Kien Luong 1 thermal power plant demands compensation

TEC's Kien Luong 1 thermal power plant has been delayed for years before it was removed from the planning

TEC has long-delayed in construction

In August 2008, the prime minister approved in principle Tan Tao Investment and Industry Corporation (ITACO) to develop the 1,200MW Kien Luong 1 and the 1,200-2,000MW Kien Luong 2 thermal power plants. The construction of Nam Du Deep Water Seaport was to be added to the construction of Kien Luong 2.

The approval was considered a breakthrough for a private firm like ITACO as all large-scale thermal power plants at the time were developed by either state-owned firms or foreign enterprises under the build-operate-transfer (BOT) model.

Previously, in April 2008, ITACO issued a noisy media campaign promising that Vietnam would have the largest thermal power centre developed by a private investor, contributing to creating a hike for ITACO’s shares.

However, numerous experts were concerned about the feasibility of these projects. They wondered whether ITACO had enough money to implement these projects as it would have to import the entire coal volume used for manufacturing, while it was unsure whether the selling price could offset investment costs.

The above concerns were raised before ITACO had invested in any thermal power plant or was given a permit to mine for coal from any mine to meet its 15 million tonne demand for power manufacturing. Besides, the selling price of electricity to customers was only VND842 per kWh.

The construction of these two thermal power plants was expected to start in 2009 under the build-own-operate (BOO) model. Kien Luong 1 was expected to start operation in 2013-2014, and Kien Luong 2 in 2015-2016. However, ITACO could not keep to the timeline due to difficulties in mobilising funds. Even after the investor was allowed to transfer these projects to TEC, the construction remained immobile.

Selecting the BOO model was a factor making it difficult for the investor to mobilise investment capital for these projects because there were no government guarantees for loans. As a result, in February 2014, to address the investor’s problem and get the project back up and running again, the Vietnamese government allowed ITACO to modify the investment model from BOO to BOT, so that it could receive government guarantees.

In December 2015, the Ministry of Industry and Trade (MoIT) and TEC signed a memorandum of understanding (MoU) to implement the construction of Kien Luong 1. The MoU will expire on December 11, 2019. However, the MoU failed to accelerate the project.

According to the report of the Kien Giang People’s Committee, despite the government allowing the adjustment of the deadline for Kien Luong 1 to 2019 and Kien Luong 2 to 2020, by 2014-2015 the investor only completed the land clearance of part of the area for the Kien Luong 1 project, while Kien Luong 2 saw no tangible progress.

Due to these long delays in construction, in March 2016, the government issued the decision to remove the two projects from the Revised National Power Development Master Plan VII. Furthermore, the province said that it tried to contact the investor to discuss plans to deal with their problems, but could not reach them.

Will the government have to pay compensation for the investor?

Most recently, on August 31, TEC sent a document to the MoIT to state that removing Kien Luong 1 from the Revised National Power Development Master Plan VII is the key reason for the long delay of the project.

According to TEC, after the government allowed it to adjust the investment model to BOT, TEC and the MoIT signed a MoU and the two parties reached a compromise to take Kien Luong 1 into commercial operation by 2025. TEC also denied claims that the province could not contact them.

“During the time when the construction of Kien Luong 1 was suspended, TEC suffered great pressure from foreign partners. Thus, if the project has been removed from the Master Plan, the government, the MoIT, and the Kien Giang People’s Committee have to pay compensation for ITACO, TEC, and foreign partners,” the document mentioned.

TEC also stated that the investor disbursed $270 million in Kien Luong 1 and they are still paying interest for the loans.

According to TEC, in order to offset the expenses that the investor spent on the project, TEC proposed the government to add the project into the National Power Development Plan.

However, an expert told VIR that in case TEC’s proposal is approved, the project will still find it difficult to reach the deadline committed to the MoIT.

According to the expert, even if the investor is guaranteed for loans, it will still find it difficult to complete relevant investment procedures. Besides, local residents are protesting against the thermal power plant because of the risk of environmental pollution.

Regarding the demand for compensation, the expert said that in case the investor has not completed the investment procedures and signed the BOT contract with the ministry, the MoIT and the government do not have to pay compensation.