South Korea in hot seat as calls to exit Vietnam coal project grow

European consortium latest to object to Seoul's controversial pursuit

Pressure is mounting on South Korea to exit a multimillion-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.

Green activists are already up in arms over what they have called a "hypocritical" move by the state-owned Korea Electric Power Corporation (Kepco) to go ahead with the Vung Ang 2 coal project in Vietnam, weeks after President Moon Jae-in declared a climate crisis and 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 firms involved in the project, including Kepco, Samsung C&T, Japan's Mitsubishi Corporation, the United States' General Electric and Energy China GPEC.

Mr Eric Pedersen of Nordea Asset Management, the largest asset manager in the Nordics, said it "shares with a fast-growing group of international investors the view that it is not too late to change course". Nordea manages €235 billion (S$378 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 firms involved in Vung Ang 2 to withdraw from the project, arguing that it goes against the Paris Agreement's net zero emissions target and did not meet internationally accepted standards for evaluating potential environmental impact.

South Korea has long been criticised 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 shows 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 a message for private financial institutions to follow suit, the report said. The private sector accounts for 63 per cent of total coal investments, while the rest is public money.

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

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

Mr Youn Se-jong, director of climate finance at non-profit organisation Solutions for Our Climate, said a withdrawal would be in the interest of the players involved as the economic prospects of the project, according to a pre-feasibility study, are poor. There is also increasing reputational risk, as well as the risk of delay and cost overruns, he told The Straits Times.

"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 view of factors such as the possibility 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 their Vietnamese state partners, "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 that it decided to participate in the project after "careful review" of various factors, including inter-governmental relations and the firm's 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 said.

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.

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A version of this article appeared in the print edition of The Straits Times on October 27, 2020, with the headline South Korea in hot seat as calls to exit Vietnam coal project grow. Subscribe