MIGA Offsets Lenders’ Risk Concerns in
Along the bustling tree-lined streets of
Just ten years ago, none of this would have been possible—at least not on a regular basis. But today, with its GDP growth hovering around 8 percent, this Asian Tiger in the making is serious about fueling that growth with reliable electricity.
“We had a huge drought in the north of
“If businesses don’t have enough electricity, they either can’t do business or they need to shift their pattern of business,” notes Richard Spencer, a World Bank senior energy specialist based in
This unmet need has led
Fortunately, the country’s economic deregulation over the past decade and the draw of commercial opportunities have attracted foreign investors to
As a result, important developments over the past few years have been reshaping the country’s electricity sector, helping to reduce the strain placed by growing demand and overreliance on hydropower.
World Bank Group provides support across the board
The World Bank Group has been involved in the country’s energy sector for more than ten years, working on generation, transmission, distribution, and reforms. The current power portfolio stands at around $1 billion. Distribution has focused on rural delivery as well, with very good results. In 1995, some 50 percent of rural inhabitants had access to electricity. That figure today is 90 percent.
Since the early 1990s, the World Bank has not only supported the government of Vietnam in finalizing an effective legal framework for the power sector, it has also financed the Phu My 2.1 power station gas turbines through an IDA credit, provided a partial credit guarantee for Phu My 2.2 (also through IDA), as well as a political risk guarantee for Phu My 3 through MIGA.
The Phu My power complex—the largest in Vietnam—consists of five power generation plants with a combined capacity of up to 3,900 MW, located in the village of Phu My in Ba Ria-Vung Tau province about 70 kilometers from Ho Chi Minh City. The complex includes the Phu My 1 power plant, Phu My 2.1, Phu My 2.2, Phu My 3, and Phu My 4. Together, the plants are meeting about 40 percent of the country’s energy needs.
MIGA backs key addition to power complex
The Phu My 3 power plant—the first Build-Operate-Transfer (BOT) project in the country’s power sector—is a 716.8 MW (designed capacity) facility supported by MIGA. The plant began operating in 2004 and is already estimated to be providing 8-10 percent of the country’s electricity.
The Phu My 3 Power Company has a 20-year Power Purchase Agreement (PPA) with the government of
Phu My 3 is a combined-cycle gas-fired power plant, using natural gas piped in from the
“Phu My 3 is playing an important role in the development of
Guarantees help seal complex deal
The project is a joint venture between BP, SembCorp, Kyushu Electric Power Company, and Sojitz (Nisho Iwai), a Japanese trading and investment house. Phu My 3 Power Company has the concession to finance, design, construct, own, operate and maintain the power plant and related facilities. Project financing was provided by the Japan Bank for International Cooperation (JBIC), the Asian Development Bank (ADB), and a syndicate of commercial banks. The total project investment is $385.9 million, of which equity consists of $96.5 million, and lending of $289.4 million.
Putting together such a complex deal would not have been possible without the appropriate mitigation of risks, both commercial and noncommercial. MIGA provided several guarantees: $43.2 million for the equity investment, $75 million for a nonshareholder loan, and $15 million to cover a financing swap agreement arranged by Calyon, the inter-creditor agent.
“The involvement of MIGA alongside the ADB, JBIC, and NEXI was instrumental in the success of this ground-breaking financing in
Adds Annick Paccioni, Calyon’s Operational Support Manager: “This project involved a huge amount of financing and a lot of actors. And the main question for lenders is risk. MIGA’s guarantee was very important for the lenders to have the security and expertise needed to protect the loan, and for future loans as well. This allows banks to diversify.”
Project brings real change to real people
Before implementation of the Phu My projects, people in
Phu Duc Nguyen, a 34-year old Human Resource Manager, notes: “Five years ago electricity was usually cut two to four times a week. But now we rarely experience it once a month. We are very happy, especially in hot weather. In this situation, we can use a lot of things with electricity, such as fans and air conditioners. We can sleep well.”
Businesses have benefited as well. “Electricity is now quite reliable,” says restaurant manager Mai Tan Phuoc in downtown
Foreign companies investing in Phu My 3 have brought with them better know-how and technology—invaluable to a developing country like
“One of the biggest benefits of Phu My 3 is obviously the technology transfer,” says Nguyen Tich Vinh Thuy, Phu My 3’s Commercial & Planning Manager. “We are providing training to the local Vietnamese on management and technology such as the DCS, the computer system to run the plant, environmental awareness, safety awareness, and also health awareness to people working for the plant and also in the surrounding community areas.”
As the first power BOT in
Working in a developing country is not just about investing in infrastructure and building large projects. It also involves making a difference in the community. Phu My 3 is having a significant impact on the local economy. In addition to providing jobs to local residents, the company is generating significant tax revenues—$8.8 million in 2005—and was named the best tax payer in 2004 and 2005 by the local tax authority.
Phu My 3’s commercial success also makes it possible for the company to contribute to the well-being of local residents. The company is very keen to make a positive contribution in the community in which it operates and works closely with the Ba Ria-Vung Tau People’s Committee, the municipal entity that serves local citizens.
A key community initiative has been Phu My 3’s association with the Le Loi School, where the company has worked to provide much-needed supplies such as books, computers, furniture, a library, bathrooms, musical instruments, and more. The company also sponsors training scholarships for teachers. Recently, a health-check performed on workers and key contractors of Phu My 3 was extended to 500 children in the school.
“Our goal is to improve lives and the quality of education in
As a result of the company’s community outreach, the school is considered a model for others in the area. Phu My 3 is now meeting with other multinationals to pool resources and extend their social outreach.
“The ultimate impact for Phu My 3 as a project is meeting electrical demand in