PV Power struggles to implement LNG gas power project

Nhon Trach 3 & 4 are the first two thermal power projects using Vietnam's LNG fuel, implemented by PetroVietnam Power Corporation (PV Power), with many difficulties.

Footsteps of the Pioneers In mid-March 2022, PV Power and the consortium Samsung C&T Corporation - Lilama officially signed the EPC Contract for Nhon Trach 3 & 4 Power Project and related agreements. This is a remarkable milestone of Vietnam's first two LNG-fueled thermal power projects. With a capacity of 1,500 MW, Nhon Trach 3 & 4 projects have a total investment of 1.4 billion USD and are a key project in the Master Plan VII. Pioneering the construction of a natural gas power plant means many things that are “unprecedented”. No enterprise in Vietnam has ever invested in the construction and operation of power plants using LNG before. The experience of purchasing LNG in the international market - the main input material of the plant - is also unprecedented. Although with PV Power, the construction of LNG terminals for Nhon Trach 3 & 4 projects is not difficult because gas is bought from PV Gas but with many other LNG power projects, the selection of location to build the LNG storage terminal is difficult and takes a long time, not to mention having to spend a lot of money in research with the requirements of deep-water ports and shipping channels. With a capacity of 1,500 MW, Nhon Trach 3 & 4 projects have a total investment of 1.4 billion USD and are  key projects in the Master Plan VII .   Like many other projects, with the power purchase agreement (PPA), the electricity price framework for power projects using LNG has not been issued yet. The electricity selling price is set on the condition that it allows pass-through of gas fuel costs from gas purchase and sale contracts to electricity purchase and sale contracts. Therefore, a mechanism for offsetting annual power output to ensure investment efficiency, arranging capital, calling for and attracting investment is also the thing that PV Power and experts find very necessary and should be issued soon. Besides, it is not easy to arrange capital for projects, because independent power projects (IPP) currently do not have Government guarantees. Financial institutions, when   lending, require that projects meet environmental requirements or are equivalent to international standards.   Not yet to mention, similar to other power projects, the operation of the power plant depends on the plan to build the transmission line to release capacity, or the compensation, site clearance and land handover procedure to the investors takes a long time due to complicated procedures affecting the project progress. However, this new field also has many advantages. Gas-fired power plants use clean fuel, reduce CO2 and greenhouse gas emissions, use technology with high efficiency, operate flexibly with the ability to change loads quickly. Not to mention, in the current context, hydroelectricity does not have much potential for development, coal power has been reduced due to environmental pollution, so the opportunity for gas power development is huge. Another advantage comes from PV Power's internal strength. With 4 gas power plants in operation, more than 15 years of experience in investment and operation of power projects and a team of experienced personnel in the process of investment preparation, construction and operation of power plants are conveniences of the investor. Readiness of financial resources   Preparing for Nhon Trach 3 & 4, the two big projects under implementation, the arrangement of capital for the project has been implemented by PV Power during the past time. Up to now, the owner has confirmed to have fully arranged capital for the project. In which, equity accounts for 25% and the remaining 75% are loans, including export credit - ECA ($600 million), foreign commercial loans ($300 million), domestic loans (4,000 billions dong). In order to realize loans, PV Power also signed an extension of Letter of Authorization for  Citi (USA) & ING (Netherlands) banking consortium to coordinate and arrange export credit capital for Nhon Trach 3 & 4 Power Plant projects. By the end of 2021, PV Power's asset is approximately VND 52,980 billion. The financial situation has improved, the capital structure is getting healthier as the proportion of debt has steadily decreased over the years. The debt ratio from nearly 54% at the end of 2018 has in turn decreased to 47% (in 2019); 42.15% (in 2020) and 41.25% (in 2021). The enterprise's capital by the end of 2021 reached VND 31,125 billion, of which charter capital was approximately VND 23,419 billion (USD 1 billion). The low growth in load demand, power production activities affected by the pandemic and strong fluctuations in input prices have had a strong impact on PV Power's business results in 2021. The Corporation earned VND 24,560 billion VND 2,052 billion in revenue from main business activities and VND 2,052 billion in profit after tax. With the recent sharp fluctuation in world raw material prices, input factors continue to affect PV Power's business activities. According to PV Power, while the gas power source is relatively stable due to the predetermined price, the coal power plant of the Corporation is significantly affected. Besides the main coal source provided by Vietnam National Coal and Mineral Industries Group (Vinacomin), PV Power also plans to active importation. The price of imported coal was sometimes close to 300 USD/ton, while the coal demand of India and China was very large, so it was difficult to import, affecting the Company's electricity production. However, according to a representative of PV Power, coal and oil prices are expected to cool down soon and this difficult period for input prices will pass.