Regulatory Hurdles Remain for Vietnam's LNG Sector
Vietnam has faced an impending natural gas shortage for several years, and the deficiency had been projected to kick into high gear in 2020. In January there were reports that a Samsung plant in the northern part of the country ran out of gas needed for operations, forcing temporary shutdowns.
Similar developments could have intensified had the onset of the COVID-19 pandemic and associated lockdowns not led to an economic contraction. Gas shortages could again develop, however, when Vietnam’s economic activity recovers following the pandemic.
As such, Hanoi has opened its doors to much needed foreign direct investment (FDI) in its energy sector. Until the start of the year, international energy companies of all sizes were seemingly beating a path to the southeast Asian country of nearly 100 million people to take part. Now that pace is increasing again as the year comes to a close.
Lack of legal and regulatory framework
Yet, many foreign investors intent on investing in Vietnam’s LNG and LNG-to-power sector still face several hurdles. Because the sector is in its fledgling state, an existing legal and regulatory framework hasn’t been developed yet.
Some current laws set out basic principles in the country’s oil and gas sector, while LNG itself is addressed only in imprecise pieces of legislation and governmental policy and decree. This has the potential to result in varying interpretations by the judiciary, the prime minister’s office and other governmental agencies – both on the national and even provincial levels.
Vietnam does, however, have an existing framework of older laws and precedents to encourage private investment and has also developed a risk allocation structure that the market is generally familiar with. Nonetheless, prime ministerial intervention remains a critical step in order to put together and clarify existing laws.
Due to the increase in approved LNG-to-power project proposals in the country, the need for a more developed legal and regulatory framework is gaining momentum. Interested parties include the World Bank, and also foreign investors that have already had their projects approved and included in Vietnam’s most recent Power Development Plan (PDP).
However, established state-run energy companies in the country, including PetroVietnam, PV Gas, EVN (Vietnam’s largest power company) and others could push back, preferring to stick to governmental policy and decree instead of a fully developed legal and regulatory framework.
There are as many as 22 LNG-to-power project proposals of varying sizes and locales that have received approval and will be included in the country’s new Power Development Plan (PDP) VIII 2021-2030, scheduled for release at the start of 2021. Many in the country believe this will force the hand of the government to develop a more established LNG legal and regulatory framework.
In January, the Vietnamese government will also implement a new Public Private Partnership (PPP) law designed to attract more private and foreign investment in its LNG and LNG-to-power sector. However, it will not add to the existing legal framework, but merely try to help clarify it. The new PPP is also likely to provide a general framework that adheres more to international standards and norms.
A potential edge for US energy companies
Geopolitics and international relations form the other end of the energy equation in Vietnam. Hanoi, for its part, currently seems to favor investment by U.S.-based firms over those of their counterparts from other countries for a number of reasons:
First, importing U.S.-sourced LNG cargoes will help Hanoi push back against Chinese incursion in its own UN-mandated 200-nautical mile exclusive economic zone (EEZ). Beijing has prevented PetroVietnam from developing its natural gas resources in its own territorial waters on a number of occasions since 2018.
More U.S. investment in Vietnam’s energy sector – notably in LNG build-out – will also help the country better manage a growing trade deficit with the U.S., which reached a record high US$42.4 billion in August.
The U.S., under the Trump administration, has also lodged currency manipulation charges against Hanoi several times that could potentially see ensuing trade tariffs placed against certain Vietnamese exports. It is expected, however, that a Biden administration would pull back on tariff threats against Vietnam.
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