Time Running Out For Coal Hunting
By Ngoc Lan
There are only three years to go until 2015 when a huge volume of coal must be imported to feed local thermo-power plants to be operational in the same year. Vietnam, in an effort to race against the clock, has come up with some solutions including buying overseas mines, acquiring or buying stakes from foreign partners. These solutions are officially present in the national plan for coal industry development toward 2030. Actually, such a story used to be a hot issue a couple of years ago.
In 2009, Vietnam Oil and Gas Group (PVN) took over the projects of Long Phu I and Song Hau I thermo-power plants having total capacity of 1,200MW each from Vietnam Electricity Group (EVN). Upon the takeover of the two projects, the first job PVN did was to seek coal supplies and coal samples and mull coal transport methods. The Ministry of Industry and Trade, the assessor of the basic design of the Long Phu I project, at that time insisted that “the project owner must urgently identify import coal supplies.” The order of the ministry is understandable because PVN will have to import over three million tons of coal a year right after Long Phu I is put into operation in 2014.
Shortly after the instruction given out by the industry authority, PVN established its own coal import and distribution company, or PV Coal, to hunt for coal supplies for five coal-fired power plants whose combined capacity is 6,000MW. These projects belong to power master plans VI and VII of PVN, so when they are in place, PVN will need up to 18 million tons of coal annually, the majority of which is imported.
PV Coal said it planned to buy mines or acquire stakes of mining companies in Australia, Indonesia and Russia. Especially, it will prioritize those mining projects that are going to be exploited with reserves of more than 30 million tons, meeting the quality demand of PVN’s power plants.
However, the fact is not as simple as the plan supposes. Despite great efforts over the last three years, PV Coal in 2011 just clinched a framework agreement with Australian company Ensham Coal Sales. The Australian firm has three coal exploitation licenses effective for 35 years and covering 900 square kilometers in Queensland with total reserves of over one billion tons. Thanks to the deal, PVN can secure a long-term coal supply from the partner with a yearly volume of up to 12 million tons. In addition, PVN is able to acquire at least a 30% stake from the partner.
PVN’s targets have just achieved such modest success while the situation is even more distressful with other local industry players like EVN and Vietnam Coal and Mineral Industries Group (TKV). A recent market survey shows the disadvantaged position of Vietnamese businesses in the fierce competition with heavyweights like China, India and South Korea. According to the survey, local investors are not strong enough to defeat foreign rivals in terms of financial capacity, experiences of outbound investment and mining infrastructure development, and negotiation skills.
Strategy overhaul
Regardless of any difficulties, importing coal at estimated respective figures of 15 million tons and 48 million tons from 2015 to 2020 remains a vital duty to ensure the operation of 21 coal-fired power plants as scheduled.
Therefore, local importers have no choice but to rely on outside supplies even though they acknowledge certain risks such as limited reserves or political instability and environmental issues of the suppliers.
As for the Government, Vietnam’s Ministry of Industry and Trade in 2009 signed with Australia’s Department of Resources, Energy and Tourism a memorandum of understanding on energy cooperation. According to the Vietnamese authority, the Australian side at that time was willing to negotiate with local enterprises about business cooperation opportunities as long-term suppliers or partners. However, the actual collaboration between the two sides has seen no progress ever since. The business chances with Australia have increasingly faded in the backdrop of Vietnam’s joining the tough race with China, India and South Korea which need a great volume for coal-fired power rising by thousands of megawatts a year.
The problem is that many opportunities have been missed to access overseas mining investment so far. Nguyen Thanh Son, director of Song Hong Energy Company under TKV, revealed that four years ago TKV and Australia-based Linc Energy joined forces to exploit fossil fuel including coal and methane in the Red River Delta. On the other hand, TKV had signed a memorandum of understanding to exploit mines with this partner in Australia whose reserve is equivalent to that in Uong Bi mining area in the northern province of Quang Ninh. Regrettably, TKV failed to make use of the deal.
Similarly, Vietmindo from Indonesia has invested 100% capital to exploit mines in Vietnam over the past 15 years but TKV has found none of the same opportunities in Indonesia.
The ongoing exhaustion of Vietnam’s opened-cast mines along with stricter conditions on fresh mining exploitation projects will surely lowered the position of local buyers in comparison with foreign exporters.
However, there is still hope for Vietnamese investors with the presence of the national master plan until 2030. The plan has brought the country — among the world’s largest coal producers and exporters — opportunities to cooperate with international counterparts to exploit 25 new mining projects in Cam Pha and Uong Bi, build pits under Khanh Hoa opened-cast mines until 2015 and exploit coal on a trial basis in the Red River basin in 2020.