

By Vietnam Investment Review, September 23rd, 2013

China Southern Power Grid’s long-awaited project to build the Vinh Tan 1 power plant in Binh Thuan province could become only the fifth foreign-invested build-operate-transfer power project licensed in Vietnam, amid the country’s power woes and strong interest from foreign developers.

A high-ranking official from the Ministry of Planning and Investment (MPI) said the company’s project to build the coal-fired plant Vinh Tan 1 in the southern central province could be licensed by late September. The official granting ceremony is expected to take place in mid October.

If Vinh Tan 1 is licensed, the project will become the fifth foreign-backed build-operate-transfer (BOT) project licensed by the government in the 27 years since the country opened its door to foreign direct investment. The first four licensed projects include Phu My 2.2, Phu My 3, Hai Duong and Mong Duong.

A memorandum of understanding (MoU) to build the Vinh Tan 1 BOT project was inked in 2006, and long negotiations for its implementation have been conducted since. Areas of discussion included capital adjustment, investment details and locations, as well as the participation of relevant ministries.

In late May 2013, Chinese company CSG submitted a dossier to the MPI asking it to officially grant an investment certificate to the project.

“The MPI has carefully considered our dossier and provided us with feedback and the project has finally completed the necessary procedures. The licensing of the project will reflect the continued efforts of all the parties involved,” CSG deputy general director Zhang Tan Zhi told VIR.

The 1,200 megawatt project, which includes two 600MW capacity turbines, has total registered capital of nearly $1.76 billion. However, CSG has now proposed that the capital in the investment certificate be increased to over $2 billion, which includes a $263.26 million emergency fund.

The project’s chartered capital totaled more than $351 million, with CSG holding a 55 per cent stake, while China Power International Holding Limited has a 40 per cent stake and Vinacomin holds 5 per cent. More than $1.4 billion of the project’s total capital will be loans. Its financial contract will be inked in the first quarter of 2014.

“This is an important project for Vietnam and it has interested the government and ministries because of its large scale,” said MPI Deputy Minister Nguyen Van Trung.

CSG has established Vinh Tan 1 Power Company Ltd (VCPC-1), with Zhi as its legal representative, as the project’s operator, which Zhi described as “a win-win scenario for both Vietnam and China”. Output from the project will be connected to Vietnam’s north-south 500 kilovolt power transmission line.

The project, located in Tuy Phong district’s Vinh Tan commune, will be built between 2014-2018. VCPC-1 will run it for 25 years before transferring it to Vinacomin.

According to the MPI’s Department of Investment Supervision and Appraisal, the project will use Chinese engineers and Vietnamese manual labourers during construction.

CSG, one of China’s two biggest power grid companies, reported total assets of around $900 billion by late last year, including more than $70 billion in power sales. In China, it currently provides power to more than 230 million people.

CSG is currently negotiating with Vietnam’s state-owned giant Electricity of Vietnam on a project to connect power with the north-south 500 kilovolt power transmission line, and to link Vietnam’s power supply with the southern region of China.

There is presently great interest from a host of countries in helping to develop power plants in Vietnam

The Electricity Generating Authority of Thailand, also known as EGAT, has secured an in-principle approval from Vietnam’s government to invest in a 1,200MW, $2.26 billion power plant in the central province of Quang Tri.

The project is located in Hai Lang district and is intended to reinforce the country’s energy security from 2011-2020.

In July this year, Malaysia-based Toyo Ink Group signed an MoU with Ministry of Industry and Trade to invest in the 2,000MW Song Hau 2 coal-fired power plant in the southern province of Hau Giang. According to the Malaysian firm, the power plant will cost around $3.5 billion.

In the central province of Quang Ngai, Singaporean Sembcorp Utilities is conducting a feasibility study for the construction of a 1,200MW power plant. The investor gained in-principle approval from the Vietnamese government in April.

US-based PHI Group Inc, a company focused on energy and natural resources, recently announced it was planning to build two giant coal-fired power plants in Vietnam. A 2,000MW coal-fired power plant in the southern province of An Giang province, and a 3,600MW coal-fired power plant in the central province of Quang Tri were in the company’s plans.

Tata Power, India’s largest integrated power company and a subsidiary of Tata Group, is now preparing to conduct a feasibility study for their proposed Long Phu 2 in southern Soc Trang province.

However, despite considerable interest, to date the country has only licensed four foreign-invested BOT power projects.

The low selling price of electricity as regulated by the government is a major barrier that has discouraged foreign investors from entering Vietnam’s power generation market.

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