Don’t fund Vung Ang 2
Coal power station in Vietnam carries reputational and financial riskTake action
Banks should not finance a coal power plant on a site that is already known to have polluted air and water, will cause further impacts to livelihoods of local communities and carries stranded asset risk.
Vung Ang 2 is a planned ultra-supercritical 2 x 600MW coal-fired power station in Kỳ Lợi commune, Kỳ Anh district, Hà Tĩnh province in Central Vietnam.
Banks linked to this project are:
- Japan Bank for International Cooperation (JBIC)
- Mitsubishi UFJ Financial Group (MUFG)
- Sumitomo Mitsui Financial Group (SMFG)
- Mizuho Financial Group
- Sumitomo Mitsui Trust Bank (SMTB)
- DBS Bank
The sponsor of this $2.2 billion project is One Energy Ventures, a joint venture between Mitsubishi Corporation subsidiary, Diamond Generating Asia, and China Light and Power.
The Engineering Procurement and Construction (EPC) contractors are General Electric and Energy China GPEC.
Delivery of collective letter urging JBIC not to fund Vung Ang 2
Call on the banks not to finance Vung Ang 2
About Vung Ang 2
- One Energy Ventures (a 50:50 joint venture between Hong Kong-based CLP Holdings and Diamond Generating Asia (DGA), a subsidiary of Japan’s Mitsubishi Corp)
- SPV: Vung Ang 2 Thermal Power Joint Stock Company (VAPCO)
- Financial: SMBC
- Legal: Allens Arthur Robinson
- Technical: Poyry
Human Rights and Environmental Concerns
Cumulative health and livelihood impacts
Vung Ang 2 is proposed to be built on a site next to the Formosa Steel plant and the Vung Ang 1 coal plant, both of which have faced community protest.
The Formosa Steel Mill’s toxic chemical spill in 2016 is considered the most serious environmental disaster in Vietnam’s history. It devastated a hundred miles of ocean coastline, rendering these areas presently unfishable and depriving communities of both food and income. In June 2019, 7,875 Vietnamese fisherfolk and others whose livelihoods were destroyed filed a lawsuit seeking compensation from the Taiwanese firm responsible.
The Vung Ang 1 coal power plant is controversial given the close proximity of its coal ash heap to residential areas and farmland, and the air pollution the plant causes. This project was funded by JBIC, MUFG and SMBC in 2011.
Commune residents and health care centres in the area say they have seen an increase in “heart disease, stroke, lung disease, skin problems and cancers,” from the projects already on the site.
Photo credit: Le Quynh; Vung Ang 1 coal power station
Lack of appropriate community consultation
The Ministry of Planning and Investment (MPI) has criticised the project, indicating that:
- there is a disconnect between the land area stipulated by the government for use in the project and the land area referred to in the project proposal;
- the Environmental and Social Impact Assessment (ESIA) was approved in 2015, but contrary to section 20 of the Vietnamese Law on Environmental Protection 2014, a new ESIA has not been conducted; and
- the project sponsor has not mobilised sufficient capital to implement the project.
In addition to the issues that the MPI has raised, the ESIA signed off on 19 January 2011 is highly deficient in contrast to international standards, such as the International Finance Corporation Performance Standards or the OECD Guidelines for Multinational Enterprises:
- The ESIA does not demonstrate that the project-affected community was consulted on the issues. While consultation meetings were held with government officials, project-affected community members were merely asked questions about various issues such as their knowledge about the project, water usage or transportation needs.
- There was also no indication that project specific information was provided to the community members about the project at the time of the survey that could inform the communities in their decision-making. In fact, during the survey it was noted that 136 out of 186 households mentioned that they did not know basic information about the project including the exact location of the project, who the owner of the project was, and the type of project. This was their main concern. The ESIA does not indicate how this information gap was remedied.
- The lenders should ensure that the project sponsors have two-way communication with project-affected communities so that the communities’ views can be taken into account in relation to planning and decision making for the project.
Financial risks from coal power, considering the advance of renewables
Vung Ang 2 is being developed in an economy where renewables are fast becoming cheaper than coal. A recent report from financial think tank Carbon Tracker, states that in 2020 it will already be cheaper in Vietnam to invest in new solar PV than new coal, with new onshore wind generated power expected to become cheaper than coal power by 2021.
According to a recent 2019 report of the Ministry of Investment and Trade (MOIT) in Vietnam, extra coal power capacity currently in Vietnam’s pipeline – an estimated 35.7GW – has been significantly delayed. These costly delays have coincided with decreasing costs of renewables, to the point where any new coal capacity commissioned after 2020, including Vung Ang 2, would be more expensive than renewables. As such, Vung Ang 2 would be at risk of becoming a stranded asset.
Why banks should be out of this project
The financial and reputational risks presented above are reasons enough for the banks to not fund Vung Ang 2.
Moreover, DBS Bank has stated it will no longer fund any new coal power stations. It recognises that coal power is harmful to our environment, which makes DBS’ plans to finance this power station all the more unacceptable.
In September 2019, MUFG, SMFG, Mizuho, and SMTB all signed up to the UN Principles for Responsible Banking, which commit signatory banks to “align their business strategy with the SDGs and the Paris Climate Agreement.” No new coal fired power plants can be built if we are to achieve the Paris Agreement’s climate goals of limiting global warming to 1.5°C or even 2°C. Funding this plant would violate these banks’ commitments.
- Minerva Lau, Project Finance International, (11 September 2019), ‘ Banks restart talks on Vapco 2’
- Minerva Lau, Project Finance International, (29 March 2019), ‘Vung Ang 2 CFPP to go ultrasupercritical’
- Minerva Lau, Project Finance International, (15 August 2018), ‘OneEnergy appoints Vapco adviser’
- Mia Tahara-Stubbs, IJGlobal (23 January 2017), ‘Banks mandated on Vietnam Vung Ang 2 coal-fired’
- Global Data Point (20 January 2017), ‘Vietnam’s MOIT Investment Agreement signed BOT project in Vung Ang Thermal Power Plant 2’
- Vietnam Plus (17 January 2017), ‘Vung Ang II thermal power plant BOT project agreement clinched’
- Climate Policy Initiative (2016), ‘Slowing Down the Growth of Coal Power outside of China’
- BMI Research (2016), ‘Vietnam Power Report – 2016 Q4’
Information updated: 18 December 2019
In addition to the references noted above, Market Forces also considers information from financial journals, companies’ public disclosures, and news reports.