The Project
The Government of the Socialist Republic of Vietnam, through the Ministry of Industry & Trade, intends to select a project sponsor to develop and operate the Nghi Son 2 2x560-MW coal-fired thermal power plant as a 25-year Build, Operate and Transfer (“BOT”) project. The Project Sponsor will be selected through an international competitive bidding process from a pool of pre-qualified applicants, and will be responsible for financing, designing, constructing, operating and maintaining the Project. The Project is located at Nghi Son in northern-central Vietnam, in Thanh Hoa Province, on a site that is owned by the State and managed by Thanh Hoa provincial People’s Committee. The MOIT has engaged the IFC, the private sector arm of the World Bank Group, as its transaction advisor for this Project.
The Government is committed to undertaking an ambitious power-generation program to keep pace with Vietnam’s rapid economic and electricity-demand growth. Vietnam’s power industry has struggled over the last decade to expand the system. Serious shortages occurred in 2005 - 2007, when drought conditions coincided with tight capacity constraints, and such shortages are likely to continue unless generation capacity is sharply increased. Vietnam’s power sector needs have been addressed exclusively by Electricity of Vietnam (“EVN”) and funded almost exclusively by the public sector. Future, massive capital outlays required for the Government’s power generation program are unlikely to be met from public funds alone, and thus greater private participation will be required. In this regard, the Government has signaled a greater reliance on IPPs and BOT projects, in particular, in its National Electricity Development Plan VI.
The international competitive bidding process for the implementation of Nghi Son 2 Project represents an excellent opportunity to invest in a BOT project for a 1,120-MW coal-fired power plant in the high-growth economy of the Socialist Republic of Vietnam.
Key highlights of this opportunity are:
Strong electricity demand growth and capacity build-up driven by a robust and rapidly growing economy and an increasing reliance on BOT/IPP generating plants to supplement public funding sources. Peak power demand grew at a compounded annual growth rate of 13.0% from 4,893 MW in 2000 to 10,187 MW in 2006, while electrical energy consumption increased at a compounded annual growth rate of 14.8% from 22,403 GWh in 2000 to 51,300 GWh in 2006. Growth in power demand was driven by strong GDP growth of 14.8% per year, from US$35.1 billion in 2002 to US$70.1 billion in 2007, or approximately, 7% to 8% annual GDP growth in real terms. Population has grown at a compounded annual rate of 1.3% over the same period. However, growth in installed power capacity averaged only 7.5% per year over the same period, and thus has not been able to keep up with electricity demand growth.
Robust Legal and Regulatory Framework with newly enacted laws and policies designed to support investments particularly in BOT projects.
Strong off-taker backed by a Government guarantee for the duration of the PPA and BOT Contract. The PPA counterparty and off-taker will be Electricity of Vietnam (“EVN”) or its designated successor. EVN’s financial performance since 2002 has been strong, remaining profitable with healthy gearing and coverage ratios; it compares favorably with other utilities across the region. EVN, which, until recently, was the dominant vertically integrated power utility charged with the development, management and operation of Vietnam’s electric power industry assets is being reorganized and equitized.
Two-part tariff structure to ensure viability and bankability. The Project will have a two-part tariff with a capacity purchase price (“Capacity Charges”) and an energy purchase price (“Energy Charges”). Capacity Charges would be paid based on the amount of generating capacity of the plant made available for use by the off-taker, and would not depend on how much energy is delivered at any particular time. Capacity Charges should allow the BOT Company to generate sufficient revenues to recover its capital amortization, pay its fixed costs, service its project debt and realize equity returns for its sponsors. Energy Charges would be paid based on the volume of energy delivered by the BOT Company to the off-taker and are designed to cover fuel costs (at guaranteed heat rates) and variable operating and maintenance costs. The base prices for these tariffs would be linked to certain adjustors to ensure that BOT Company is kept whole against inflation, foreign exchange movements (for foreign currency denominated expenditures) and international coal indices.
The Nghi Son 2 plant will have to comply with environmental standards and safeguards required by local laws as well as those embodied in the “Equator Principles”, and if applicable, those required by the countries of any Export Credit Agencies (“ECAs”) involved in the project.