Is Malaysia funding coal abroad?

KUALA LUMPUR (July 2): The Export-Import Bank of Malaysia Bhd (EXIM Bank) and Toyo Ink Group, wholly owned by Toyo Ventures Holdings Bhd (KL:TOYOVEN), have been criticised for sponsoring and financing a coal-fired power plant in Vietnam, as most of the world is moving away from the fossil fuel due to its significant carbon footprint.

In response, EXIM Bank says in an email answer to ESG that it is fundraising for an ultra-supercritical (USC) coal-fired power plant in Vietnam that can generate lower emissions, support Vietnam’s energy transition, and that it is aligned with the “bank’s mandate to support Malaysian companies venturing overseas involved in the development of the first USC technology coal plant in Vietnam.”

The bank, which is the exclusive mandated lead arranger for the 2.12GW Song Hau 2 power plant in Hau Giang province, Vietnam, says the project is positioned as a regional effort and the fundraising is co-led by one of Vietnam’s largest state banks, with more than 60% of the funds to be raised coming from 10 Vietnamese banks.

The fundraising exercise of up to US$2.68 billion (RM12.64 billion), it says, is “one of the biggest of its kind to be raised by a Malaysian bank for an overseas project”.

Most major banks in Malaysia and globally have committed to not financing any new coal-fired power plants, and offer transition financing to lower emissions for existing plants or for the early retirement of these plants.

Additionally, Malaysia’s Deputy Prime Minister and Minister of Energy Transition and Water Transformation Datuk Seri Fadillah Yusof recently announced that Malaysia plans to reduce coal-fired power plants in the country to 50% by 2035 and completely retire the plants by 2044.

“I think there is a lot that needs to be reviewed, in terms of why Malaysia is even doing this deal... I think Malaysia and Vietnam need to ask themselves whether this is something they really need at the moment,” says Christina Ng, managing director and co-founder of think tank Energy Shift Institute, which focuses on Asia’s energy transition pathways.

“EXIM Bank being involved in backing this deal is not a good look for the Malaysian government because it seems counter to what it is preaching overseas in terms of what Malaysia’s commitment is to no new coal [power plants] and to the Paris Agreement.”

Ng wrote a commentary in June questioning the coal deal and how it would jeopardise Vietnam’s commitment to the Just Energy Transition Partnership (JETP), where it would receive funding to decarbonise its energy system.

Song Hau 2 will likely result in a breach of the 30.2GW coal-powered peak limit under the JETP agreement, she says, taking into consideration the current and future coal-fired power plants in operation or under construction.

According to a joint statement on the launch of the Resource Mobilisation Plan for the Vietnam JETP, US$15.8 billion was committed to the JETP. In exchange, Vietnam has to achieve targets such as limiting peak coal-fired generation capacity to 30.2GW, and accelerate adoption of renewable energy to account for at least 47% of electricity generation by 2030.

“If you look at the Vietnamese government’s latest power development plan, the 30.2GW has already been filled by the existing coal fleet, and anything that is already under construction. Having spoken to people on the ground [based on the specifics of this project] and how it has been in the works for so long, the Vietnamese government has no confidence that it will move forward, which is why it was never accounted for in the limit,” says Ng.

According to Vietnam’s Power Development Plan 8, coal for power generation will be phased out by 2050, either by decommissioning the plants or converting it to utilise biomass energy or ammonia.

The Song Hau 2 coal-fired power project has been in the works by Toyo since 2007. In April 2024, Vietnam’s Ministry of Industry and Trade issued a “notice of intention to terminate” if financing is not arranged by June 30, 2024.

On July 1, Toyo announced that it has postponed the commencement of engineering, procurement, commissioning and construction works on the project for up to six months.

EXIM Bank, however, responds that Vietnam’s energy transition plan has considered Song Hau 2 project’s operation timeline, and the USC technology will help the country achieve net zero emissions by 2050. It says the plant will address energy shortage in southern Vietnam.

The USC technology used for Song Hau 2, the bank says, can reduce pollutant emissions through cleaner combustion and has higher flexibility to support variable wind and solar energy, and accommodate carbon capture and storage requirements.

“While USC plants have been adopted in Malaysia and Indonesia, this will be Vietnam’s first plant to adopt the transitional technology. Any shortfall in power supply often forces a reliance on diesel generators, which currently emit significant amounts of harmful pollutants,” says the bank.

“By addressing future energy demands with reduced emissions, rather than relying on higher-polluting plants, the country can effectively transition while allowing the time it requires to expand its current renewable energy supply.”

The USC technology is said to make the power plant more efficient, which is determined by the pressure and temperature of steam — generated from burning coal steam entering the turbine.

Coal-fired power plants said to use USC technology in Malaysia include Malakoff Corp Bhd’s Tanjung Bin Energy Power Plant and Tenaga Nasional Bhd’s Manjung 4 and Manjung 5. It is unclear how much more efficient these plants are than its conventional peers, and how much it contributes to lower emissions.

ESG has asked EXIM Bank to elaborate on these technical aspects of Song Hau 2 and its operation duration.

For a coal-fired power plant to be considered green under the Asean Taxonomy for Sustainable Finance, it cannot achieve financial close after Dec 31, 2022, must phase out coal by 2040, cap its operation duration at 35 years, or be independently verified to demonstrate positive absolute emissions savings over the expected lifetime of the plant, compared with a case with no intervention to phasing it out.

EXIM Bank says it has successfully arranged the equipment financing facility of US$980 million to be provided by Singapore-based i-Power Solutions Pte Ltd, which serves as a bridge to the syndicated financing facilities.

The project is to be constructed by a consortium comprising Sunway Construction Sdn Bhd and Vietnam’s Power Engineering Consulting Joint Stock Company 2, a subsidiary of Electricity of Vietnam.

Uploaded by Felyx Teoh