INVESTING IN LIQUEFIED NATURAL GAS (LNG) IN VIETNAM

1. OCTOBER 2021
DUANE MORRIS VIETNAM LLC
Author: Dr. Oliver Massmann
E-mail: omassmann@duanemorris.com
INVESTING IN
LIQUEFIED
NATURAL GAS
(LNG) IN VIETNAM

2. Viet Nam’s gas sector has recorded an impressive record of accomplishment over the
30 years since the first oil and gas was produced in the Bach Ho field. Gas production
currently stands at approximately 1 billion cubic feet per day and reserves are the third
largest in Southeast Asia, after Indonesia and Malaysia. Viet Nam Oil and Gas Group
(PVN) is a major driver of economic activity and contributes around 30% percent of the
state’s budget revenues (VND 4,4 billion in 2020 despite Covid-19 disruptions). Every
year, PVN supplies the domestic market with 9-10 billion m3 of dry gas, 1.6 million
tons of LPG and nearly 60 thousand tons of condensate, which help to produce nearly
20% of national electricity output, 70% of the country's protein demand and is a
source of fuel for many industrial parks nationwide.
In this investment guide, we explore the key opportunities and challenges inherent in
the Vietnamese Liquefied Natural Gas (“LNG”) energy market, undertaking an analysis
from commercial, legal, and regulatory perspectives.
It is hoped that the commentary contained within will be of value to key market
participants, namely developers, sponsors, and lenders, as they consider investing in
what is one of the most prominent LNG energy markets in the Asia-Pacific region.

3. MARKET OVERVIEW
Vietnam, a country of roughly 100 million citizens, is one of the world’s fastest
growing economies, having experienced rapid industrialization over the past two
decades. Vietnam is also one of the world’s most energy-intensive nations, consuming
vastly more energy per unit of economic output than major regional counterparts
such as the Philippines, Malaysia, Indonesia, and India.1
With surging power needs
and limited available natural resources, the Vietnamese government estimates that
up to USD 130 billion of investment will be required to avoid mass energy shortfalls
over the next decade.2
Resolution No. 55-NQ/TW issued by the Politburo on the orientation of Vietnam's
national energy development strategy to 2030, with a vision to 2045, states that the
main goals of the energy industry are, among others, "prioritize the use of clean
energy sources" and "prioritize development of gas power" as well as “importation of
LNG” have created a corridor to promote the gas industry into an important national
energy source. Within this context, Hanoi has recently sought to create a sustainable
energy future, with a greater focus on incorporating clean power into the existing
energy matrix. Pursuant to Vietnam’s latest draft national master power development
plan (“Master Plan 8”), Hanoi has set a target to increase the current gas and oil
thermal energy mix to 22.3% of the total installed capacity of the whole system.
It is expected that Master Plan 8 will be finalised and released by November 2021.
1
The World Bank Group, Energy Intensity Level of Primary Energy, 2021.
2
Prime Minister, Draft Decision on Power Development Planning VIII, 2021.

4. Besides the Power Development Plan, it is evident in the country’s Gas Master
Development Plan to 2025, with a view to 2035 that Vietnamese energy policy places
high importance on the development of LNG regasification and LNG-to-power
infrastructure.
Under these policies, Vietnam aims to further develop domestic gas resources, build
LNG terminals and more gas-fired power generation facilities across all regions rather
than just concentrating in the South. The Ministry of Industry and Trade sees that
Vietnam would need to import between 1 to 4 billion cubic meters of LNG between
2021 and 2025. This amount is expected to be 6 to 10 billion cubic meters by 2035.
Under the Gas Master Plan, Vietnam also aims to double increase its gas production
volume to 21 billion cubic meters by 2035. The master plan also envisaged an
investment of USD 10.6 billion for 2025 and another USD 8.5 billion over the next ten-
year period to develop gas pipelines, treatment plants, port terminals and storage
units.
A very notable point in the latest progress in the finalization of the draft Power
Development Plan 8 is that in the attempt to reduce the rate of coal-generated
power, many coal power plants nationwide have not been considered for
development in the near future in areas such as Hai Phong, Quang Ninh, Long An, Bac
Lieu, Tan Phuoc... and have been replaced by LNG gas power sources which more
environmentally friendly.
For the Government and the Ministry of Industry and Trade to not be passive in the
management and development of electricity in the coming time, the draft Power
Master Plan 8 has proposed the Government to authorize and assign the Ministry of
Industry and Trade to regularly review (every 6 months) the implementation of power
source projects. MOIT shall be allowed to adjust the power generation schedule for
projects that are more than 24 months behind schedule and to replace delayed
projects with projects already approved by the Prime Minister in the Power Planning
to ensure the security of electricity supply and avoid causing waste and loss of
investment and reducing the investment efficiency of power projects.
As such, it is very important that investors are aware of the projects already included
in the latest draft Power Development Plan 8, as illustrated below.

