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KEPCO set to finance $190 mn for Vietnam’s coal power plant project

Oct 05, 2020 (Gmt+09:00)

Korea Electric Power Corp. (KEPCO) will move forward with its participation in Vietnam’s coal-fired power plant project, after the deal came close to being scrapped.

KEPCO’s board of directors finalized the decision at an Oct. 5 board meeting, according to a KEPCO source. The deal, valued at around 2.5 trillion won ($2.1 billion), is the construction of a 1,200-MW power plant in Vung Ang, Vietnam. KEPCO will invest 220 billion won ($190 million) in Vung Ang No. 2.

Once KEPCO participates in Vietnam’s state project, two Korean builders — Samsung C&T Corp. and Doosan Heavy Industries & Construction Co. – will be responsible for engineering, procurement and construction of the power plant, and KEXIM will provide loans and guarantees.

The project faced setbacks throughout the year given fierce opposition from political circles and environmental groups on grounds that the business is unethical and would cause irreversible damage to the environment. In late July, Korea’s ruling party proposed a set of bills aimed at prohibiting public sector businesses from participating in overseas coal projects.

Industry players retaliated by citing the enormous negative fallout should the deal crumble. A number of local companies such as Doosan Heavy that rely heavily on exporting the infrastructure for overseas coal power plants would be hard hit — exporting these plants accounts for half of Doosan Heavy’s overseas business. The company has already suffered from the Korean government’s decision to phase out nuclear power.

For KEXIM, foreign coal power plant financing represents a significant portion of its business. Between January 2008 and August 2018, the state-run lender provided a combined 6.2 trillion won in overseas coal plant financing.

Korea is the world’s No. 2 coal power plant exporter in terms of orders received, winning $5.8 billion worth of orders between January 2013 and July 2020, according to EndCoal, an international environmental group. Vietnam is one of the world’s biggest coal plant importers, awarding $15.9 billion worth of contracts between January 2013 and July 2020.

Meanwhile, energy experts have pointed out that environmental pollution may worsen if Chinese companies replace KEPCO, as the Chinese have yet to secure eco-friendly technology. When exporting power plants, Korean companies use ultra-supercritical (USC) technology, which dramatically reduces carbon emissions.

The Korean government arrived at its conclusion after reviewing all aspects and determining that developing countries such as Vietnam would be unable to reduce coal-fired plants anytime soon.

“The government internally agreed to carry on financial support for some overseas coal power plant businesses,” the government source said.

Yet, this decision is likely to face a backlash as global political leaders and investors have stepped up to oppose the power plant project. Former US Vice President Al Gore and Christiana Figueres, former executive secretary of the United Nations Framework Convention on Climate Change, have publicly expressed their disapproval of Vung Ang No. 2.

Global asset management company BlackRock has delivered their adverse opinion to KEPCO, while Norway’s largest pension fund KLP and Denmark’s pension fund MP Pension have openly requested that Samsung C&T retract its participation in the project.

Write to Soo-Young Seong at syoung@hankyung.com


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