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As a fast-growing economy, Vietnam’sdemand for new infrastructure has been increasing over the years. According to the Global Infrastructure Outlook, Vietnam’s investment needs for infrastructure projects between 2016 and 2040 amount to US$605 billion, of which power plants account for US$265 billion. Facing delays in current power projects and difficulties in financing new ones, Vietnam’s power shortage is projected to reach 6.6 billion kWh in 2021 and 15 billion kWh in 2023, or 5 per cent of the country’s total power demand. If this problem persists, it could hamper Vietnam’s economic development.
Against this backdrop, China’s Belt and Road Initiative should be an appealing source of funding. However, Vietnam has generally shunned belt and road loans. Instead, it is working with US investors to develop its energy infrastructure. By late 2020, at least two major power plants funded by US investors using US liquefied natural gas (LNG) had been approved, and at least five similar projects were in the pipeline.
Vietnam’s decision to tap American rather than Chinese capital not only has important implications for Vietnam-US relations but also shows how America is responding to China’s expanding influence through the belt and road. If these projects are successful, they will bring credibility to America’s approach and offer regional countries a viable alternative to the belt and road.
VIETNAM’S SWITCH
As of early 2020, Vietnam’s total installed capacity of power generation was 54.88 gigawatts (GW), in which hydropower and coal-fired power plants accounted for 71.46 per cent. However, these traditional power sources have limitations.
In addition to the lack of suitable locations left to build new hydropower plants, criticisms against hydropower projects have intensified following recent floods and landslide disasters linked to a project in Quang Nam province. Meanwhile, air pollution and Hanoi’s strengthening commitment to green development have caused widespread public rejection of new coal-fired power plants. Provinces such as Bac Lieu, Binh Thuan, Long An, Nghe An and Ha Tinh have cancelled coal-fired power projects.
International financiers have also pressured investors to withdraw from coal-fired power projects in Vietnam. A group of investors recently urged Mitsubishi and seven other Japanese companies to withdraw from the Vung Ang 2 coal-fired power project in Ha Tinh Province. As more international banks refuse to fund coal-fired power plants, getting financing has become difficult. The most feasible source of funding for new coal-fired power plants now is from China. However, the borrower would have to use Chinese technology, generally seen as less advanced and more polluting. Rising anti-China sentiments in Vietnam would also be a major challenge.
To diversify away from hydro and coal power, Vietnam has created incentives for investments in renewable energy. As of 2020, solar and wind accounted for 11.05 per cent of Vietnam’s power generation capacity. By August 2020, 23GW of renewable energy had been added to the national power development plan, including 11.2GW of solar power and 11.8GW of wind power. In the next few years, as these renewable energy projects are completed, the share of renewable
energy in Vietnam’s energy mix will increase.
However, as renewable energy relies on the weather, Vietnam needs more stable sources. LNG-fired power plants are the most promising option as they are cleaner than coal while safer and less difficult to develop than nuclear plants. Vietnam is planning 10.4GW of gas-fired power by 2028, mostly using imported LNG. The challenge is to get funding for these projects.
AMERICAN MONEY
Vietnam has developed more than 10 gas-fired power plants, but most of them (except for the Phu My 2.2 and Phu My 3 projects in Ba Ria – Vung Tau Province) are developed by domestic investors. These plants use gas from Vietnam’s wells in the South China Sea. As the domestic gas supply is limited by delays to new gas development projects, Vietnam finds engaging American investors to build power plants using LNG imported from the
United States a convenient option for various reasons.
First, this will strengthen US-Vietnam relations. This is important, given that Vietnam is keen to maintain strong ties with the US for economic and strategic benefits. The US is Vietnam’s biggest export market, while strategic cooperation with Washington is important for Vietnam’s efforts to balance against Beijing in the South China Sea.
Second, importing LNG from the US will help reduce America’s tradedeficit with Vietnam, which stood at US$55.8 billion in 2019. This growing trade deficit was a major source of resentment for the administration of Donald Trump. In December 2020, the US Treasury labelled Vietnam as a currency manipulator and accused Vietnam of manipulating its currency to gain “unfair competitive advantage in international trade”. Importing US LNG will enable Vietnam to achieve the dual goals of addressing America’s trade concerns and improving its energy security.
Third, working with US private investors will reduce financial and political risks for Hanoi. Unlike Chinese loans under the belt and road which are normally arranged through government-to-government agreements and require government guarantee, most LNG-to-power projects in Vietnam are proposed by private investors under the independent power producer model.
Under this model, the Vietnamese government need only commit to buy electricity from such projects at an agreed price. Financial arrangements for the construction of the projects will be made by the investors, which reduces the fiscal burden on the Vietnamese government.
Fourth, as Washington is providing support for the LNG industry to turn America into a major LNG producer and exporter, importing US LNG can be a sustainable option for Vietnam in terms of pricing and supply capacity. Moreover, US investors, with their proven financial and technical track record, can better ensure their projects are implemented successfully without the problems associated with China-backed infrastructure projects, especially cost overruns and project delays.
As of December 2020, more than 20 LNG-to-power projects had been proposed in Vietnam. Among these, two have been approved to be developed by American investors. In the next few years, more America-backed projects are expected.
