Commitment in Vietnam

The PV Gas LNG deal will be considered a test case of the Vietnamese government’s will to back a project all the way to completion

THE good news coming out of Vietnam about its maritime development is be applauded, but the reality is that Vietnam has a long way to go until it dispenses with the problems that brought on debacles like the Vinashin meltdown.

First that good news. Petrovietnam Gas has received approval to build a $1bn port that would allow Vietnam to begin importing liquefied natural gas. The government, according to the company, has agreed to its proposal to build a port in the south central province of Binh Thuan capable of handling 3m tonnes per year of LNG, to be completed in about three years’ time.

But in Vietnam, approval is one thing; expeditious development of a project another. The best avenue to financing the project would be via international banks, but these institutions — reluctant to lend anyway in the current volatile environment — are still feeling the burn from the $4bn in debt that state-owned Vietnam Shipbuilding Industry Group, or Vinashin, piled up due to mismanaged finances. Vinashin defaulted on payment of the first 10% of a $600m bond issued by Credit Suisse and other banks in 2007. Local investors felt the pinch, too, when Vinashin defaulted on a locally issued bond.

While PV Gas says that it is in negotiations with lenders for up to $700m of the $1bn pricetag, it will have to explain to potential backers how it will surmount potential obstacles.

Most serious among these is the difficulty of getting a solid commitment from Vietnam’s central government to back the project. In contrast to China, where the central government and individual state governments vie for control over regulation and investment priorities but the central government retains the upper hand, Vietnam’s central government has difficulty controlling the competing interests of its vying states.

In other words, the usual reassurance that a central government will back a project, reducing uncertainty over its completion, is problematic in Vietnam. Many local state industrial concerns hold powerful sway. While Vietnam now has demand for imported LNG, it is expensive. Interest groups favouring other energy sources such as coal or nuclear power could paralyse the government’s will to sustain the project.

After Vinashin, the PV Gas LNG deal will be considered a test case of the government’s will to back a project with more than approval, but support all the way to completion.

Source: Lloyd’s List Intelligence