Vietnam: Nam Dinh power plant gets the nod

Vietnam: Nam Dinh power plant gets the nod

The consortium including Saudi Arabian ACWA Power and South Korean Taekwang
Power Holdings Co., Ltd. officially received an investment certificate for
the $2.3 billion Nam Dinh 1 thermal power project, making its first foray of
Saudi Arabian ACWA Power in Vietnam.

ACWA Power International's CEO and president Paddy Padmanathan and chief
investment officer Rajit Nanda told VIR's Phuong Thu about company's vision
and plan for Vietnam.

Could you brief about ACWA Power? Why ACWA Power has confidence to start
project in Vietnam?

Paddy Padmanathan: ACWA Power is a developer, investor, co-owner and
operator of a portfolio of power generation and desalinated water production
plants currently with presence in 11 countries including in the Middle East
and North Africa, Southern Africa and South East Asia regions. ACWA Power's
portfolio, with an investment value in excess of USD 30 billion, can
generate 22+ GW of power and produce 2.5 million m3 per day of desalinated
water.

Our entire mission is to reliably deliver electricity and desalinated water
at the lowest possible cost, on bulk basis, on long term, off take
contracts. We typically serve government owned utility companies or energy
intensive industrial enterprises. We are technology-neutral and fuel
agnostic and serve our customers by responding to their fuel preference and
technology choices by delivering the optimized fit for purpose solution that
delivers electricity and where relevant desalinated water reliably at the
lowest possible cost. So, if a customer says use fuel/gas, we use gas. If
the customer says use wind-power, we use wind-power.

We are in the business of delivering essential service that fuels social and
economic development by investing significant amount of money in getting a
plant built and then operating and maintaining the plant to produce
electricity over 25 years, collect revenue as we sell the electricity year
in year out and recover the invested money over such a long time. As such,
when we select a country to invest in and participate in the electricity and
or desalinated water market, we need to be sure that it is a politically
stable country, has a vibrant growing economy, respects the rule of law, has
a demonstrable track record of honoring contracts, welcomes and protects not
just private sector but foreign private sector investment and has adequate
local industrial and labor capacity to enable us to get a plant built and
operated and maintained competitively. To put it simply, Vietnam meets each
and every one of these criteria.

What is the role of Nam Dinh thermal power project in your development
strategy in Southeast Asia? What is your priority for Vietnam market in the
coming time?

Paddy Padmanathan: ACWA Power is an ambitious company with a significant
appetite for growth. We are thus looking for countries that not only fulfill
all the needs to support these kind of significant investments but also that
have a clear growing need for more electricity and where relevant
desalinated water capacity. We identified South East Asia as an attractive
market with growing needs. But within South East Asia certain countries
stand out as more attractive than others. We have elected to enter the
region with this first project in Vietnam.

Our interest is to now get this first project into construction, so that we
can prove to our shareholders and the market in South East Asia of our
capability and then start building on this platform in Vietnam to grow a
multi fuel portfolio in Vietnam itself and step by step expand our business
into a few other countries starting with Indonesia as the next market to
grow into. In Vietnam itself, given our desire to develop a balanced
portfolio reflecting the energy mix and capacity expansion plan of the
Ministry of Energy of Vietnam and thus will be looking for suitable
opportunities in Renewable Energy including solar and wind power as our next
priority.

The granting of the IRC for the Nam Dinh 1 project represents a significant
step in the development of this project, more importantly it demonstrates
the commitment of the Vietnamese government to attract investors. We look
forward to completing the financing arrangements and commence construction
of the power plant to enable us to contribute to the development of Vietnam
by delivering reliable, safe and cost effective electricity.

As banks and lenders are tightening to loan for coal-fired power projects.
So how and from whom do you have comprehensive commercial guarantees to
cover for this project?

Paddy Padmanathan: At high level, I think it is correct to say that people
are concerned about coal fired power generation. It is true that many
countries have decided not to provide any finance for coal-fired power
plants. However, there are still a few countries and their export credit
agencies and banks are supporting these investment provided all the strict
environmental protection guidelines and emission quality and pollution
abatement standards are followed. For countries like Vietnam, where
provision of reliable adequate power supplies at the most competitive basis
with domestic fuel resources is a priority to provide electricity for
improvement of social and health standards of the people and the development
of the economy, it is good news f that there are such sources of finance and
lenders who are willing to provide the debt funding needed..

Rajit Nanda: For details for Nam Dinh coal-fired project, on top of equity
of around $500 million to be provided by the developers, the rest of around
$1,8 billion will be financed by Export-Import Bank of Korea (Kexim) and
Korean Trade Insurance Corporation (Ksure). Some international commercial
banks will also join the financing. This group includes DZ Bank, MayBank,
Mizuho Bank, Bank of Tokyo-Mitsubishi Bank, Standard Chartered Bank and,
OCBC

What are your solutions for coping with the concerns around thermal power
projects?