5. List of power projects of national importance,
power projects prioritized for investment
No. Project Name Capacity (MW)
2021-2025 period
1 Nhon Trach 3 & 4 combined cycle gas turbine 1500
2 Hiep Phuoc combined cycle gas turbine 1200
3 Bac Lieu 1 combined cycle gas turbine 800
4 O Mon III combined cycle gas turbine 1050
5 O Mon IV combined cycle gas turbine 1050
2026-2030 period
1 Quang Ninh I combined cycle gas turbine 1500
2 Hai Phong I #1.2 combined cycle gas turbine 1500
3 Thai Binh #1 combined cycle gas turbine 750

6. 4 Nghi Son #1,2 combined cycle gas turbine 1600
5 Ca Na combined cycle gas turbine 1500
6 Son My I combined cycle gas turbine 2250
7 Son My II combined cycle gas turbine 2250
8 Bac Lieu #2,3,4 combined cycle gas turbine 2400
9 Long An 1 combined cycle gas turbine 1500
10 Dung Quat I combined cycle gas turbine 750
11 Dung Quat II combined cycle gas turbine 750
12 Dung Quat III combined cycle gas turbine 750
13 Mien Trung I combined cycle gas turbine 750
14 Mien Trung II combined cycle gas turbine 750
15 Quang Tri combined cycle gas turbine 340
16 O Mon II combined cycle gas turbine 1050

7. 1
LEGAL CONSIDERATIONS
Foreign Ownership Limitations
Whilst Vietnam does impose strict foreign ownership thresholds on numerous sectors,
the LNG energy market is currently not under any such restriction, allowing for up to
100% foreign equity ownership in LNG power companies.
Investment Forms
Foreign investors may enter the Vietnamese LNG energy market via the following
primary investment forms:
• Brownfield (M&A, share purchase): Due to concerns around licensing and
land/surface allocation, it is often common practice for foreign investors to acquire
the charter capital (LLC) or shares (JSC) of a pre-existing project company at a stage
when preliminary, but nevertheless fundamental, investment approvals have
already been obtained (e.g. power development plan approval, land/surface use
rights, construction permits, etc.). Such project companies are generally owned by
domestic Vietnamese investors.
• Brownfield (M&A, asset purchase): It is uncommon and highly cumbersome to
solely acquire project assets under Vietnamese law. As mentioned above, issues
around land/surface allocation and the potential transfer of such rights is
problematic and may result in material transaction delays. For that reason, the
preferred route of investment is generally via share purchase, as opposed to asset
purchase.
• Greenfield: Whilst greenfield foreign investment is an option and one that is
preferred in numerous sectors, for the reasons mentioned above, the preferred
route of investment in the energy market is via the acquisition of an equity interest
in a pre-existing early-stage Vietnamese project company that has already obtained
basic investment approvals. Of course, investors are free to develop projects
entirely on a greenfield basis, but this will require careful navigation of early-stage
licensing and permitting processes.

8. 2
• Public-Private Partnership: Under Vietnam’s first uniform Public-Private
Partnership Law, effective from 1 January 2021, foreign investors are able to enter
into PPP arrangements with the Vietnamese government to develop energy
projects. The PPP Law provides for typical contractual structures such as build-
operate-transfer, build-transfer-operate, and build-own-operate, amongst several
others. Investors are also able to self-propose projects. Please note that a strict
minimum investment threshold applies - not less than USD 8.6 million, except for
projects in areas with difficult socio-economic conditions.
CURRENT FEED-IN-TARIFF REGIME
There is no feed-in-tariff for LNG-to-power projects. Thus, the price for power will be
negotiated between the Project Company/ Investors and EVN and/ or competent State
authorities (depending on ultimate legal form of investment). There is no general
guarantee of imported LNG prices and thus the Investors are advised to seek the Prime
Minister’s approval to assure stability of imported LNG prices and/ or right to increase
the power sales price to EVN in case the LNG price in fact exceeds an agreed celling
price

