Measures needed for delayed thermal power projects

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It is expected that the Thai Binh 2 thermal power station will complete unit 1 in June, 2020 and unit 2 in October, 2020. Photo: Nguyen Thanh.

Lack of capital

Thai Binh 2 thermal power plant (Thai Binh) and Song Hau 1 thermal power plant project (Hau Giang) are two projects by PVN that are progressing slowly. Thai Binh 2 thermal power plant project has total investment (adjusted for the second time) of over VND 41 trillion, and so far, the overall progress has reached more than 84%. In particular, most of the main construction items of the project have been completed and are in the finishing stage. According to the expected schedule, the project will complete unit 1 in June, 2020 and unit 2 in October, 2020.

The cause of slow progress was indicated by the contractor of Vietnam Oil and Gas Construction Joint Stock Corporation (PVC) in the process of implementing the project, there were a number of violations which were being reviewed and dealt with by the authorities.

Specifically, the incorrect use of more than VND 1,100 billion led to consequences in terms of costs, progress and legal issues affecting resources in project implementation.

The project's legal documents and procedures have some unsecured issues, so there are items that can be completed but cannot be finalized, including psychological factors of the officials sent to "rescue" this project. In addition, because the project’s progress is prolonged, there are many difficulties and risks that arise, such as the warranties of the machinery and equipment expiring.

"If it is not possible to operate, it is not known which source to replace 1,200 MW of the project's capacity to face the danger of electricity shortage nationwide after 2020. Along with that, if the project does not operate, all investment costs cannot be recovered as there is no source to repay the project loan. Therefore, it is necessary to have a specific mechanism to resolve the capital for this plant to go into operation soon,” said Mr. Dinh Van Son, Member of PVN's Board of Members.

The Song Hau thermal power plant project 1 is also facing difficulties. The project has a total after-tax investment of over VND 43 trillion. The cumulative progress of the project is about 74%, about 24.7 months late compared to the schedule under the signed General Contractor Contract (EPC). It is expected that Song Hau 1 thermal power plant project will complete unit 1 in May 2021 and unit 2 in September 2021.

PVN stated that currently, the project is being applied by the Government with a special mechanism, allowing to implement the form of price adjustment contract for the construction, installation and processing according to Decision No. 2414/QD-TTg dated 11/12/2013 on adjusting the list of schedules of some electricity projects and stipulating some specific mechanisms and policies to invest in urgent power projects in the period 2013-2020.

However, due to the nature and characteristics of the project's work, the plan to adjust the price of EPC contracts does not have specific regulations and guidelines of the competent authorities. Both investors and general contractors have no experience in implementing EPC contracts in the form of price adjustment, so the parties have faced many problems during the implementation process. This leads to the fact that the payment has not met the construction schedule, affecting the payment cash flow for the general contractor and subcontractors to implement the work.

Progress not yet verified

The Long Phu 1 thermal power plant project (Soc Trang) of PVN is also facing slow progress.

The Long Phu 1 thermal power plant project has a capacity of 1,200MW, with an investment of more than VND29.5 trillion. Under the initial plan, Unit 1 was to be completed by the end of 2018 (after 45 months of implementation) and Unit 2 on the first day of 2019 (after 49 months of deployment). However, so far, the project has only completed 77.56% of the plan.

Regarding the cause of slow progress, Mr. Nguyen Doan Toan, Head of Management Unit of Long Phu 1 Thermal Power Plant Project, said that it was mainly due to Power Machines contractor (PM-Russia) imposing a direct embargo against the US government from January 26, 2018. From the time of PM’s embargo, the procurement of goods, import equipment and capital arrangement for projects under the scope of work of PM have seen almost no specific progress.

The project has not been able to determine the feasible progress since the PM contractor did not continue to implement the EPC Contract (design contract, supply of technology equipment and construction works) due to the effects of the embargo. Stopping construction for a long period may lead to malfunctions and unsafe work, causing damage and corrosion of materials and equipment of the project.

The total investment of the project has been established since 2010 and at the present time it is no longer suitable, so there is not enough financial resource to pay for the contractor. Currently, PVN has submitted the adjusted total investment of the project to the Ministry of Industry and Trade for appraisal. However, the appraisal of ministries and agencies has been slow, affecting the implementation of the project. Along with that, the construction and payment activities of the project faces difficulties due to foreign banks, as well as Vietnamese commercial banks, refusing to implement financial transactions related to PM contractors.

In the direction of solving the difficulties and obstacles of the above-mentioned thermal power projects, PVN has now proposed solutions to the Government, ministries and functional agencies. Specifically, for Thai Binh 2 thermal power plant project, PVN proposed to the Government while the additional loan has not been arranged, it approve the policy for PVN to use equity for the project provided that it not exceed the total adjusted investment. When the additional loan is arranged, the equity will be returned.

Currently, the disbursement value of the project is about VND 32.9 trillion. If it is not resolved promptly, the project will continue to be delayed.

For Long Phu 1 Thermal Power Plant Project, PVN proposed to the Government to consider setting up a special working group chaired by the Ministry of Industry and Trade and the Commission for the Managenment of State Capital at Enterprises, the members are leaders of ministries and branches related to Long Phu 1 Thermal Power Plant Project to direct, guide and support PVN in solving difficulties and problems of the project.

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In particular, PVN petitioned the Government to allow PVN to use its equity to exceed 30% of the total value of the proposed investment to continue to implement unfinished construction items of the project to technical stops and implementation of maintenance and preservation of materials, equipment items to ensure the quality of the work.