US embargo on Russian contractor delays key power project in Vietnam

Around 20,000 tons of equipment still sit in storage and cannot be installed at the Long Phu 1 thermal power plant, a 1,200 MW project being developed in Long Phu District, Soc Trang Province, said a report by the State Capital Management Committee (SCMC). 

SCMC represents the state's ownership at the wholly state-owned PetroVietnam (PVN), the investor of Long Phu 1.

The report attributed the inability of the project’s EPC contractor, Russian power engineering company Power Machines, to import enough parts to finish the job to a U.S. embargo imposed in January 2018.

Preservation of the equipment and unused reinforced steel in storage is a major concern, the report noted.

In June, Deputy Prime Minister Trinh Dinh Dung had instructed PVN to coordinate with the EPC contractor and take measures ensuring that equipment does not rust or get damaged.

In January 2018, the US Department of Treasury announced an extended list of Russian individuals and companies subject to sanctions imposed on Moscow over the Ukraine crisis, which included Power Machines.

Till now, PVN has not been able to determine the feasible progress of Long Phu 1 project because the Russian firm had not been able to resolve ongoing difficulties.

"The embargo makes it very difficult for the project to complete and meet investment efficiency requirements," the SCMC report said.

Meanwhile, PVN has proposed that the project’s investment capital be increased by VND11.6 trillion ($500 million) to VND41.2 trillion ($1.78 billion), and that the government allows PVN to raise its owners’ equity contribution ratio to the project to above 30 percent.

According to SCMC, Long Phu 1 was approved by PVN in 2010 with a total investment of about VND29.58 trillion ($1.28 billion), of which 30 percent would come from PVN's equity capital and the remaining 70 percent from commercial loans.

Although the decision to change the capital ultimately rests with the PVN management board, it needs to be able to explain and prove that the increase in capital will result in additional financial and socio-economic efficiency for the project.

Since PVN's equity is currently limited, the corporation needs to clearly determine its ability to invest from its own equity, the report said.

Long Phu 1 is a key project under the government’s 2011-2020 National Power Master Plan, with a vision for 2030. 

The coal-fired power plant is part of the Long Phu Power Centre, which comprises three coal-fired power facility projects Long Phu 1, 2 and 3 with a combined capacity of 4,400 MW and other ancillary technical infrastructure.

The Long Phu 1 and 2 power plants will feature two 600 MW units each, while the Long Phu 3 will feature two 1,000 MW units.

Work on the Long Phu 1 site began in June 2015, and the two units were originally scheduled for completion in 2018 and 2019 respectively.

Vietnam needs $150 billion by 2030 to develop its energy sector as electricity demand in its rapidly growing economy is set to grow by 8 percent a year for the next decade, according to the World Bank.