How does the Russia-Ukraine war affect energy cooperation projects in Vietnam?

Vietnam and Russia have a number of relatively large cooperation projects in the energy sector, which is one of the traditional fields of both countries. There are projects that have been affected by the embargo against Russia from the annexation of the Crimean peninsula, there are projects that have been affected by the Russo-Ukraine war.

To find the answer to the question in the title of this article, please join PPL to find out in detail some of the current energy cooperation projects in Vietnam.

1. Vietnam - Russia Joint Venture Project Vietsovpetro

The story of the project - Not the first time being embargoed

The Vietnam - Russia joint venture (formerly known as the Vietnam - Soviet Petroleum Joint Venture Enterprise, called Vietsovpetro for short) was established in 1981. This can be considered as the most successful cooperation enterprise between Vietnam and the Soviet Union before. or Russia today.

This cooperation is a pioneer in the field of geological exploration and oil and gas exploitation. Enterprises have overcome the years of the complete US embargo against Vietnam when Vietnam was completely unable to import any equipment or technology from the US.

At that time, Vietsovpetro carried out activities to build specialized port logistics facilities, mechanical workshops, exploratory drilling, production rigs... The company exploited the first oil barrel in 1986 at Bach Bach field. Tiger, bringing valuable foreign currency revenue.

After the Soviet Union split into the Republics, Russia assumed the Soviet Union's obligations and rights in the Joint Venture. Vietnam and Russia have renegotiated the Cooperation Agreement to re-sign the new Intergovernmental Agreement between Vietnam and the Russian Federation in 2010. The Vietnam-Russia Joint Venture Project currently owns 51% of the Vietnam Oil and Gas Group, the Russian company Zarubezhneft owns 49%.

Up to now, Vietsovpetro has exploited a total of more than 242.7 million tons of crude oil, collected and transported over 37.3 billion cubic meters of gas to shore, generating revenue from oil sales of over $84.7 billion. State budget and the profit of the Vietnamese side is 54.4 billion USD and the profit of the Russian Federation is more than 11.6 billion USD.

Vietnam - Russia Joint Venture Project Vietsovpetro

Difficulties from the Russia-Ukraine war

In the current embargo situation in Russia, Vietsovpetro will have difficulty in procuring and manufacturing equipment for oil and gas exploration and production containing technology from the US and EU.

Besides, transferring money for shopping or transferring profits to Russia will also face many difficulties because Russia has been disconnected from the SWIFT money transfer system.

But with the experience of overcoming the cold war, embargo and even the Covid-19 isolation, Vietsovpetro will always find a way to overcome difficulties during this time.

2. Long Phu Thermal Power 1

Long Phu 1 Thermal Power Plant (Soc Trang), invested by the Vietnam Oil and Gas Group (PVN), has a capacity of 1,200MW, approved in 2010 with an estimate of $1.2 billion. PVN has signed an EPC contract with the Russian joint venture Power Machines (PM) and PetroVietnam Technical Services Corporation (PTSC) since 2014.

Long Phu 1 Thermal Power Plant - A difficult story from the embargo times

By 2018, PM-PTSC General Contractor had completed about 77% of the project's workload. But the US Treasury Department put Russia's PM company on a comprehensive list of sanctions, so it could not buy turbines and generators from the US under the EPC contract.

PM Company requested to terminate the contract under the term "Force Majeure Event", but PVN did not agree, because the signed contract did not list the embargo in the force majeure clause. The two sides also could not agree on the amount to be paid to the contractor, because if the project is paid at the request of the PM, the project will be heavily capitalized. The incident lasted so long that the two sides were about to sue each other in an international court. Then the two sides agreed to set up a working group to settle the contract.

Long Phu 1 Thermal Power Plant in construction phase

How will the war between Russia and Ukraine affect Long Phu 1 Thermal Power Plant?

When the war between Russia and Ukraine happened, the PM certainly could not perform the signed contract. Assuming PVN has a contract with PM on the payment amount, it does not know what form to pay because the SWIFT money transfer system is currently blocked.

However, it is very urgent to quickly negotiate with the PM, apply for capital increase procedures and find a replacement contractor at this time to be able to restart the project. If left for a long time, already built structures and equipment will be degraded.

3. Quang Tri Gas Power Plant Project

The project with a capacity of 340 MW was approved by the Prime Minister and assigned to Gazprom International of Russia as the investor. The form of investment is a Build - Operate - Transfer (BOT) contract. The project will use natural gas extracted from offshore Quang Tri province and imported gas.

Perspective of Quang Tri gas-fired thermal power plant project (Photo source: Web portal of Quang Tri Provincial Party Committee)

Fear of sanctions from the Russia-Ukraine war

Currently, Western countries only sanction Russia, but if the war is prolonged, Western countries may also punish countries that do business with Russia.

Quang Tri Gas Power Plant Project is a BOT project, investors have to self-assess risks and decide whether to invest at this time or not?

But if Gazprom's Quang Tri Gas Power Plant fails to progress, the gas production at Bao Vang and Bao Den fields, blocks 111 - 113 offshore Quang Tri will also be at a standstill because there is no synchronous output.

4. Vinh Phong offshore wind power project

Vinh Phong offshore wind power project with a scale of 1,000 MW, the investor of the project is DEME Concessions Wind Company (Belgium) and Zarubezhneft Joint Stock Company (Russian Federation), and its member companies are the Company. DEME Offshore and Vietnam - Russia Joint Venture Vietsovpetro.

Perhaps the project will have to be postponed because among the investors there is DEME Concessions Wind Company of Belgium. EU countries may still have to buy oil and gas from Russia because it is difficult to find an alternative fuel source in the short term. But they will not cooperate with Russia on wind power because there Russia has almost no significant strength.

We can see that, although the geographical distance between Vietnam, Russia and Ukraine is very far, the war between Russia and Ukraine directly affects the Vietnamese economy every day. So what do you think about this issue?

According to Vietnam Energy Magazine