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Smoke rises from the chimneys of a coal-fired power station. More than half of Vietnam’s energy needs are met by coal-fired power stations Photo: AP

Vietnam coal project supported by Japan, South Korea, to continue despite investor pressure

  • European asset manager Nordea had urged firms involved in the Vung Ang 2 project such as Japan’s Mitsubishi and Korea’s Kepco to withdraw
  • Both say they will continue with their commitments, alongside Samsung C&T Corporation, but have vowed to not support future coal-fired projects
Vietnam
Rising investor and activist pressure to end fossil fuel financing led to Japan’s Mitsubishi Corporation pulling out from a US$2 billion power plant project in Vietnam last week, but a smaller project backed by both Tokyo and Hanoi still looks to be going ahead.

Mitsubishi holds a 40 per cent stake in the 1.2-gigawatt Vung Ang 2 coal-fired plant in Ha Tinh province, with the rest being held by South Korean state-run utility Korea Electric Power Corporation (Kepco) and Japanese company Chugoku Electric Power, according to the Netherlands-based finance watcher NGO BankTrack. Loans totalling US$1.7 billion have been extended to the project by the state-owned Japan Bank for International Cooperation (JBIC) and state-run Export-Import Bank of Korea, alongside other private institutions.

As one of the world’s fastest growing economies – even amid a global recession caused by the Covid-19 pandemic – Vietnam’s electricity demand has risen by about 12 per cent per year in recent years.

More than half of its energy needs are met by coal-fired power stations at present, though the country is a signatory to the Paris climate agreement and has pledged to reduce its dependence on coal to 27 per cent by 2030, while raising the share of non-hydroelectric renewable sources in its energy mix.

A couple takes a selfie at Hoa Binh hydroelectric power plant in Vietnam as the flood gates are opened after heavy rainfall caused by a typhoon. Photo: Reuters

JBIC’s decision to finance Vung Ang 2 through a US$636 million loan “was made by taking into account Japanese government policy as well as the energy policies in the partner country [of Vietnam]”, said spokesman for the bank, adding that JBIC had been “promoting the energy transition from coal to gas and/or renewable energy through direct dialogue with the Vietnamese government which we will continue to strengthen”.

Tokyo has moved to expand investments into Southeast Asia recently in a bid to counter China’s growing influence in the region, with Japanese firms being encouraged to support Vietnamese fossil fuel projects that American and European financiers have backed off from as part of a global decarbonisation trend.
Kepco did not respond to a request for comment, but said last year it would spend nearly US$190 million to acquire a 40 per cent stake in Vung Ang 2 from Hong Kong’s CLP Holdings, which withdrew from the project as part of its efforts to decarbonise.

Nordea Asset Management, which holds shares worth about €400 million (US$482 million) in some of the companies constructing the Vietnamese plant, wrote to sponsors, financiers and contractors involved in the project in October urging them to withdraw, citing “high climate-related, financial and reputational risks”.

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Kepco, Mitsubishi Corporation and the Seoul-based Samsung C&T Corporation responded by vowing not to get involved with future coal-fired plant projects, according to Eric Pedersen, Nordea’s head of responsible investments, who wrote the letter.

But by “moving ahead with projects that were agreed on prior to these commitments”, Pedersen said the companies risk “undermining the beneficial effects of these decisions” and could miss out on future investments from Nordea because of “elevated climate-related risks” as the asset management firm undergoes a vetting process.

“Clearly, companies and lenders with stakes in projects like Vung Ang 2 – which are highly likely to be forced offline well before having recouped their investments – will flash red in such a review, and as a result will become non-investible for an increasing part of our portfolios,” Pedersen told This Week In Asia, adding that Mitsubishi deserved credit for pulling out of the 2-gigawatt Vinh Tan 3 project last week but “should also recognise the untenable nature of their involvement in Vung Ang 2”.

Though seemingly favoured by the government in Hanoi, coal-fired power plants are not so popular with ordinary Vietnamese, as was noted in a letter from a dozen leading NGOs to Prime Minister Nguyen Xuan Phuc in 2019 urging him to scrap 14 such plants across the country – half of which had faced public opposition.

Motorcyclists ride through smog in Hanoi in 2019. Photo: EPA

According to Vietnam’s Environmental Protection Law, locals must be consulted before any projects such as coal-fired thermal power plants are constructed in their areas.

But Tran Dinh Sinh – deputy director of the Green Innovation and Development Centre NGO that promotes sustainable development and renewable energy sources in Vietnam – said investors often skip this step, only inviting residents to a few meetings to introduce a project without fully disclosing all of its environmental and health impacts.

“Locals only learn about pollution when a project goes into operation,’’ he said, referencing a 2015 incident in which a national highway was blocked by protesters angry about dust emissions from the Vinh Tan 2 coal-fired plant in south-central Vietnam. That protest was dispersed after the operator promised to address the issue, and was followed by an apology from state utility EVN published on the government’s portal.

“Through the incident in Vinh Tan, it can be said that if people are not consulted, it will be the source of social unrest,’’ Sinh said.

Opinion | In Vietnam’s power plants, US finds a counter to China’s belt and road

Questions have also been raised about the country’s inefficient use of electricity, with a 2018 report by Harvard University economist David Dapice noting that “Vietnam requires twice as much electricity to produce the same amount of real GDP as Thailand” and “uses more electricity per unit of output than China does, yet China is both more industrial and more urban and both tend to increase energy demand”.

The report, written in collaboration with academics at the Fulbright University Vietnam, attributed this to the “ineffective enforcement of conservation policies, including in new buildings”.

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