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Russian contractor seeks to withdraw from billion-dollar power project in Vietnam

The Saigon Times

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HCMC – Russian power engineering company Power Machines is seeking to withdraw from the billion-dollar Long Phu 1 thermal power plant project in Vietnam due to U.S. sanctions.

Speaking to Tuoi Tre Online on March 8, a leader of the management board of the Long Phu 1 thermal power plant project said the board has proposed that the Vietnam Oil and Gas Group (PVN) terminate the engineering, procurement and construction (EPC) contract for the project with Power Machines.

The management board explained that the Russian contractor is subject to sanctions from the U.S. and is hardly able to implement the EPC contract. 

The 1,200 MW coal-fired Long Phu 1 thermal power plant has been being developed in Long Phu District in the Mekong Delta province of Soc Trang. The joint venture between Power Machines and PetroVietnam Technical Services Corporation, a member of PVN, is the EPC contractor of the project, with the EPC contract worth US$1.2 billion. 

According to the EPC contract that was signed in 2014, the first steam turbine of the plant will be put into operation in October 2018 and the second turbine in February 2019.

However, in 2018, Power Machines was subject to U.S. sanctions following the annexation of Crimea by Russia. At that time, the Long Phu 1 thermal power plant had been approximately 72% complete. 

The leader of the management board of the Long Phu 1 thermal power plant project said after Power Machines faced sanctions, the Russian contractor struggled to implement the EPC contract and the project was suspended when it was 77.56% complete.

In February 2019, Power Machines suspended the EPC contract for “force majeure reason”. However, the Vietnamese investor didn’t accept the U.S. sanctions on Power Machine as the “force majeure reason”.

In September 2019, Power Machines sued the investor and PetroVietnam Technical Services Corporation at the International Arbitration Center in Singapore. Power Machines wanted to withdraw from the project with zero losses and asked the Vietnamese side to compensate for all the money the company had spent. 

However, when the negotiations were still ongoing, the Russia-Ukraine crisis occurred and several Russian banks were removed from the SWIFT international payments system, limiting their transactions via the banking system.

According to the management board of the Long Phu 1 thermal power plant project, even if both sides come up with the compensation for Power Machines, payments cannot be made.

“To minimize losses and take advantage of the EPC work that has been done, we propose preparing necessary procedures to select the new EPC contractor and resume the project as soon as possible,” Nguyen Doan Toan, head of the project’s management board, said. 

Up to now, the Vietnamese side has invested nearly VND13 trillion (US$570 million) in the project. 

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