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ACWA Power International’s CEO and president Paddy Padmanathan and chief investment officer Rajit Nanda told VIR’s Phuong Thu about company’s vision and plan for Vietnam.
Could you brief about ACWA Power? Why ACWA Power has confidence to start project in Vietnam?
Paddy Padmanathan: ACWA Power is a developer, investor, co-owner and operator of a portfolio of power generation and desalinated water production plants currently with presence in 11 countries including in the Middle East and North Africa, Southern Africa and South East Asia regions. ACWA Power’s portfolio, with an investment value in excess of USD 30 billion, can generate 22+ GW of power and produce 2.5 million m3 per day of desalinated water.
Our entire mission is to reliably deliver electricity and desalinated water at the lowest possible cost, on bulk basis, on long term, off take contracts. We typically serve government owned utility companies or energy intensive industrial enterprises. We are technology-neutral and fuel agnostic and serve our customers by responding to their fuel preference and technology choices by delivering the optimized fit for purpose solution that delivers electricity and where relevant desalinated water reliably at the lowest possible cost. So, if a customer says use fuel/gas, we use gas. If the customer says use wind-power, we use wind-power.
We are in the business of delivering essential service that fuels social and economic development by investing significant amount of money in getting a plant built and then operating and maintaining the plant to produce electricity over 25 years, collect revenue as we sell the electricity year in year out and recover the invested money over such a long time. As such, when we select a country to invest in and participate in the electricity and or desalinated water market, we need to be sure that it is a politically stable country, has a vibrant growing economy, respects the rule of law, has a demonstrable track record of honoring contracts, welcomes and protects not just private sector but foreign private sector investment and has adequate local industrial and labor capacity to enable us to get a plant built and operated and maintained competitively. To put it simply, Vietnam meets each and every one of these criteria.
What is the role of Nam Dinh thermal power project in your development strategy in Southeast Asia? What is your priority for Vietnam market in the coming time?
Paddy Padmanathan: ACWA Power is an ambitious company with a significant appetite for growth. We are thus looking for countries that not only fulfill all the needs to support these kind of significant investments but also that have a clear growing need for more electricity and where relevant desalinated water capacity. We identified South East Asia as an attractive market with growing needs. But within South East Asia certain countries stand out as more attractive than others. We have elected to enter the region with this first project in Vietnam.
Our interest is to now get this first project into construction, so that we can prove to our shareholders and the market in South East Asia of our capability and then start building on this platform in Vietnam to grow a multi fuel portfolio in Vietnam itself and step by step expand our business into a few other countries starting with Indonesia as the next market to grow into. In Vietnam itself, given our desire to develop a balanced portfolio reflecting the energy mix and capacity expansion plan of the Ministry of Energy of Vietnam and thus will be looking for suitable opportunities in Renewable Energy including solar and wind power as our next priority.
The granting of the IRC for the Nam Dinh 1 project represents a significant step in the development of this project, more importantly it demonstrates the commitment of the Vietnamese government to attract investors. We look forward to completing the financing arrangements and commence construction of the power plant to enable us to contribute to the development of Vietnam by delivering reliable, safe and cost effective electricity.
|ACWA Power has a big portfolio of power generation and desalinated water production plants in 11 countries. Pictured above is Bokpoort plant in South Africa|
As banks and lenders are tightening to loan for coal-fired power projects. So how and from whom do you have comprehensive commercial guarantees to cover for this project?
Paddy Padmanathan: At high level, I think it is correct to say that people are concerned about coal fired power generation. It is true that many countries have decided not to provide any finance for coal-fired power plants. However, there are still a few countries and their export credit agencies and banks are supporting these investment provided all the strict environmental protection guidelines and emission quality and pollution abatement standards are followed. For countries like Vietnam, where provision of reliable adequate power supplies at the most competitive basis with domestic fuel resources is a priority to provide electricity for improvement of social and health standards of the people and the development of the economy, it is good news f that there are such sources of finance and lenders who are willing to provide the debt funding needed..
Rajit Nanda: For details for Nam Dinh coal-fired project, on top of equity of around $500 million to be provided by the developers, the rest of around $1,8 billion will be financed by Export-Import Bank of Korea (Kexim) and Korean Trade Insurance Corporation (Ksure). Some international commercial banks will also join the financing. This group includes DZ Bank, MayBank, Mizuho Bank, Bank of Tokyo-Mitsubishi Bank, Standard Chartered Bank and, OCBC
|Representatives of the Nam Dinh 1 consortium receive the project’s investment certificate|
What are your solutions for coping with the concerns around thermal power projects?