Solar panels and a wind turbine at the Phu Lac wind farm in southern Vietnam's Binh Thuan province. Photo: AFP
ALTERNATIVE TO THE BELT AND ROAD?
These projects have been considered favourably by not only Vietnam but also America. A primary example is the Bac Lieu LNG-fired power plant. This project is developed by Delta Offshore Energy, a special purpose vehicle established in
Singapore
but owned by three American shareholders. In September 2019, the US Department of Commerce added the project to the US Commercial Advocacy Program, which enables the project to enjoy certain benefits, including lobbying efforts led by US government agencies. Shortly after that, the project was approved by the Vietnamese government and added to the national Power Development Plan 7 in December 2019. It has since been highlighted as a marquee project of US-Vietnam energy cooperation. At the Indo-Pacific Business Forum held in Hanoi in October 2020, under the witness of Vietnamese Deputy Prime Minister Pham Binh Minh and US Ambassador to Vietnam Daniel J. Kritenbrink, Delta Offshore Energy signed a master teaming agreement with three other American firms (Bechtel, General Electric and McDermott) to prepare for the execution of the project.
Commenting on the event, the US embassy in Hanoi said “the United States is committed to helping Vietnam meet its growing energy needs”.
The US government’s support for America-led LNG-to-power projects in Vietnam is a telling example of how the US is countering the belt and road. Since the belt and road’s launch in 2013, China has been able to use the initiative to advance its economic and strategic agenda across the region at the expense of the US and its allies. A key factor causing many regional countries to embrace the belt and road was that it was almost the only game in town. The LNG-to-power projects that the US is backing show Washington is presenting regional countries with an alternative.
China’s belt and road: an environmental disaster for Southeast Asia?
17 Feb 2020
The US and Vietnam signed in November 2019 a Cooperation Framework to Strengthen Infrastructure Finance. The initiative was designed to achieve their mutual goals of supporting infrastructure development through market-oriented, private sector investments. Washington has signed similar agreements with South Korea
,
Taiwan
,
Indonesia
, Singapore and
Thailand
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The participation of private investors makes America’s approach to assisting the region’s infrastructure development different to China’s, as belt and road projects have been dominated by Chinese state-owned enterprises. Moreover, while most belt and road projects use loans arranged through government-to-government agreements or provided by Chinese state-owned banks, America-backed projects use market-based financing arrangements negotiated between investors and international creditors. America’s promotion of LNG projects also contrasts with the belt and road, which has focused on hydro or coal-fired power plants. In Vietnam, Chinese investors and contractors have built many coal-fired plants, and the belt and road’s only energy project in the country so far is the 1.2GW Vinh Tan 1 coal-fired power plant in Binh Thuan Province. America is also working with Japan to support Vietnam’s energy infrastructure development under the Japan-US Strategic Energy Partnership. In December 2020, the two countries pledged to provide financial assistance for Vietnam to build LNG-fired power plants and receiving terminals.
The collaboration between America and its allies highlights another difference in the approaches of America and China. While China has funded belt and road projects mostly by its own money, America has tried to pool resources from its partners. In the long run, this approach will make America’s strategy more sustainable.
The China-Vietnam Beilun River Bridge is part of the Belt and Road Initiative. Photo: He Huifeng
ADVANTAGE AMERICA?
US-China strategic competition has intensified since 2013 when China rolled out the belt and road. Until recently, China has been successful in promoting the belt and road partly because the US lacked a coherent strategy to compete with it. However, America-backed LNG-to-power projects in Vietnam show Washington is taking steps to counter the belt and road. A strategy to help regional countries build quality infrastructure in line with America’s strategic visions is also taking shape. This will challenge the belt and road just as China’s initiative is encountering international and domestic setbacks, leading to Beijing’s decision to scale back the project.
An alternative to the belt and road should be welcome news to regional countries as they can thus avoid dependence on any single source of funding. Competition will also force China to become more responsible and make its lending practices more transparent, sustainable, and compatible with international standards. If the US and its allies can successfully implement its infrastructure development financing model in Vietnam and replicate it in other countries, Washington can strengthen its position in the Indo-Pacific and counter China’s expanding influence. For Vietnam, the participation of US investors brings a critical source of funding at a time when the country desperately needs more power plants. If these LNG-to-power projects are successful, Vietnam may also consider engaging American investors in other infrastructure projects. In the meantime, the priority for Vietnam and the US is to make sure these projects are successful. One challenge Vietnam may face is how to manage the possible increase in its electricity retail price given that LNG-fired power is more expensive than coal or hydro power. If this challenge is addressed, there is reason to believe Vietnam-US cooperation in the development of energy infrastructure will strengthen over the next decade.
Opinion | In Vietnam’s power plants, US finds a counter to China’s belt and road
An alternative to the belt and road will make regional countries less reliant on Chinese funding, while encouraging Beijing to make its lending more transparent, writes Le Hong Hiep.
www.scmp.com
This article is an extract from the article ‘Sino-US Competition in Infrastructure Development: Power Plants in Vietnam’. The full version can be found in ISEAS Perspective Issue 2021/2,
here
Even harder since a Chinese investor with zero influence on this US propaganda agencies operations bought it out because its producing cash out of nothing simply just parotting or straight out republishing US state propaganda, rumors and fabricating news and getting constantly cited by the entire US propaganda network promoting it as the go-to "Chinese newspaper".
