BOT Electricity Projects Making Real Move?

Two build-operate-transfer (BOT) electricity projects initiated in September have lighted up hope that other BOT electricity projects in will be completed soon.

Expectation

 Quickly preparing infrastructure for the construction of the main plant, just a month after signing BOT and other related contracts, Hai Duong BOT electricity project has drawn attention from investors. So far, investors have submitted US$20 million to guarantee project implementation. However, it is not until December 2013 that the project will officially be started since project finance is still under allocation. Thus, station 1 of Hai Duong BOT project cannot generate electricity until early 2017.

The other BOT electricity project that drew attention is Mong Duong 2 with its initiation for main plant last month after shifting to new partners and completing financial allocation. BOT Mong Duong 2 is also considered the leading project in restarting BOT projects in the electricity industry, since BOT Phu My 2.2 and BOT Phu My 3 were put into operation 7 years ago. BOT Mong Duong 2 has also deposited with the Ministry of Industry and Trade US$ 32.4 million to assure its investment.

Mr Hoang Quoc Vuong, Deputy Minister of Industry and Trade, said that two projects initiating specific steps and submitting large amounts of money to guarantee implementation has brought hope that other BOT electricity projects will be able to speed up negotiation and move to the implementation stage.

So far, in addition to Vinh Tan 1 BOT project now preparing for contract signing, there are 3 other BOT projects under negotiation about BOT contract details, which are Duyen Hai 2, Vung Ang 2 and Van Phong 1. The others negotiating BOT contract principles include Nam Dinh and Vinh Tan 3, and those choosing investors for project development include Vung Ang 3, O Mon 2 and Nghi Son 2.

The reason for related offices’ expectation to speed up negotiation of contracts related to BOT projects is the idea to use as a base the newly negotiated and signed contract terms of Mong Duong 2 and Hai Duong to reduce time taken by projects.

Not easy

However, despite great expectation to reduce negotiation time for related contracts, other BOT projects still cannot speed up progress as expected.

After Mong Duong 2 and Hai Duong, in the middle of September, the Government made an announcement 1604/TTg-KTN which allowed applying some contents related to BOT contract such as enforcing law, taxes, land using rights and some governmental guarantees for BOT contract, electricity buying and selling contract, coal buying and selling contract (if buying from Vietnam National Coal, Mineral Industries Holding Corporation Limited), and Vietnam Electricity’s responsibility to pay electricity cost. If investors of BOT electricity development projects negotiating contracts find these terms acceptable, they can move to others to reduce negotiation time.

There hasn’t been any comment from investors since September 28^th when they officially informed about this document by the Ministry of Industry and Trade. However, according to comments of some negotiating experts, projects’ guarantee to change into US dollar with 30 percent of turnover in VND, after subtracting cost in VND, will be an important element to the negotiation progress.

Previously, two electricity projects, BOT Mong Duong 2 and Hai Duong, were guaranteed to change the whole turnover of selling electricity into foreign currency after subtracting expense in VND. Stakeholders in these two projects had to spend much time to reach this term. This is also a proposal in some BOT electricity projects which are under contract negotiation.

Janakuasa Corporation (), the investor of project Duyen Hai 2, mentioned Government guarantee of full change into foreign currency in some of their proposals. Besides, Sumitomo – Hanoinco complex in project Van Phong 1 also proposed the Government guarantee full change into foreign currency. Even investors of project Vung Ang 2 made proposals unprecedented in electricity BOT projects in ; the contractual guarantee of changing into foreign currency signed between BOT enterprises and banks.

The preliminary calculation of a negotiating expert in electricity BOT projects shows that with power of 1,200 MW, a project needs to change about US $60 million per month. This amount will be even larger if the project uses imported coal and pays in US dollars.

“With 70-80 percent of capital borrowed from international financial organizations in foreign currency, it will be hard for lenders to accept without a clear guarantee that investors can change from VND into foreign currency to pay back capital,” said the expert.

Therefore, the Ministry of Industry and Trade suggested that any difficulty that cannot be negotiated under Government acceptable frame in Document 1604 will be negotiated later or submitted to the Government for consideration. However, as “possession is nine-tenth of the law,” investors will hardly feel safe to negotiate without knowing how to change electricity sales turnover from VND to foreign currency to call back capital and gain profit!

Y.H