9. 3
PROJECT FINANCING IN VIETNAM
Large-scale energy projects in Vietnam have traditionally been funded by a mix of debt
and equity finance. Funding is typically mobilized through shareholder loans and multi-
tranche syndicated secured facilities from domestic and international lenders. There
have also been several export credit agency (“ECA”) financings of which most related
to State-owned corporations developing national priority projects.
The terms of financing vary and are largely dependent on bankability assessments,
however, consistent with international project finance practice, it is common for
funding to be provided on a limited or non-recourse basis, supplemented by specific
borrower guarantees or undertakings. Developers have started considering using
project bonds to raise funds on a larger scale or to restructure prior debts.
There is no fully project-financed financing from international lenders to date in the
Vietnamese market. Foreign banks and ECAs have previously worked with local
domestic lenders to mitigate risk and create innovative financing structures. Re-
financing with large offshore lenders post COD is an option for developers. Sponsor-
backed financing, particularly through regional lenders is common, as is ECA financing
backed by local domestic bank guarantees regarding EVN’s payment obligations.
Of note, Vietnamese domestic banks typically lack the experience and capital to fund
investments in high-risk complex LNG energy projects. Concerns also continue to
persist around the inability of foreign lenders to directly take security over land and
assets, thereby acting as a serious impediment to attracting tier-one international
project finance funding. Under current Vietnamese law, security over land use rights
and real property is only available to domestic lenders. Moreover, the use of local
security agents to hold land-related security remains fraught with uncertainty and
practical constraints.
Finally, piecemeal legislation of this sector have negatively affected bankability
assessments and thus limited foreign lender participation in the Vietnamese LNG
energy project finance market to date. Vietnam’s legal and regulatory framework on
LNG-to-power is incomplete and still under development. Relevant regulations are
separately stipulated in different laws and guidance resulting in difficulties on legal
application and project implementation.

10. 4
INCENTIVES AND TAXES
Several investment incentives and tax relief mechanisms are potentially available for
LNG energy investments in Vietnam. In general, the following incentives apply to LNG
energy projects:
• Corporate income tax: Corporate income tax exemption for the first four years
of the project, a 50% income tax reduction for the following nine years, and a
preferred income tax rate of 10% for the first 15 years.
• Land lease fees: Exemption on land use fees of up to 15 years.
• Import duties: Exemption on goods imported to form fixed assets

11. 5
POWER PURCHASE AGREEMENT
There is no template power purchase agreement (‘PPA’) applicable to LNG-to-power
projects such as there is for solar and wind power projects.
REGULATORY APPROVAL PROCESS
The sequence below provides a high-level overview of the typical approval process
required to develop greenfield LNG energy projects in Vietnam.
1. Preparation Phase:
> Decision on Inclusion in Power Development Plan
> Site Study / Pre-Feasibility Study
> Decision on Investment Policy
> Investment Registration Certification and Enterprise Registration Certificate (SPV)
> Security Deposit Agreement/Financial Arrangement
2. Development Phase:
> Metering Agreement / Grid Connection Agreement
> SCADA Agreement / EMS Agreement / Protective Relay Agreement
> PPA with EVN
> LUR Certificate / Assignment of Seabed Rights
3. Construction Phase:
> Construction Permit
> Contract on Design, Construction and Equipment Purchase
> Approval for Basic Design / Feasibility Study
> Fire Prevention and Fire Fighting System Approval
> Environmental Impact Assessment
4. Operation Phase:
> Operation Licence
> Electricity Generation Licence
> COD Confirmation

12. 6
With large reserves, surging power needs, and proximity to large load centres, Vietnam
presents as one of the most promising LNG energy markets in the Asia-Pacific region
and globally.
Moving forward, key policy challenges nevertheless remain, particularly with regards to
grid infrastructure, national legislations, and the need to simplify existing licensing
procedures.
Investors will therefore need to carefully navigate complex commercial, legal, and
regulatory considerations to fully realise the true investment potential of the
Vietnamese LNG energy market over the coming decades.

13. 7
ABOUT DUANE MORRIS
Duane Morris LLP is an international law firm headquartered in Philadelphia, USA,
operating for more than 100 years. Duane Morris has 29 offices globally, including in
the USA, UK, Singapore, China, Vietnam, Myanmar, and Oman.
Dr. Oliver Massmann
Partner
Tel: +84 392495833
Email: omassmann@duanemorris.com