Study on Private-Initiative Infrastructure Projects. in Developing Countries in FY2007. Vietnam SUMMARY. March 2008

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1 Study on Private-Initiative Infrastructure Projects in Developing Countries in FY2007 Study on Coal-fired Thermal Power Projects in Southern Vietnam SUMMARY March 2008 Electric Power Development Co.,Ltd. (J-POWER)

2 1 Background of the Project MP6 for developing power plants and transmission lines from 2006 to 2015 was approved by the Prime Minister on the 18th of July in The MP6 is the power generation plan which was drawn up to ensure the supply of electricity enough to meet the demand of electricity, which is expected to increase at the annual rate of 17% (or 20%), based on the GDP growth of 8.5 to 9% (or higher). To satisfy rapid electricity demand, many power stations, especially coal fired thermal, will be developed near future. And these electric power development projects will require an enormous amount of capitals, and the MP6 may not probably be financially accomplished in the conventional way in which EVN has developed most of the power projects planned in master plan. Therefore, the Vietnamese government expects to entrust the development of power plants to the other state owned companies, the joint stock companies between EVN and the other state owned companies, or foreign companies. The development of coal-fired thermal power plant projects will be promoted in the south part of Vietnam. The sites have been presented in the MP6. In these power plant sites, however, the site conditions, especially port conditions are not favorable at all as, if coal imports are supposed. In the other words, it is considered that the construction of breakwater dams and the development of ports such as dredging navigation channel are more or less required at each of the coal-fired thermal power plant sites in the south part of Vietnam, as selected in the MP6. Thus, it is supposed that the coal-fired thermal power plant development plan in the south area will require a great amount of capitals for port development projects such as the construction of breakwater dams and dredging navigation channel. However, the power tariffs that are lower in Vietnam than in the neighboring Southeast Asian countries may be a difficult obstacle that prevents overseas companies from making investments in electric power generation projects. To improve the environment where private companies can easily participate in the investment projects for the construction of coal-fired thermal power plants in Vietnam, therefore, this survey draws up the basic plan of coal center (C/C) and reviews the basic plan of combined electric power plant and public port development investments in order to make recommendations on the scheme to reduce the construction cost for common infrastructures including the related port development projects, as included in the electric power tariffs, by the investments made by private capitals in electric power plant projects as well as the construction of call centers in the same sites, which is required for the electric power development in the south part of Vietnam. Coal fired thermal power projects listed in 6th Master Plan are shown in below table.

3 2 Basic Approach of Project Table 1 is development schedule on coal fired thermal power projects in southern Vietnam Table 1 Development Schedule on Coal fired thermal power projects in southern Vietnam Project Phase Unit Owner Vinh Tan I #1 CSG/BOT 600 I #2 CSG/BOT 600 II #1 EVN 600 Installed Capacity (MW) II #2 EVN 600 III #1 EVN 1,000 III #2 EVN 1,000 Son My #1 BOO/BOT 600 #2 BOO/BOT 600 #3 BOO/BOT 600 #4 BOO/BOT 600 Tra Vinh I #1 EVN 600 I #2 EVN 600 II #1 EVN 600 II #2 EVN 600 III #1 EVN 1,000 III #2 EVN 1,000 Soc Trang I #1 EVN 600 I #2 EVN 600 II #1 EVN 600 II #2 EVN 600 III #1 EVN 1,000 III #2 EVN 1,000 Kien I #1 BOO/BOT 600 I #2 BOO/BOT 600 II #1 BOO/BOT 600 II #2 BOO/BOT 600 III #1 BOO/BOT 1,000 III #2 BOO/BOT 1,000 Source: MP6 Because there is no coal mine in southern Vietnam, basically importing coal from Indonesia, Australia and others is considered as fuel for above power projects in southern area. Especially Soc Trang project and Tra Vinh project cannot receive imported coal directly from overseas to project site by large scale coal vessel due to topographical condition in that site. And so those power stations need a coal center where imported coal is transshipped from large size vessels to small size vessels.

