Malaysian investor’s moment of truth

The company has started negotiations with Electricity of Vietnam (EVN) and Ministry of Industry and Trade (MoIT) for a power purchase agreement (PPA) and build-operate-transfer (BOT) contracts since the middle of this month, said Ti Chee Liang, president and chief executive officer of Janakuasa.

The negotiations are  crucial steps that Janakuasa must take before building the Duyen Hai 2 coal-fired power plant in the southern Tra Vinh province. In April, Janakuasa signed a memorandum of understanding with the MoIT to invest in the project.

“It takes many months for an independent power plant investor to eventually conclude contracts with EVN and the MoIT. If all goes well, we will complete all negotiations by the first quarter 2011 and then proceed to construction,” Liang said.

Duyen Hai 2 is the first project Janakuasa is developing in Vietnam and is part of the government’s sixth power development master plan to address the dramatically rising power demand in Vietnam during 2006-2015.

Liang said the project would be a milestone for the company to step into the energy sector in Vietnam. However, he said the negotiations for a power purchase agreement would be a key factor in deciding the future of Janakuasa’s invesment in the country.

“As a result of the financial crisis, international lenders are imposing tougher lending criteria and one of the most important criteria is the requirement of a high debt service coverage ratio. This means that an independent power plant investor must be able to demonstrate that it has a robust cash-flow and this can only be achieved through a reasonable tariff,” said Liang.

Vietnam has a great potential for power sector growth as power demand in country is expected to grow at a fast pace of about 17 to 22 per cent during 2006-2015. Meanwhile, the power supply is far from meeting  demand, putting the country into a severe shortage of electricity in recent years.

Though the government has been calling for foreign investment in the power sector, only three foreign investors are involved in BOT power plants. The Phu My 2.2 project is invested by a joint venture between Japanese Sumitomo Group and TEPCO Company and French EDF Energy. A consortium of Kyushu Electric and Sojitz Corporation, BP and SembCorp Utilities invest in Phu My 3 project.  In April, US-based AES Corporation gained a license to build $2.1 billion Mong Duong power plant in the northern Quang Ninh province.

Another Malaysia investor, Jaks Resources, in April also started negotiating PPA and BOT contracts for the $1.4 billion Hai Duong thermoelectricity plant. China Southern Power Grid Company and Vinacomin are negotiating PPA and BOT contracts for the $1.9 billion Vinh Tan 1 thermoelectricity plant in the cemtral Binh Thuan province.