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Vietnam Energy Forum

The Government requested to study the proposal of Vietnam Energy Magazine on Block B - O Mon gas - power chain

 - In a report sent to the Prime Minister, the Scientific Council of Vietnam Energy Magazine said: The key of Block B Chain needs an Investment Decision (FID) to deploy the general domestic and international contractor package at the upstream stage, as a basis for the synchronous implementation of component projects in the entire Block B - O Mon project chain, including a pipeline system transporting gas from offshore to O Mon (midstream stage) and power plants in O Mon and Can Tho (downstream stage). After analyzing the necessary and sufficient conditions to have FID, from the downstream side (4 power plants), and the upstream side (Block B project), as well as time pressure and progress, the Scientific Council of Vietnam Energy Review has proposed to the Prime Minister to consider the direct following specific contents:

Firstly on technique, the Ministry of Industry and Trade will soon complete the approval of the feasibility study report (FS) for O Mon 2 and O Mon 3 power plants so that investors can use them as a basis to complete investment reports for these power plants.

Secondly, on commerce, to direct the power plant investors to soon complete investment research reports (for O Mon 3, O Mon 4) and other competent agencies to consider approving (for O Mon 2) to submit to the Committee for Management of State Capital at Enterprises

Thirdly, on agreement of the commercial contracts including GSPA and GSA, on the principle of "sharing risks, harmonizing benefits", it is required Prime Minister and direct PVN to negotiate with foreign partners in an upstream stage in the direction of applying the base gas price (approximately 12 USD/million BTU) at the time of commercial exploitation (receiving the first gas flow - First Gas) in 2027 and only calculating gas price slippage of 2.5 %/year, and gas transportation costs are 2%/year (from this point on), instead of from 2017, to increase the economic efficiency of the entire project chain.

Fourthly, Because the Government's revenue source at the upstream stage is very large (more than 40% of the base gas price, estimated at more than 20 billion USD/23 years of operation), therefore it is required the Prime Minister to consider reducing a part of corporate income tax for Phu Quoc POC operators and Southwest Pipeline Company (SWPOC) to reduce pressure for investors at upstream and midstream.

Fifthly, because the conditions for arranging ODA loans will be very difficult, and ECA loans also need many accompanying conditions (because PVN is a state-owned enterprise), it is required the Prime Minister to consider issuing a Government Guarantee (GGU) for PVN to easily arrange loans from international banks for both the upstream stage and power plants.

Sixthly, to direct EVN and PVN committing to underwrite the electricity output in the power purchase agreement (PPA) (temporarily estimated) so that PVN can use it as a basis for signing a GSPA with Phu Quoc POC operator, or as a basis PVN to negotiate with the foreign partners, to assign Phu Quoc POC operator signing GSA contracts with power plants.

Seventhly, to assign PVN to direct Phu Quoc POC and SWPOC operators to reserve bidding results and extend the bidding validity period for another 1 year (for domestic and international EPC1 and EPC2 bidding packages, as well as such EPC pipeline) so that as soon as consensus is reached, the contract will be awarded.

General vision: According to the view of the Scientific Council of Vietnam Energy Magazine, Along with increasing the amount of electricity output supplied at O Mon Thermal Power Complex with over 22 billion kWh annually, ensuring energy security with the initiative domestic fuel source, Block B - O Mon gas-power chain plays a great role in generating huge state budget revenue, creating thousands of jobs and promoting economic development in the Mekong Delta region. On the part of foreign partners in the Project Chain, instead of reserving high gas prices leading to a reduction in consumption output (according to Circular No. 45 on competitive electricity market). If the reduce of gas selling price, the electricity price will be reasonable, as well as the electricity output consumed will be higher, leading to increased demand and maintaining a stable level of annual gas output throughout the life of the project (more than 20 years). Overall, Resolutions 41 and 55 of the Politburo have indicated the Party's policy and strategic direction on the gas and energy industry development, but the new vision is only until 2045. Meanwhile, the Gas-Power Block B - O Mon chain must meet climate change commitments and net zero emissions by 2050.

Regarding foreign affairs, Vietnam is having profound economic and political influence through strategic partnerships and intergovernmental cooperation with major countries such as the US, Russia, China, UK, France, Germany, Japan, Korea, and ASEAN are among the top priorities. Especially Japan - where its enterprises are investing in this Project Chain. Bilateral cooperation between Vietnam and Japan is not only in the Gas-Power Block B - O Mon chain in PVN but also in many other fields, which are increasing every year and spanning from politics and economics, to education culture.

In terms of economics, Japan holds the top 3 position of foreign investors in Vietnam, with more than 4,835 projects (corresponding to a total FDI investment of over 64 billion USD).

The export turnover in 2022 reached nearly 50 billion USD. For the country's economy, in the context of many challenges in energy transition, the role of pillar economic groups such as EVN and PVN is very important, not only must they play a good role in ensuring energy security, providing enough oil, and gas and electricity sources for economic development, national security related to the airspace, territorial waters, and islands, but also as tools for macroeconomic regulation of the whole economy. Therefore, the Gas-Power Block B - O Mon chain needs to urgently remove bottlenecks to be able to transmit from "resource potential" into "economic efficiency". If progress is delayed, the possibility of exploiting Block B gas field will be further behind, because the energy transition process will be more delayed in meeting the "Net Zero" commitment requirement by 2050. O Mon Gas-Power Project Chain looks at the entire Vietnamese Energy industry, with EVN's current difficult and loss-making situation, arranging and balancing investment capital of more than 11 billion USD/year (according to the Power Development Planning VIII ) to develop power plants and power grids will be very difficult.

Therefore, the Government should have appropriate and drastic policies to support PVN to both reduce pressure on EVN, as well as ensure national interests.

Looking at this approach and with the role of PVN, besides maintaining and developing traditional fields, it will also participate in deeper investment in the electricity field, so the responsibility will also be greater and very heavy because it is necessary to balance resources for investment portfolios. In particular, PVN not only has to maintain budget targets but also act as an investment bridge and inspiration in international cooperation.

Finally, the Scientific Council of Vietnam Energy Magazine requires the Prime Minister, the Committee for Management of State Capital at Enterprises, ministries, and agencies should have priorities, as well as pay due and timely attention to guidelines, policies, and strategic orientations for PVN to better play its role and together with EVN, with the mission of ensuring energy security for economic development, social security, and more extensive international integration.

Finally, the Scientific Council of Vietnam Energy Magazine requires the Prime Minister, the Committee for Management of State Capital at Enterprises, ministries, and agencies should have priorities, as well as pay due and timely attention to guidelines, policies, and strategic orientations for PVN to better play its role and together with EVN, with the mission of ensuring energy security for economic development, social security, and more extensive international integration.

VietnamEnergy.vn

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