Paddy Padmanathan: We well recognise the link between climate change and the
consequence of certain human activity such as fossil fuel based power
generation. Having said that one must accept the need to balance the
negative social and economic impact of not providing adequate cost
competitive electricity and accepting a certain level of coal fired power
generation, well understanding the need to be very conscious about what we
are doing and mitigating the negative impact to the extent possible. Vietnam
has 35,000MW installed capacity for the population of 90 billion people.
United States of America with 250 million people have over 1 million MW of
installed capacity! Vietnam clearly needs more power. Indeed power demand is
growing at 7 per cent you don't have the luxury of stopping coal fired power
plants. It needs mix of resources including coal, but yes as well as your
undeveloped potential renewable resources.

In order to minimise the environmental impact, on the Nam Dinh project we
will implement best available technology to ensure the adherence to well
accepted and recognized international standards in term of emission control,
minimization of pollution, negative impact on air and water quality. As you
know, World Bank has a set of standards which has been used as the basis for
something called the Equator Principles, and all major international
financing institution and banks have come together said "we will not provide
project finance or project-related corporate loans to projects where the
client will not, or are unable to, comply with these standards". Nam Dinh
project will absolutely comply with these all the international regulations
and standard by applying the most up-to-date technologies.

BOT contract might be a headache that would possibly lengthen construction
deadline. How do you prepare for this? What is the suggestion for other
investors which are also interested in BOT power projects in Vietnam?

Paddy Padmanathan : On the contrary, there is considerable evidence the
world over that shows that the time taken from identification of a project
to electricity being dispatched is shorter in the case of a BOT model as
opposed to a public sector financed alternative. Yes, it is true that the
project development phase spanning from identification to getting the
project contracts agreed, technical solution developed and project financing
structured and assembled takes a very long time but once construction
starts, it proceeds like clockwork efficiently without delay simply because
much of the risks would have been identified and designed out and planned
for and because all financing is available to keep paying the contractor
without interruption.

Many developers are well established in Vietnam and we are the new comers.
Our experience of developing such large infrastructure (IPP) projects not
just in Vietnam but also elsewhere is that one must rigorously identify all
stake holders up front and get into discussions with an open mind,
cultivating a partnering type of relationships underpinned by transparency
and trust. Recognising that these are large and complex projects, the
temptation is to rush off and spend a lot of time developing the technical
solution. While this is indeed important, it is equally important that in
parallel the developers get into discussion, right at the outset with the
various counterparties, the off taker of power, the fuel supplier and the
relevant government agencies including the ultimate credit backstop provider
being the Ministry of Finance and the State Bank of Vietnam. Also in the
case of Vietnam where land is at a premium and much of is either occupied or
is utilised for some purpose, it is extremely important that the land
recovery process starts at the earliest time and importantly with the right
approach with the support of the local authorities and the good will of the
affected people.

In a nutshell, ACWA Power's view is that upfront constructive, transparent
and trusting engagement of all stakeholders results in a well balanced
structure which then allows for robust and sustainable long term viability
of these large and complex infrastructure projects. These actions then
result in all government stakeholders, shareholders and lenders being
comfortable in the long run.

This is first foray project in Vietnam, could you have any plan to invest in
other sectors that you have experience and operation in other countries?

Paddy Padmanathan: Our two and a half of years of project development
experience in Vietnam has been very positive. We have found Vietnam to be an
investor friendly destination. While processes and procedures are plenty as
in many other countries, we have found the government officials both at
national and provincial level very constructive and supportive with a
genuine desire to help and achieve success. We are therefore keen to invest
in more power plants but as I have already said using the local "fuel"
resources you have; which means the solar resources and wind resources as
well. So, the next projects we are likely to focus development in the area
of renewable energy.

Indeed we have already entered into a partnership with FESCON, a
well-established and respected Vietnamese engineering contractor to develop
a 100MW PV power plant as our next investment.

In the area of water, we are only involved with desalination of sea water to
produce potable water in resource scarce ared countries like the Kingdom of
Saudi Arabia or Sultanate of Oman. Here in Vietnam you are blessed with good
rains and suitable topography crisscrossed by rivers and many locations for
dams to impound the surface run off for storage and utilisation. So,
fortunately you do not need the energy intensive and very expensive process
of sea water desalination to provide potable water and as such we do not see
a role for ourselves.

Many foreign investors are now interested in developing renewable power
projects in Vietnam as the Vietnamese government offers incentives. In what
way will ACWA Power contribute to Vietnam's renewable market in future?

Paddy Padmanathan: ACWA Power has developed considerable experience in
developing solar power with both photo voltaic and concentrated solar power
technologies and in developing wind power.

Within the last few years, we have established a global reputation as
relentlessly challenging cost to keep reducing the tariff of electricity
generated by these technologies. As we step into renewable energy project
development here in Vietnam, we will bring our experience of structuring
"fit for purpose" technical solution, our preferential access to technology
providers through the well-established network of relationships and access
to competitive procurement and supply chain, our understanding of the risks
and mitigation strategies and cost competitive financing structures to
deliver solar and wind power energy at the lowest possible costs.

Vietnam has rich untapped resources and we very much look forward to playing
our part in contributing to the development of Vietnam by efficiently
utilising these resources.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.vir.com.vn/nam-dinh-power-plant-gets-the-nod.html

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com