Expertise Lacking In Vietnam’s LNG Drive

Like a teenager with lofty ambitions Vietnam feels just the rush of adrenaline gush. It has big plans for LNG plants. There however, is something lacking and it all must do, is on how to go about getting those LNG plants onboard. Jaya Prakash reports.

If nothing goes wrong, Vietnam will have its first power plants connected to liquefied natural gas. No date has been set as yet which in all probability will be in 2023 or the very latest in 2025.

Hanoi has been insistent on moving away from coal. In its place it wants LNG import terminals its trade minister once told. And the grand, ambitious move is now for some 22 such power plants with a combined capacity of up to 108.5 gigawatts; the first of which to be opened in 2023.

As a matter of fact, those plans are indeed awe-inspiring. The real question is how prepared the nation really is?

Author Thu Vu, Energy Finance Analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), and whose comments appeared over the IEEFA website, warns that unresolved regulatory and market obstacles domestically pose serious challenges that will separate enthusiastic project sponsors from the proverbial ‘finish line’.

 “Technical standards are an area that will need to be further developed as part of developing an LNG to power market.”, said a source close to leading international law firm, White & Case to Fuels and Power on condition of anonymity.

Such a lack of standards and other essential skills are almost certain to run up against efforts to help inaugurate the very import plants Vietnam wants.

In IEEFA’s words, the exuberance of enthusiasm may just sour and turn out to be a damp squib.

“The resultant market frenzy is like nothing Vietnam’s power system has ever seen. While much of the reporting has created the impression that the proposed projects are sailing through the approvals process, the situation on the ground is much more complicated,” Vu notes.

Undoubtedly, LNG-to-power infrastructure projects are complex undertakings. They involve mot just huge finance undertakings. But many multi-stage development projects from upstream and downstream to construction interests.

Then there are safety and security blueprints to incorporate in the overall planning and decision-making process.

From the pool of projects on the drawing board, only nine projects with 17.6 GW in combined capacity have been formally approved for the current power master plan (PDP7R). None of them has finalised power purchase agreements (PPA) with the state utility Electricity of Vietnam (EVN), highlights IEEFA

“Significant planning and implementation delays are very likely considering how the updated regulatory environment seems incompatible with the contractual demands of developers who insist on utilising older legal models governing either build-operate-transfer (BOT) or independent power projects (IPP).”

Vietnam recently enacted new legislation with a direct impact on large-scale power projects. The Public-Private Partnership Law and Investment Law, both effective from 1 January 2021, have rolled back certain government concessions that had been regarded as essential to international lenders.

Rigid financial structures used to finance LNG-to-power assets will shape Public-Purchase Agreement (PPA) discussions in the months and years to come. For those projects that have reached the negotiation table with EVN, the most difficult part of the process has only just begun.

“Analysts should manage their expectations very carefully before placing big bets on Vietnam’s near-term LNG pathway”, Vu warned.

Vietnamese regulators are planning to quadruple the current gas-fired power capacity to 28 GW in 2030. “The high-level policy commitment to establish and scale up a reliable LNG-to-power market does not necessarily translate into prompt concessions, especially as Vietnam navigates its post-COVID recovery and amid the growing interest in the domestic energy market”, IEEFA noted.