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Do Chinese contractors really save money?   2010-09-30 - Tien phong

Chinese contractors, who offer low prices, usually win bids to become the main contractors at many power projects in Vietnam. However, owners of investment projects admit that equipment sourced from China is low quality, implementation goes slowly, and leads to higher required investment capital.

 

 
The latest report released by Vietnam Coal and Mineral Industries Group (Vinacomin) showed that the group has implemented six power projects over the last few years using Chinese contractors in EPC (engineering, procurement and construction). These include Cao Ngan power plants (100 MW), Son Dong (200 MW), Nong Son (30 MW), Cam Pha 1 (310 MW), Cam Pha 2 (300 MW) and Mao Khe (440 MW).

 

The economic group explained that Chinese EPC are used because the projects’ capital support mechanism, in which bids were issued from Chinese contractors. In the Cao Ngan project, for example, only four Chinese contractors joined the bidding, and HPE finally won the bid.

 

As the power projects were urgent, the Prime Minister allowed Vinacomin to directly negotiate with Chinese contractors (Son Dong thermopower plant) or apply a special mechanism (Cam Pha 2 project).

 

Meanwhile, small power projects could only catch attention from Chinese contractors (Nong Son thermopower plant), while Vietnamese and the contractors from Europe and G7 countries were not interested.

 

Besides, the current mechanism on selecting contractors, under which the contractors who offer the lowest prices will be chosen, has kept away those from G7 countries, Europe and South Korea, because they can’t compete with Chinese contractors in terms of prices.

 

Analysts have warned that this should not be seen as good thing. This may lead to high risks in energy security when troubles occur. “We should think about this,” noted Professor Bui Huy Phung from the Energy Scientific Institute.

 

Investors have later realised that the actual sums they must pay for projects were higher than initially planned, due to tardiness in project implementation by Chinese contractors.  Most projects, where Chinese acted as EPC contractors, were extended by 1-2 years, since Chinese contractors did not have much experience. Most were only familiar with Chinese standards.

 

This tardiness led to higher costs for loan interest rates, project management expenses, consultancy and production preparation expenses.

 

Though Chinese contractors can offer low prices, equipment sourced from China are not highly valued. If comparing Na Duong Power Plant (MC was the EPC contractor), which uses equipment sourced from Japan and G7 countries, and Cao Ngan Power Plant (Chinese HPE was the EPC contractors), which uses mainly Chinese equipment, one would see that the latter’s productivity is lower than that of G7 or European contractors.

 

According to Pham Thi Thu Ha, Deputy General of the Vietnam National Oil and Gas Group (PetroVietnam), Chinese EPC contractors always bring equipment and everything needed for the projects to Vietnam from China, therefore, Vietnamese contractors have no opportunity to join the project.

 

“We do not use Chinese equipment in most of PetroVietnam’s projects. That explains why our electricity production cost is usually higher than that of other investors,” Ha claimed.

 

“We let Vietnamese contractors to join the Phu My Fertiliser and Dung Quat Oil Refinery projects. However, the weak points of domestic enterprises are high costs and problems in ensuring progress,” Ha added.

 

Professor Phung maintained that Vietnam should not “boycott” Chinese equipment and technologies, but asserts that it is necessary to set certain proportions on imported equipment used for projects to avoid risks with energy security.



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