Paddy Padmanathan: We well recognise the link between climate change and the consequence of certain human activity such as fossil fuel based power generation. Having said that one must accept the need to balance the negative social and economic impact of not providing adequate cost competitive electricity and accepting a certain level of coal fired power generation, well understanding the need to be very conscious about what we are doing and mitigating the negative impact to the extent possible. Vietnam has 35,000MW installed capacity for the population of 90 billion people. United States of America with 250 million people have over 1 million MW of installed capacity! Vietnam clearly needs more power. Indeed power demand is growing at 7 per cent you don’t have the luxury of stopping coal fired power plants. It needs mix of resources including coal, but yes as well as your undeveloped potential renewable resources.
In order to minimise the environmental impact, on the Nam Dinh project we will implement best available technology to ensure the adherence to well accepted and recognized international standards in term of emission control, minimization of pollution, negative impact on air and water quality. As you know, World Bank has a set of standards which has been used as the basis for something called the Equator Principles, and all major international financing institution and banks have come together said “we will not provide project finance or project–related corporate loans to projects where the client will not, or are unable to, comply with these standards”. Nam Dinh project will absolutely comply with these all the international regulations and standard by applying the most up-to-date technologies.
BOT contract might be a headache that would possibly lengthen construction deadline. How do you prepare for this? What is the suggestion for other investors which are also interested in BOT power projects in Vietnam?
Paddy Padmanathan : On the contrary, there is considerable evidence the world over that shows that the time taken from identification of a project to electricity being dispatched is shorter in the case of a BOT model as opposed to a public sector financed alternative. Yes, it is true that the project development phase spanning from identification to getting the project contracts agreed, technical solution developed and project financing structured and assembled takes a very long time but once construction starts, it proceeds like clockwork efficiently without delay simply because much of the risks would have been identified and designed out and planned for and because all financing is available to keep paying the contractor without interruption.
Many developers are well established in Vietnam and we are the new comers. Our experience of developing such large infrastructure (IPP) projects not just in Vietnam but also elsewhere is that one must rigorously identify all stake holders up front and get into discussions with an open mind, cultivating a partnering type of relationships underpinned by transparency and trust. Recognising that these are large and complex projects, the temptation is to rush off and spend a lot of time developing the technical solution. While this is indeed important, it is equally important that in parallel the developers get into discussion, right at the outset with the various counterparties, the off taker of power, the fuel supplier and the relevant government agencies including the ultimate credit backstop provider being the Ministry of Finance and the State Bank of Vietnam. Also in the case of Vietnam where land is at a premium and much of is either occupied or is utilised for some purpose, it is extremely important that the land recovery process starts at the earliest time and importantly with the right approach with the support of the local authorities and the good will of the affected people.
In a nutshell, ACWA Power’s view is that upfront constructive, transparent and trusting engagement of all stakeholders results in a well balanced structure which then allows for robust and sustainable long term viability of these large and complex infrastructure projects. These actions then result in all government stakeholders, shareholders and lenders being comfortable in the long run.
This is first foray project in Vietnam, could you have any plan to invest in other sectors that you have experience and operation in other countries?
Paddy Padmanathan: Our two and a half of years of project development experience in Vietnam has been very positive. We have found Vietnam to be an investor friendly destination. While processes and procedures are plenty as in many other countries, we have found the government officials both at national and provincial level very constructive and supportive with a genuine desire to help and achieve success. We are therefore keen to invest in more power plants but as I have already said using the local “fuel” resources you have; which means the solar resources and wind resources as well. So, the next projects we are likely to focus development in the area of renewable energy.
Indeed we have already entered into a partnership with FESCON, a well-established and respected Vietnamese engineering contractor to develop a 100MW PV power plant as our next investment.
In the area of water, we are only involved with desalination of sea water to produce potable water in resource scarce ared countries like the Kingdom of Saudi Arabia or Sultanate of Oman. Here in Vietnam you are blessed with good rains and suitable topography crisscrossed by rivers and many locations for dams to impound the surface run off for storage and utilisation. So, fortunately you do not need the energy intensive and very expensive process of sea water desalination to provide potable water and as such we do not see a role for ourselves.
Many foreign investors are now interested in developing renewable power projects in Vietnam as the Vietnamese government offers incentives. In what way will ACWA Power contribute to Vietnam's renewable market in future?
Paddy Padmanathan: ACWA Power has developed considerable experience in developing solar power with both photo voltaic and concentrated solar power technologies and in developing wind power.
Within the last few years, we have established a global reputation as relentlessly challenging cost to keep reducing the tariff of electricity generated by these technologies. As we step into renewable energy project development here in Vietnam, we will bring our experience of structuring “fit for purpose” technical solution, our preferential access to technology providers through the well-established network of relationships and access to competitive procurement and supply chain, our understanding of the risks and mitigation strategies and cost competitive financing structures to deliver solar and wind power energy at the lowest possible costs.
Vietnam has rich untapped resources and we very much look forward to playing our part in contributing to the development of Vietnam by efficiently utilising these resources.