4 In selecting a project site of coal center, we considered that Son My site has a possibility to become one of the reasonable sites for coal center based on following criteria In this study, we decided to drew up basic plan that coal center and power stations is developed at same location in Son My Criteria on site selection of coal center Close to power stations which are supplied with coal Located next to power stations or other industries Better port condition 3 Outline of Project (1) Son My site The Son My site has two original project sites: one is the site selected by EVN (PECC2) under the MP6, and the other one is the alternative site recommended by the Binh Thuan province. The chapter considers the optimal site position and the layout of the complex facilities by using the currently available information from the viewpoints of the construction and operation of the Complex considering the above original two sites. Recommendation Site by Binh Thuan Province Original Site planned by EVN Fig. 1 Original Project Site Planned by EVN and the Alternative Site Recommended by Binh Thuan Province

5 (2) Outline of Coal Center The coal center considered in this study will be designed to supply the Soc Trang and Tra Vinh projects. Each has a planned power generation output of 4,400 MW for a combined total of 8,800 MW, which will require about 22.1 million tons of coal for power generation as shown below. If a single coal center is to handle all such amount, various problems will occur: that is, limitations on the vessels coal loading capacity for supply to power plants imposed by the draft limit set by the Mekong (the Hau River), which situation would require a huge number of coal vessels to shuttle between the coal center and power plants; such a large number of vessels and voyages would make any ship and navigation management unrealistic for a port. Another problem would be the centralization of coal center operations at one place, which will not be desirable from the viewpoint of energy security. So we decided that the coal center under study should be of a size that is capable of handling the amount of coal to cover up to Phase 2 of the Soc Trang and Tra Vinh projects. (3) Outline of Son My Power Plant Son My Power Project has 4,400MW (or 3,600MW) capacity which consists of three phases. The project is built by BOO/BOT project as coal-fired thermal power complex and will be operated from 2012 annually. For the Son My power plant, it would be advisable to utilize the once-through type of boiler with super-critical technology. (4) Outline of Port Plan and Total Layout The areas needed for the land facilities of the Complex are: Power Plants: Approx. 70 to 80 ha (per one plant of 1,200MW to 2,000MW) Coal Center: Approx. 80ha (30 days storage of coal for 4,800MW power plant) Furthermore, big and deep sea port, which has about -15m depth, into which 70,000DWT coal transportation vessel can enter is needed offshore. Based on the results of the above review, the layout of the Complex can be planned as shown in Fig.2 and 3.

6 Fig. 2 Overall Layout of Son My Complex (Coal Center and Coal Thermal Power Station) Fig. 3 Overall Layout of the Complex (Magnified View)

7 (5) Total Project Cost (a) Funding Source The scheme combined public funding project and private funding project, is explained as an effective solution to develop larger scale infrastructure project, such as the project at Son My, with enhancing private investment. The scheme in this report is that coal centre and common infrastructure, such as port development and land reclamation, are developed by Vietnam government, like EVN, with public fund such as ODA fund and, on the other hand, power stations are developed by private fund based on BOT/BOO. Table 2 shows an idea of funding source divided into public funding section and private funding section. Table 2 An idea of Funding by Public Part and Private Part By Public fund Port facilities Dredging of Navigation Channel Breakwater dam Land reclamation Revetment Land filling Common Road Coal center facilities Coal storage yard Coal handling equipment Coal loading equipment By private fund Power Station (P/S) Equipment of P/S Coal storage yard (for P/S) Coal handling equipment (P/S) Coal unloading berth(for P/S) Ash disposal yard Road (for P/S) (b) Total Project Cost Table 3 is construction cost of public funding section Table 3 Construction Cost of Public Funding Section (Unit: US$ mil) Item Construction Cost Port Development 270 Land Reclamation and Road 300 Coal Centre Facilities 400 Total 970 Table 4 and 5 is results of estimated construction cost.

8 Table 4 Estimated Construction Cost per kwh Classification Super Critical Civil and Building 220 Turbine and Balance of Plant 335 Boiler and Auxiliary of Boiler 550 Coal Feeder Facility 80 Measurement Facility 25 Generator and Electric Device 90 Total 1,300 Table 5 Construction Cost (600MW x 2 Units) Classification Super Critical Civil and Building 264,000 Turbine and Balance of Plant 402,000 Boiler and Auxiliary of Boiler 660,000 Coal Feeder Facility 96,000 Measurement Facility 30,000 Generator and Electric Device 108,000 Total 1,560,000 (6) Outline of Financial and Economic Study This study considers Son My thermal power plant which is a target of private investments. (a) Total Project Cost Table 6 is the breakdown of the total project cost. Table 6 Total Estimated Project Cost EPC Cost Items Interest During Construction, Contingency, Development Cost, Others Total Cost US$ 1,560 mil. US$ 470 mil. US$ 2,030 mil. (b) Fuel Cost We have calculated the fuel cost by plant efficiency and current Indonesian coal price. We have assumed the same inflation rate applied for other O&M cost.

