WSG Article: PDP VIII Updates, Developments on Solar and Wind Tariff Mechanism, and Police Investigation

PDP VIII Updates, Developments on Solar and Wind Tariff Mechanism, and Police Investigation

August, 2022 - Ramandeep Singh Bhamra

We would like to share with you the most recent updates regarding the draft Power Development Plan (“PDP”) VIII, a mechanism for wind, solar power projects in transition and future, and the police investigation into 62 wind power projects.

PDP VIII UPDATE

Following the report of the Ministry of Trade and Industry (“MOIT”) to the Prime Minister under official letter no. 3787/BCT-DL dated 4 July 2022 (“OL 3787”) on the review of some contents of the PDP VIII, the Government Office issued a notice no. 206/TB-VPCP dated 18 July 2022 (“Notice 206”) announcing the conclusion of Deputy Prime Minister Le Van Thanh at the working session on OL 3787.

Notice 206 is the result of the working session on 17 July 2022 between the Deputy Prime Minister, the MOIT and relevant stakeholders, which requests the MOIT to clarify and supplement the following:

Review and supplementary report to the Government regarding whether it is legitimate if coal and liquefied natural gas (LNG) power plants under the adjusted PDP VII but not under the PDP VIII per COP26 commitment.
The MOIT’s opinion is required in respect of the need to report and seek the guidance of the Politburo regarding LNG imported power projects. Per the draft PDP VIII, the LNG import capacity by 2030 is about 14 to 18 billion m3 and total capacity of power sources by 2030 is 146,000 MW. However, the targets under Resolution no. 55-NQ/TW states that “being capable of importing LNG up to about 8 billion m3 by 2030 and 15 billion m3 by 2045” and “total capacity of power sources by 2030 will reach about 125,000 – 130,000 MW.”

The MOIT shall report back the above matters to the Prime Minister by 21 July 2022.

On 25 July 2022, the MOIT reported back to the Prime Minister under official letter no. 4329, in which it confirmed that:

There is no significant legal risk for excluding the approved PDP VII LNG power plants from being included in PDP VIII.
The draft PDP VIII does not conflict/violate Resolution no. 55-NQ/TW of the Politburo. It also clarified that the PDP VII approved solar projects with a capacity of 2,428.42 MW by 2030.

THE MOIT’S REPORT TO THE PM ON MECHANISM FOR WIND, SOLAR POWER PROJECTS IN TRANSITION AND FUTURE

On 21 July 2022, the MOIT submits to the Prime Minister an official letter no. 126/BC-BCT reporting on mechanism for wind, solar power projects in transition and future (“Report 126”), we summarize below key notes in the Report.

1. Mechanism for wind, solar power projects in transition

The MOIT notes the Prime Minister that the MOIT has reported to the Prime Minister on mechanisms for wind, solar power projects in transition under its report no. 17/BC-CBT dated 27 January 2022 (“Report 17”) and explanatory letter no. 1513/ TT-BCT dated 24 March 2022 (“Explanatory Letter 1513”). The proposed mechanisms for projects in transition are as follows:

a. Option 1 (under Report 17): negotiation with EVN on a tariff within the tariff range issued by the
MOIT

Under this Option 1, the MOIT shall promulgate regulations on methods and procedures for formulating, appraising, and stipulating the tariff range. Then, EVN negotiates and signs purchase and sale power contracts with investors per the negotiated tariff. In fact, the approach and implementation of Option 1 will be similar as the mechanism, which has been used in hydro power, thermal power, and LNG power projects.

According to the MOIT, this Option 1 will ensure a strict compliance with the Electricity Law and its guiding regulations, the Prices Law, namely: “the right to self-determination of power purchase and sale prices within the tariff range.”

b. Option 2 (under Explanatory Letter 1513): bidding tariff

Under this Option 2, the MOIT shall draft a decision of the Prime Minister regulating the bidding mechanism to purchase power generated from wind power and solar power projects in transition. If this decision is issued, EVN shall organize a bid in respect of power purchase for a 3-year period within the tariff range issued by the MOIT.

However, the legal basis for this Option 2 has not yet been in place. Article 5.4 of Decision No. 13/2020/QD-TTg stipulates that “the purchase price of solar power projects […] shall be determine through a competitive mechanism.” The competitive mechanism could be understood as power purchase bidding. However, there is no legal guidance in respect of power purchase bidding for licensed projects or project under construction/implementation. Hence, if issued, it will be a completely new regulation.

In addition, per the consultation process, the MOIT receives many feedbacks and comments from the private sector, mostly disagreements. The reasons of those disagreements mainly are about lacking a legal basis, cash flow impacts, and loan repayment.

2. Mechanism for wind, solar power projects in future

Per its analysis on projects in transition, the MOIT proposes the Prime Minister that in the future, wind, solar power projects shall also follow the approach in Option 1 as proposed for the projects in transition, namely: negotiation with EVN on a tariff within the tariff range issued by the MOIT.

3. Changes in law in respect of wind, solar power projects

As applicable clauses on FIT tariff are no longer effective despite that Decision no. 13/2020/QD-TTg on solar power development, Decision no. 37/2011/QD-TTg and Decision no. 39/2018/QD-TTg on wind power development (collectively “PM Decisions”) legally remain effective.

In addition, numbers of issues under those Decisions are no longer relevant, such as:

The term of the power purchase agreements is 20 years (rooftop solar is up to 20 years);
The tariff shall be adjusted in accordance with the fluctuation of the VND/USD exchange rate and applicable for 20 years from the commercial operation date; and
EVN’s offtake responsibility is in full.

Hence, the MOIT proposes to revoke those PM Decisions. After that, the MOIT shall be responsible to amend its guiding Circulars on solar and wind power for the purpose of conformity.

4. MOIT’s overall recommendations

To conclude, the MOIT recommends the following actions to the Prime Minister in respect of solar and wind power development:

For projects in transition: Option 1 as proposed under Report 17: negotiation with EVN on a tariff within the tariff range issued by the MOIT.
For projects confirming commercial operation date: the MOIT requests the Prime Minister’s directive to give the MOIT’s basis to issue guidance in respect of the review and reconsideration of signed power purchase agreement between EVN and investors for the purpose of harmonizing interests between sellers – purchasers – end consumers and State.
The Prime Minister shall revoke the PM Decisions as mentioned in Item 3 of this section, and the MOIT will coordinate with the Ministry of Justice to prepare a draft decision and consult relevant ministries and sectors to submit to the Prime Minister for issuance.

62 WIND POWER PROJECTS UNDER INVESTIGATION

Separately, we observe that a number of media agencies have recently reported on the investigation of the Police Department on crimes related to corruption, economy, smuggling (C03) under the Ministry of Public Security into 62 wind projects and any other similar projects not being able to reach a commercial operation date before 1 November 2021 to be entitled to enjoy the FIT tariff under the PM Decisions. The investigation’s scope is about the issuance of permits, credit agreements, outstanding debts, and debt classification for the investment of wind projects in Vietnam.

Under its official letter no. 1876, C03 requests the Banking Inspection and Supervision Division of the State Bank of Vietnam to coordinate for the collection of materials and information. C03 further notes that this investigation is for the purpose of advising the Government on mechanisms and policies for power purchase from wind projects operating after 1 November 2021, and to resolve difficulties for businesses and credit institutions.

The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.