South Korea to Decide on Approval for Vietnam Coal Power Plant – a Project Dropped by other Global Banks – in Early October
KEPCO – South Korea’s national utility – is slated to make a decision on the 1,200 MW Vung Ang 2 project in Vietnam on October 5th.
The project, which has been delayed for 13 years, will cost approximately USD $2.24 billion. A 40 percent share of the project, which was originally held by Hong Kong based CLP Holdings before it withdrew from the project, is now being eyed by Korean electric utility KEPCO.
Financial institutions’ domino withdrawal from Vung Ang 2
A July pre-feasibility analysis run by the Korea Development Institute concluded that Vung Ang 2 would incur a total loss of approximately USD $168 million, and a $84 million loss for KEPCO during its 25-year-operation. The result casts serious doubt on the prospect of the project to all parties involved – which includes a medley of financiers, including Japanese banks such as Mitsubishi, JBIC and SMBC, and EPC contractors, which currently include General Electric (GE).
Before results from the analysis came out, multiple global banks had already backed out of Vung Ang 2, including CLP, Standard Chartered, OCBC and DBS.
Last November, OCBC dropped out of Vung Ang 2, an announcement which came just seven months after its chief executive Samuel Tsien said the bank would not commit to any new coal power plants. In December, Standard Chartered Bank also stated that it would only support clients that generate less than 10 percent of their profits from coal by 2030, and that it would withdraw from three coal projects – which, industry sources suggested, include Vung Ang 2.
CLP also announced that it will no longer invest in new coal power plants and that it would phase out all of the other coal plants it’s involved in by 2050 – unofficially marking its withdrawal from Vung Ang 2 as well as Vinh Tan 3 in Vietnam in December 2019.
Divestment from fossil fuels: a global trend
Such divestments are in line with a global trend to restrict or divest altogether from coal-fired power projects. According to independent research thinktank Institute for Energy Economics and Financial Analysis (IEEFA), more than 138 globally significant banks and insurers have announced their withdrawal from coal mining and/or coal power plants as of this year. This trend has been accelerated by the steep drop in price for solar and wind energies for many countries and changing energy policies encouraging their expansion.
This also applies to the energy market in Vietnam. In February, the government announced a national energy plan – Resolution 55 – that committed the country to increasing its share of renewables to as much as 20% by 2030 and called for a phase-out plan for coal.
KEPCO’s expected involvement in the project has earned the company widespread criticism, especially from global investors, which make up approximately 30 percent of KEPCO’s shareholders. In May, BlackRock – the world’s largest asset manager – sent a letter to the utility, raising concerns over its investments in its overseas coal projects in Vietnam and Indonesia. That move came after its announcement earlier that year that it would divest coal mining exposures from its $1.8 trillion of managed funds. Major institutional investors including Legal & General, Church of England, and APG also openly raised questions on KEPCO’s continued coal investments.
Samsung also to fill a potentially empty spot
General Electric also announced this week that it would stop new coal power projects to focus more on renewables. According to activists, however, it’s still uncertain how this policy revision will affect the company’s involvement in Vung Ang 2.
“Before GE gets too many plaudits for its move, there needs to be clarity on these 18 planned coal-fired power stations which are the equivalent of more than doubling Texas’ coal power capacity,” said Julien Vincent, Executive Director of Market Forces. That list of stations includes Vung Ang 2.
If General Electric officially drops out, it’s likely that Samsung C&T will take over its place as the EPC contractor, as the company has been considering getting involved in Vung Ang 2. Like KEPCO, Samsung has already drawn criticism for its potential involvement from global investors such as KLP, Norway’s largest pension fund, and Legal & General Investment Management, the UK’s largest asset manager.
This is not KEPCO or Samsung’s first-time involvement in overseas coal, with ensuing losses and criticism. In 2019, KEPCO lost approximately USD 500 million due to its failed investment in the Bylong coal mine in Australia. This July, Samsung Securities said it would not provide further financing to Adani’s coal projects in Australia, after a string of protests from local environmental groups.
Despite the controversy over overseas coal financing, the Korean government has given a green light to the project. The Korean government’s most recent stance on overseas coal is that while in principle, it will not fund any new coal projects overseas, there are exceptions: “if the country in question does not have any other energy alternative, or if it requests more efficient ultra-supercritical coal power plant technologies, the Korean government will support the construction of new coal plants in line with OECD guidelines,” said Cho Myung-rae, Minister of Environment, on September 22.
Last month, members of the National Assembly proposed a legislation that would ban KEPCO and three Korean public financial institutions from investing in overseas coal. However, the legislation has yet to pass, and if KEPCO’s board of directors approves the project in early October, the project is likely to move forward, despite its expected unprofitability and environmental damages – the project is estimated to emit 200 million tons of greenhouse gases in the next 30 years.