Pressure mounting on South Korea to exit Vietnam coal project

South Korea has long been labelled a climate villain for being one of the world's largest coal financiers.
South Korea has long been labelled a climate villain for being one of the world's largest coal financiers.PHOTO: REUTERS

SEOUL - Pressure is mounting on South Korea to exit a multi-million-dollar coal project in Vietnam, with a consortium of 21 European investors being the latest to raise objections to the country's decision to invest in coal overseas while pursuing a low-carbon initiative back home.

Environmentalists and green activists are already up in arms against what they have called a "hypocritical" move by South Korea's state-owned Korea Electric Power Corporation (Kepco) to go ahead with the Vung Ang 2 coal project in Vietnam, which came just weeks after South Korean President Moon Jae-in declared a climate crisis and the majority of the National Assembly voted in favour of setting a goal to achieve net-zero emissions by 2050.

The European consortium, which manages over US$5.5 trillion (S$7.5 trillion) in assets, sent a letter last week to the South Korean, Japanese, Chinese and American firms involved in the project. They include Kepco, Samsung C&T, Mitsubishi Corporation, General Electric, and Energy China GPEC.

Mr Eric Pedersen of Nordea Asset Management, the largest asset manager in the Nordics, pointed out that Vung Ang 2 is "fast becoming the prime exhibit in the case against companies taking on irresponsible transition risk on coal plants".

"Nordea Asset Management shares with a fast-growing group of international investors the view that it is not too late to change course - specifically on Vung Ang 2 and, more generally, by committing to not invest in any new coal capacity going forward, whether domestic or foreign," he said in a statement.

Nordea manages €235 billion (S$377 billion) in assets and has about €400 million invested in companies involved in the Vietnamese project.

Together with 20 other investors including Danish state fund MP Pension and the Church of Finland, Nordea has urged the companies involved in Vung Ang 2 to withdraw from the project, arguing that it goes against the Paris Agreement's net-zero emissions target and that the project did not meet internationally accepted standards for evaluating potential environmental impact.

South Korea has long been labelled a climate villain for being one of the world's largest coal financiers.

A report released last week by Greenpeace Seoul Office, Korea Sustainability Investing Forum, and lawmaker Yangyi Wonyoung of the ruling Democratic Party (DP) showed that South Korean institutions, both public and private, have financed US$50 billion worth of coal projects in the past 12 years.

Of the US$8.92 billion invested overseas, 92 per cent is backed by public institutions. This "coal addiction" is problematic, as it sends the message for private financial institutions to follow suit, the report said.

The private sector accounts for 63 per cent of the total coal investments, while the rest is public money. Samsung's insurance arms Samsung Fire & Marine and Samsung Life, for instance, provided a total of US$12.6 billion for coal projects.

DP's Ms Yangyi said the report "shows how far behind the country stands in the global transition from coal to renewables".

"As the world is gearing up to reduce greenhouse gas emissions in the face of the climate crisis, the country needs to move quickly away from fossil fuel and put an end to coal financing," she said.

Analysts and activists said it is not too late for South Korea to bow out of the Vietnamese project now.

Mr Youn Se-jong, director of climate finance at non-profit organisation Solutions for Our Climate, pointed out that a withdrawal would be in the interest of the players involved as the economic prospects of the project according to a pre-feasibility study is poor.

There is also increasing reputational risk, as well as risk of delay and cost overruns, he told The Straits Times.

"Institutional investors are continuously warning Samsung and Kepco about the financial and environmental risk of this project," he added. "It is not too late because the contractual arrangements for the project are not complete yet, and it can be further delayed."

Ms Thu Vu, energy finance analyst of the Institute for Energy Economics and Financial Analysis, a global think tank, noted that Vietnamese negotiators are still "carefully reassessing the necessity of the project in the light of the dynamic power market development trends that are taking place in the country" and that the new coal plant may "no longer be cost-competitive" by the time it is completed, say in five years.

South Korean sponsors might not be able to afford the time needed by Vietnamese counterparts "given the quickly narrowing window for fossil fuel financing, and mounting pressure from global investors and green activists", she added.

For Samsung C&T, Vung Ang 2 would be its last coal power project.

The company told ST it decided to participate in the project after "careful review" of various factors including inter-governmental relations and its technological capabilities. Vung Ang 2 will be built to "environmental standards much tighter than those set forth by the Vietnamese government and even the World Bank", it added.

Samsung C&T added that it has also made the decision to "not participate in any additional coal power projects in the future, while internal discussions to further reinforce the company's policies for environmental protection are under way".

Mrs Nguy Thi Khanh, executive director of Vietnam-based NGO Green Innovation and Development Centre, noted that Samsung C&T had earlier withdrawn from Vung Ang 3, a thermal power plant in Vietnam that was cancelled due to local opposition, but now decided to jump into Vung Ang 2.

"It shows we have misplaced our expectation in a strong position of Samsung to support Vietnam’s clean energy transition," she said, also expressing disappointment in Kepco's decision to back Vung Ang 2.

Kepco's involvement is a sign of the South Korean government's "systematic support for the coal industry", said Mr Yang Yeon-ho, coal financing project leader from Greenpace Seoul.

"This violates not only the efforts of the National Assembly, but also the goals of the Green New Deal policy," he told ST, referring to the government’s plan to invest some 114 trillion won (S$137 billion) in green jobs and renewable energy, construct energy-saving building and produce electric cars.

"There is no way to reduce environmental damage as long as they decide to proceed with Vung Ang 2."

South Korea still has 60 coal plants generating about 40 per cent of the country's electricity. But there are plans to close 30 of them by 2034, in line with national goals to cut greenhouse emissions and shift to renewable energy.