Construction

New Vietnamese Coal-Fired Plant Still A Go, But Now Without U.S. Backing

On February 8, news broke that state-owned PetroVietnam was going to proceed with its Long Phu 1 coal-fired power plant construction without U.S. support. The decision is part of a larger story with bigger implications than it might seem.

The opportunity to have been part of the Long Phu 1 project was one of the few genuine bright lights within a broader darkness surrounding the future of the U.S. coal industry.

Faced with a dying U.S. coal industry domestically, political strategists within the White House and Cabinet had searched for multiple ways to keep it alive. One way which seemed like a genuine win-win was to find major overseas customers, both for U.S. coal itself and new coal plants which might also leverage American coal plant power technology. It also had the side benefit that the increased greenhouse gas emissions from setting up and operating those new plants would not happen on American soil. By executing the plan, the current Federal government could help support the industry domestically without creating new environmental problems on domestic soil.

Long Phu 1, a new Vietnamese coal plant already under construction by government-owned PetroVietnam was considered such a banner test case for the concept. In an elaborate strategic move, the deal which was supposed to have gone through would have included a major financing agreement backed by the Export-Import Bank of the United States. The Bank would take on a major part of the risk for the project. In return, PetroVietnam would have been granted permission to buy coal plant turbines and other equipment from U.S. manufacturer General Electric. It was also expected there would be some commitments for support of some quantity of imported coal purchased from the United States.

When news of the pending deal broke, environmental groups cried foul, complaining that the U.S. was actively engaged in exporting greenhouse gas emissions to third-world countries, just to save a relatively small number of American jobs.

For Vietnam, the politics of the use of coal-fired plants was already built into the ruling Communist Party’s plans to support the country’s current rapidly-accelerating  economic growth path. Long Phu 1 is in fact only the first part of a three-plant complex to be built about 150 southwest of Ho Chi Minh City. With that urban area being the main economic hub for the country, the three plants will literally keep the country’s economic flames burning for some time to come. The country knows it will mean increased pollution with all that this means both locally and globally, but feels they have no choice.

As to other funders, major multilateral banks such as the World Bank have recently been staying away from investments in coal and fossil fuel projects of any kind in developing countries, on the grounds that this contributes to climate change. The United Kingdom also has an equivalent of the U.S. Export-Import bank and had been approached to help fund Long Phu as well, but it turned it down because of climate change concerns.

One country which had already stepped up to pay for part of the project was Vnesheconombank, a Russian lender with strong Kremlin links. Russia, a strong coal producer and coal-power provider, is equally interested in finding new markets for its coal and coal plant equipment. That specific Russian bank has also been in international headlines for the wrong kind reasons since 2014, when – after Russia invaded Ukraine – it was made subject to U.S. sanctions.

Despite the U.S.’s domestic controversy over the proposed financing of the Long Phu 1 plant, and the potential that even the idea of effectively partnering with a sanctioned bank on an international project, it appeared highly likely the United States Ex-Im Bank was going to back the plan. But on February 8, without public warning at least, PetroVietnam informed the Ex-Im Bank that it no longer wanted financial support from them.

From PetroVietnam’s perspective, this likely gives them a less controversial playing field going ahead. The U.S. is hard enough to partner with internationally these days on many topics, and this one was especially laden with potential traps. It also clears the deck for them to approach some of the local multilateral banks, such as the Asian Infrastructure Investment Bank in Beijing, or the Asian Development Bank in Manila, for funding. It could also easily go back to Vnesheconombank or other Russian lenders to cut arrangements for additional loans.

For the U.S., the loss of the financing business means that for now there is no near-term test case of the proposed plans to export America coal and coal-fired plant technology, using the power of U.S. financing to sweeten those deals. President Trump and Energy Secretary Perry will need to continue searching further for an international partner in this space.