A controversial project to develop a new coal-fired power plant in Vietnam has been terminated, with the country’s trade ministry citing the Malaysian project developer’s inability to resolve financing issues as the main reason for the deal’s failure.
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According to industry observers, the government might have taken into consideration renewed development priorities under the Just Energy Transition Partnership (JETP) – a US$15 billion package from wealthy nations to help speed its transition away from coal – among its motivations to shelve the deal.
However, analysts are concerned that the project may yet be revived. This is because of what some describe as “loose” JETP terms that allow for the cancellation of investments in coal-fired power plants to be renegotiated.
The much-delayed 2.12-gigawatt (GW) Song Hau 2 coal plant, to be built in the Mekong Delta province of Hau Giang, had looked like it would proceed after it secured financial backing to kickstart equipment procurement and building last month. A loan facility was set up by the Export-Import Bank of Malaysia (Exim Bank) to facilitate a US$980 million loan to be provided by Singapore-based engineering solutions provide i-Power Solutions Pte Ltd.
However, the main investor in Song Hau 2 and the project developer, a Malaysia-based investment holding company involved in power plant operations Toyo Ventures, filed an update to Malaysia’s stock exchange on Thursday to declare that the project’s build-operate-transfer (BOT) contract – that is, a contract used to finance large projects through public-private partnerships – had been terminated by Vietnam’s ministry of industry and trade.
The BOT contract was terminated because Toyo Ventures, and its subsidiary Song Hau 2 Power Company Limited (SH2P), had not met the financing terms for the plant by a 30 June deadline, the ministry said in the letter to the company.
Toyo Ventures told Bursa Malaysia in a statement on the same day that it would be evaluating the implications of the notice and seeking legal advice. The company has since seen its shares plummet due to the major setback.
There has been heavy criticism of the Song Hau 2 project given its climate implications. Building Song Hau 2 would exceed Vietnam’s coal-powered generation capacity limit stipulated in the JETP, according to analysis by Energy Shift Institute, a think tank. The involvement of Malaysia-based financiers in the project has also invited scrutiny.
Commenting on the termination of Song Hau 2’s BOT contract, Andri Prasetiyo, senior researcher on climate policy and finance at Senik Centre Asia, a research non-profit, said that coal power is “no longer a development priority” in Vietnam following its JETP pact and the country’s 2050 net-zero pledge, made in 2022.
Song Hau 2 is one of the five delayed coal plants listed in Vietnam’s Power Development Plan 2021-2030 (PDP8) that had been slated for cancellation as the country’s pursues its net zero target. The four other projects include the 600-megawatt (MW) Cong Thanh plant in Thanh Hoa; the 1.2-GW Nam Dinh 1 facility in Hai Ninh; the 1.32-GW Quang Tri plant in Hai Khe; and 1.98-GW Vinh Tan 3 project in Binh Thuan.
These five projects, which had all been facing funding issues, would have had until 30 June to proceed with their projects or face cancellation. Toyo Ventures was the only project owner of the five that had committed to proceed by securing a US$980 million loan, which ultimately did not prove sufficient to get the deal over the line, Prasetiyo said.
Temporary cancellation?
While the termination of Song Hau 2’s BOT contract is “good news” for Vietnam’s energy transition and climate goals, Prasetiyo said that project could potentially still move forward.
SH2P recently extended the issuance of a note to proceed (NTP) for the project, which is still pending. There is still no official NTP from the trade ministry.
He noted that a “loose” clause in Vietnam’s resource mobilisation plan for JETP states that the cancellation of investment in coal-fired power plants could be negotiated “where appropriate”.
The Song Hau project may be considered “not appropriate to halt”, so the Vietnamese government may consider this project not to be in breach of its JETP commitments if it goes ahead, Prasetiyo said.
“It will be interesting to see if this ‘cancellation’ is permanent, due to previous financial closure issues and Vietnam’s increased climate commitment, or if it is just temporary and the project can be reactivated later.” Eco-Business has also reached out to the project’s mandated lead arranger Exim Bank for comments.
The news emerges as the Vietnamese government approved a direct power purchase agreement mechanism that allows renewable energy developers to sell electricity directly to consumers, a move seen as key to speeding up the deployment of renewables in the country.
Under the new decree signed by deputy prime minister Tran Hong Ha on 3 July, large electricity consumers will have the choice to procure renewable energy directly from producers, bypassing the state power purchaser EVN.