9 (c) Operation and Maintenance cost other than fuel cost Including the regular maintenance cost, we have assumed approximately 3% (including staff cost) of the EPC cost as rough estimate for O&M cost per year. Table shows the base case EIRR resulted (calculation made for 30year of operation period). Table 7 Sensitivity of EIRR Item Result EIRR 15.00% Table 8 shows result of sensitivities. Table 8 Result of Sensitivities Detail of sensitivities EIRR Base case 15.00% 5% increase in O&M cost 14.81% 10% increase in O&M cost 14.61% 1.0% increase in interest rate 14.38% 5% increase in EPC cost 13.93% 5% increase in coal price 13.97% By this analysis, we can understand that increase in EPC cost and coal price will give more significant impact to the project economics, as compared to the increase in O&M cost. Action to avoid cost overrun during the construction and appropriate measures for coal price fluctuation are, therefore, essential. (7) Environmental and Social Study Following counter measures should be carried out for the environmental and social impacts due to development and operation of a coal thermal power plant. (a) Counter Measure for Emission Gas Table 9 is standard emission value of the coal-fired thermal power plant. Table 9 Standard Emission Value of the Coal-fired Thermal Power Plant Item Criterion Regulation after K factor is corrected Son My Site (Designed) NO2 (mg/m3n) Less than 450 SO2 (mg/m3n) Less than 350 SPM (mg/m3n) Less than 50 Source: ENTEC Report

10 - NO2 It is considered that low-nox burners can reduce the emissions of NOx to the level of ppm - SO2 It is estimated that these desulfurizers will be able to limit the emission at the outlet of a chimney to the level of mg/m 3 N (at the desulfurizing efficiency of 80 to 90%), which satisfies the emission standard of 350 mg/nm 3. - SPM EP may limit the emissions of soot and dust at the EP outlet to the level of max. 180mg/m 3 N. (b) Counter Measure for Waste Water - Wastewaters from the power plant To take the measures to improve the quality of wastewater from the power plant premises, it is planned to provide the plants with the synthetic wastewater treatment equipment and the circulation system to recycle the slurry water used for ash transfer. The general wastewater such as rainwater will be treated in accordance with the national wastewater standards and released into drainage canals. - Cooling water To release the cooling water used by condensers from the cooling water systems, it will be necessary to take the appropriate measures against warm water and drained water. To minimize the influences of the wastewater on the ecosystem in seawater areas, the appropriate measures will be taken to keep the temperature difference between the taken water and the released water below 7 C. (c) Counter measure for dispersion of coal dust To prevent the dispersion of coal dust in the environment, it will be necessary to take the appropriate measures using any water spraying equipment and wind barriers. When coal is transported (by any means such as belt conveyer) in the projected power plant premises, it will be also necessary to take the appropriate measures against the dispersion of coal dust and the drop of coal. The Project plans to install shield fences, anti-dispersion equipment (such as sprinklers), conveyor covers.

11 (d) Counter measure on vibration The ordinary noises produced by heavy equipment such as generators and turbines may be reduced to 65dBA around the boundaries of power plant sites by installing the equipment indoors. The non-ordinary noises produced by devices such as safety valves may be reduced to a certain extent by taking the appropriate measures using devices such as silencers or shields. 4 Project Implementation Schedule Table 10 and Table 11 are Project Implementation Schedule. Table 10 Preliminary Schedule No. Item Start date End date Period 1 Engineering work (basic study, design concept and financial model) 2008/ /3 6 months 2 Pre Environmental Impact Assessment (Pre-EIA) 2008/ /3 6 months 3 Submission and provisional approval of the Project by Ministry of Industry and Trade 2009/4 2009/6 3 months (MIT) and Peoples Committee (PC) 4 Engineering work (detail) and EIA 2009/7 2010/3 9 months 5 Approval of Government and PC 2010/1 2010/6 6 months 6 Negotiation and signing of Power Purchase Agreement (PPA) with EVN 2010/3 2011/2 12 months 7 Negotiation and signing of Coal Supply and Transportation Agreement (CSTA) 2010/7 2010/12 6 months 8 Preparation, negotiation and signing of O&M Agreement 2010/7 2010/12 6 months 9 EPC bidding, Negotiation and Agreements 2010/3 2011/2 12 months 10 Negotiation of Financing Models and Agreements with Lenders 2010/4 2011/3 12 months

