Obstacles hindering O Mon III venture

June 10, 2021 | 10:00
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The O Mon III thermal power plant in the Mekong Delta city of Can Tho is facing lingering issues related to investment policy and responsibility, leading to the protracted delay in part of the gas project.
1547 p11 obstacles hindering o mon iii venture
Illustration photo. Source: internet

Electricity of Vietnam (EVN) recently proposed to the prime minister an investment plan for the O Mon III thermal power plant in a bid to remove the bottlenecks for the Block B gas complex.

After the Law on Public Investment took effect in 2020, the Ministry of Planning and Investment (MPI) proposed to the prime minister to apply the provisions of the law to appraise and decide on the investment policy for the O Mon III. Meanwhile, the ministry proposed amendment and supplement of Decision No.1015/QD-TTg dated August 2019 on the establishment of a state appraisal council to appraise the project’s feasibility study. However, some obstacles have emerged during the implementation of investment policies, especially the authority to approve investment policies.

The Ministry of Industry and Trade (MoIT), the MPI, the National Steering Committee for Power Development, and the Commission for the Management of State Capital at Enterprises (CMSC) have submitted many reports to the government to tackle difficulties in the investment procedures for the project.

Last December the government submitted a report to the National Assembly Standing Committee on this issue. According to its conclusion, the use of official development assistance (ODA) loans for enterprises to borrow 100 per cent for the O Mon III is not within the scope of the Law on Public Investment as well as under the prime minister’s authority to approve investment policies. It has been nearly two years since EVN submitted the project to the CMSC to request for investment policy. However, the authority to approve the investment policy for this project has not been determined.

The O Mon III was approved by the government to be on the list of ODA projects funded by the Japanese government in 2012. EVN was the investor of the project and signed the ODA loan contract with the Japan International Cooperation Agency (JICA). In 2013, Vietnam and Japan signed a commitment note to grant the first loan worth $254 billion for the O Mon III. The JICA loan agreement would be signed by the parties following the result of negotiation and signing of a gas purchase and sale contract.

Foreign investors have often raised their voices about the obstacles hindering the Block B gas project. In 2015, US oil giant Chevron decided to withdraw from the project by transferring stakes to PetroVietnam.

In July 2020, Japan’s Mitsui Oil Exploration Co., Ltd. (MOECO) and Thailand’s PTT Exploration and Production Public Co., Ltd. (PTTEP) also submitted letters to the prime minister about their concerns for the slow approval of the onshore power project, which has caused tremendous challenges for the Block B gas project chain and delayed the final investment decision (FID). Thus, the target of the first gas flow by the end of 2023 will be missed.

Two months later the foreign investors sent another letter to the prime minister noting that the first gas for the project is expected in September 2024 at the earliest. Due to the delayed approval of investment policy, the investors could not make the FID in 2020 while the first gas flow by the end of 2023 became infeasible.

EVN said the delayed approval of the investment policy is due to the inability to identify the agency responsible for this project, which slows down the progress and efficiency of the project chain. Meanwhile, the wellhead gas price has been calculated since 2016 with the price slippage of 2.5 per cent per year and the transportation price slippage of 2 per cent a year, which has raised investment and electric production costs.

Commenting on the conditions for borrowing ODA loans from JICA, EVN said that the plan has better economic efficiency than the commercial loan plan. In addition, the Japanese government has confirmed to continue to provide ODA loans for the O Mon III. However, to make efficient use of the loans, it needs to establish the authority to approve investment policy for the project. Up to now, the project is still waiting for the amended decree to be approved for implementation.

To issue the amended decree, it is necessary to get feedback from relevant ministries and sectors. It will take a great deal of time, even though FID needs to be made this October.

EVN has formulated a plan to use domestic and foreign commercial loans to remove bottlenecks at the O Mon III. With this plan, the power generation progress of the project will take place in the third quarter of 2026, 18 months earlier than the plan of using the ODA loan. However, the biggest obstacle for the new plan is the increase in the total investment, mainly due to the loan interest.

On May 7, the Government Office issued a document announcing the opinion of Deputy Prime Minister Pham Binh Minh, assigning the CMSC to cooperate with the MoIT and relevant agencies to handle EVN’s proposal and report it to the prime minister soon.

In 2018, when calculating the O Mon III and IV projects using gas fuel, EVN proposed the electricity selling price of VND2,355 (10 US cents) per kWh and a maximum of about VND2,840 (12 US cents) per kWh to ensure efficient financing of these projects.

The Block B gas pipelines are being implemented by Phu Quoc Petroleum Operating Company (PQPOC) and South West Pipeline Operating Company (SWPOC), along with PTTEP and MOECO. The approval of O Mon III is the premise to finish commercial negotiations and select the engineering, procurement, and construction (EPC) contractor.

The bidding packages will expire in bid validity in October, and investors expect the investment policy to be issued by August to open commercial bidding packages. If delays continue, PQPOC could have to extend the EPC bidding validity for the fifth time for contractors. In the worst scenario, PQPOC would have to reorganise the international bidding, which would likely delay the whole project for more than a year.

By Thanh Huong

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