Government approval means little but securing finance means everything
PETROVIETNAM Gas has received approval to build a $1bn port that would allow Vietnam to begin importing liquefied natural gas, but analysts doubt whether the project will ever see the light of day and point to a slew of daunting political, financial and economic barriers that must first be overcome.
PV Gas general director Do Khang Ninh assured local media that the government had agreed to the company’s proposal to build a port capable of handling 3m tonnes per annum of LNG in the south central province of Binh Thuan. Construction is slated to begin next year and to be completed by 2015.
“Everybody’s projects get approval. The government cannot say ‘no’,” said Nguyen Xuan Thanh, director of the public policy programme at the Fullbright Economics Teaching Programme in Ho Chi Minh City. “The question is, can they get access to finance?”
Mr Nguyen described a situation in Vietnam in which various interest groups, typically led by giant state-owned enterprises, vie for government favour.
A key obstacle is the economic viability of using imported LNG, which is more expensive than other sources of fuel.
While Vietnam has offshore oil and gas reserves, they may not be enough to meet the country’s economic goals. In addition, tensions with China in the South China Sea and difficulties in attracting foreign investment to its offshore sector are prompting Vietnam to explore alternative sources of fuels. While LNG is one of them, there are plenty of alternatives including coal and nuclear power, Mr Nguyen said.
Traditionally self-sufficient in gas, Vietnam now faces a shortfall. The country produces 8.5bn cu m a year but requires 10bn cu m, hence the push for greater imports.
PV Gas is holding discussions with several potential LNG suppliers, including Qatar Liquefied Gas.
The uncertainties surrounding the project can also be seen from PV Gas’ often contradictory pronouncements in recent months.
The company’s plans have gone through several iterations, according to Tony Regan, consultant with Singapore-based energy consultancy Tri-Zen International.
Originally, the goal was to use a floating regasification unit as an interim solution while an onshore terminal was being constructed.
Then PV Gas changed tack and decided to go directly to building an onshore terminal, proposing a terminal in the southern province of Ba Ria-Vung Tau that would be operational from 2013 and have an annual capacity of 1m tonnes.
The company then proposed two additional terminals to be phased in later, one in the south central province of Binh Thuan that would have an annual capacity of 5m tonnes-10m tonnes and a third terminal near Hanoi.
Mr Regan said that he understood that PV Gas had sought government approval for the Ba Ria-Vung Tua terminal in May. “This location surprised many as it was on a bend in a busy river and likely to cause major congestion whenever LNG vessels came in or out,” he said.
He added that the latest announcement suggested that Ba Ria-Vung Tau plan had been rejected. “It seems they have moved to option B but with a more sensible capacity of 2m to 3m tonnes,” he said.
“If this is now packaged with the development of a new greenfield port, the goal to be operational by 2013 seems very ambitious.”
Mr Regan said another issue was where the markets for the gas would be now that the terminal has moved farther away from the main markets around Ho Chi Minh City.
Unless such questions hanging over the project are cleared, it is unlikely to get the full-fledged support from the government that it needs if it is to have any chance of raising finance.
On top of that, international and domestic investors’ appetite for investments linked to Vietnam’s state-owned companies is waning, especially in light of the outcry over the Vietnam Shipbuilding Industry group. “International banks are wary after Vinashin,” said Mr Nguyen. “It is very hard now to borrow abroad.”
Last year the shipbuilder was at the centre of a national scandal due to mismanagement leading to it being $4bn in debt. In December, state-owned Vinashin missed its first 10% repayment, or $60m, on a bond issue of $600m via Credit Suisse and other creditors in 2007.
Domestic investors have also suffered. Vinahsin defaulted on a local currency bond in April. It subsequently asked domestic investors to write off up to 90% of funds owed and wait four years for their next payment.
PV Gas already claims to be in negotiations with lenders for up to $700m. Foreign export credit agencies could also be a source of financing, depending on the country of origin of international contractors that bid on the port work.
Mr Nguyen said PV Gas may not wait to get all the funding before launching into building the port. “If you start the project, then you can force the government to continue to support it,” he said.
Source: Lloyd’s List Intelligence
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