12 Table 11 Milestone of EPC Works Schedule No. Item Start date Unit 1 Unit EPC contract and design of the main EPC work Unit1: 2011/3 Unit2: 2011/9 Civil work and Piling works for power Unit1: 2011/7 house building work Unit2: 2012/1 Structural steel erection Unit1: 2012/8 Unit2: 2012/12 Boiler Hydrostatic Unit1: 2013/11 Unit2: 2014/5 Power Receiving Unit1: 2014/2 Unit2: 2014/8 Boiler Initial Firing Unit1: 2014/8 Unit2: 2015/2 Initial Steam Admission to Turbine Unit1: 2014/10 Unit2: 2015/4 Synchronization and Commissioning Work Unit1: 2014/11 Unit2: 2015/5 Commercial operation date Unit1: 2015/3 Unit2: 2015/9 Final Certificate after two years Unit1: 2017/3 maintenance guaranteed period Unit2: 2017/9 0 month (Base) 4 months 10 months 17 months 23 months 32 months 38 months 35 months 41 months 41 months 47 months 43 months 49 months 44 months 50 months 48 months 54 months 72 months 78 months

13 5 Project Implementation Scheme Fig 4 shows one of the expected project schemes in case of IPP project which foreign companies can invest. Government of Vietnam Private Sector Governmental Guarantee Undertaking In-Direct Guarantee Public Sector PORT OWNER (EVN/Coal Center) Port Lease Agreement Yen Loan (ODA) Loan Agreement JBIC EVN MOI Imported Coal Companies Power Purchase Agreement Implementation Agreement Fuel Supply Agreement P/S PROJECT OWNER ( Shareholders ) Japanese Co. Others Loan Agreement JBIC (Overseas Investment Loan) Multilateral Financial Loan Agreement Institutes Loan Agreement Commercial Banks Completion Guarantee * MOI : Ministry of Industry * EVN : Electricity of Vietnam * MOF : Ministry of Finance * JBIC : Japan Bank for International Cooperation O&M O&M Contract Reputable Manufactures EPC Contract Government Related Key Agreement Guarantee Fig. 4 Project Implementation Scheme The scheme shows that the project company which is established by Japanese companies and other foreign companies or Vietnamese local companies, raises fund based on project finance from JBIC, the export credit agencies, the multilateral development banks or other commercial banks. And the company executes to construct and operates power station and earns profits by wholesaling electricity generated from the power station to EVN. Port uses pay the port administrative company the fee of port developed by public fund. 6 Technical Advantage of Japanese Company (1) Participation as an Investor It is estimated that the yearly growth rate of electricity demand in Vietnam is more than 17%. To satisfy such rapidly increasing demand, it is necessary to reduce the time to develop the power stations as possible. It is thought that PPP scheme, which combines public funds for building common infrastructure and funds for constructing power plant, can contribute developing effectively infrastructures in Vietnam. This report proposes the scheme which can execute the port and coal center development in power project site by utilizing public funds.

14 (2) Participation as EPC contractor (Equipment supplier) and Port Constructor Chinese boiler manufactures are recently expanding to overseas projects. But if the project decides to use Indonesian and Australian coal for fuel, it is considered that Japanese boiler manufactures have advantages to supply their equipment because only some Japanese and Korean companies have track records to supply the boiler which can burn such type of coal and has been operated for long term. This project requires quickly developing large and deep port which can accept large coal vessels, and artificially reclaiming land from the sea. However there are not so many projects of large port construction in Vietnam and Vietnamese local companies don t have much experience in such large scale port construction projects. From this point of view, it is considered that Japanese construction companies which have much experience have advantages in participating in such port construction. (3) Participation as Operator If the power project in Vietnam installs high technology like Super Critical technology, it is expected that Japanese companies which have much experience to operate such high technology plants have advantage to participate the project as plant operator. Japanese company also can contribute Vietnam by utilizing simulator for coal fired thermal power plant. (4) Participation as Coal Procurement Vietnam has been a traditionally coal-exporting country, and has no experience in importing coal from foreign countries. It means that the country lacks an appropriate means to procure coal in the international market, and participating in the market as a newcomer will be extremely difficult. On the other hand, Japan has many years of experience in importing steam or coking coal. As of 2005 Japan is the world s greatest coal importer. Japanese companies should therefore be able to help Vietnam procure coal worldwide.

15 7 Location of Project Site Fig 5 is location of Project Site. Son My Fig. 5 Location of Project Site