Christina Ng | June 2024 – Revised 3 July 2024
Note: Update to the original Commentary published in June 2024
It has come to our attention that Exim Bank of Malaysia is the appointed Mandated Lead Arranger for the Song Hau 2 deal, based on the press coverage dated 2 July 2024.
Paragraph 3, first sentence, of this Commentary has therefore been updated as follows:
“The deal finally secured a US$ 980 million financing facility in June 2024, facilitated by Exim Bank Malaysia, the mandated lead arranger.”
The rest of the Commentary remains unchanged.
At a time when the world is striving to meet the goals of the Paris Agreement and consensus leans towards sustainable development, the decision by a Malaysian company and the Exim Bank of Malaysia to invest in a new coal-fired power plant in Vietnam seems off. Given the company’s precarious financial history, its drastic pivot from producing ink to investing in power plants, and the environmental commitments of both Malaysia and Vietnam, this deal warrants scrutiny.
The Deal
The US$ 3 billion coal-fired power project is Song Hau 2, sponsored by Malaysia’s Toyo Ink Group, wholly-owned by public-listed company Toyo Ventures Holdings. The 2.1 gigawatts coal power project is being delivered under a build-operate-transfer arrangement and is planned to be adjacent to the Song Hau 1 power plant, already in operation, in the south of Vietnam.
The deal finally secured a US$ 980 million in June 2024, facilitated by Exim Bank Malaysia, the mandated lead arranger. But since the project was initiated in 2008, it has endured a lengthy and complex journey, including regulatory challenges in Vietnam and a failed sale to China Energy Engineering Investment Corporation following President Xi’s ban on overseas coal financing. Despite securing a significant portion of the financing, details about the remaining balance and the syndication process remain opaque.
Further controversy can be expected as our analysis indicates that Song Hau 2 is likely to result in a breach of the 30.2 gigawatts coal power peak limit, a key term of Vietnam’s Just Energy Transition Partnership (JETP) agreement.
A Perplexing Shift
The company in question, Toyo, has historically operated in the ink, chemicals and related machinery business—sectors unrelated to energy production, let alone coal-based energy. Given its weaker financial performance in recent years, this sudden pivot to and persistent pursuit of investing in a capital-intensive and highly controversial and environmentally damaging sector is puzzling. Our background review of Toyo’s key executives and board of directors suggests that experience in running a coal power business is severely lacking.
This raises fundamental questions about the strategic rationale behind such an investment. Is this a desperate attempt to diversify revenue, or are there undisclosed motives at play?
Contradictions in Environmental Commitments
Malaysia, as a signatory to the Paris Agreement, has committed to reducing its carbon footprint and promoting sustainability. As such, this deal involving Exim Bank Malaysia is a confusing move, just ten months after the government’s National Energy Transition Roadmap stipulated phasing out coal power from its energy system by 2050 and a more recent COP28 pledge to work with its counterparts to phase out coal in the region.
Domestically, Malaysia has made strides in promoting renewable energy. However, the role of Exim Bank in financing this coal project abroad paints a picture of a troubling double speak, and calls into question the alignment of governmental policies and financial practices.
Allowing its financial institutions and corporations to invest in coal projects abroad undermines the country’s endeavours to project an image of environmental stewardship at home and tarnishes its credibility on the global stage. This approach appears strategically short-sighted.
Vietnam’s Dilemma
On the receiving end, moving ahead with this plant is equally problematic. Vietnam has specified commitments to reducing its greenhouse gas emissions under JETP, including cutting the coal power generation pipeline from a planned peak of 37 gigawatts to 30.2 gigawatts by 2030.
Vietnam is dangerously close to breaching this coal peak limit, if it has not already, with its current coal fleet and plants under construction, such as Vietnam Electricity’s Quang Trach 1 and Korea Electric Power Company’s Vung Ang 2. No coal plant retirements have been announced.
Developing Song Hau 2 will cement this breach, risking the financial support assured under JETP. In fact, the project will make it even more challenging for Vietnam to limit coal power peak capacity, particularly in a region where alternative renewable resources are abundant.
Additionally, in the more than a decade it has taken to secure partial financing for Song Hau 2, Vietnamese officials have shifted their focus to renewable energy, embedding it in their power development plan. Much of this plan has already been implemented, including significant wind power projects in the same region as Song Hau 2.
As such, the need for Song Hau 2 has clearly abated.
Source: Global Energy Monitor, ESI analysis
Red Flags Warrant a Rethink
While the specifics surrounding this transaction remain private, the available information suggests that something is amiss.
The Malaysian government’s mixed signals—promoting green initiatives domestically while engaging in new coal investments abroad that lack strategic importance—risk capital flight and the integrity of the region’s capital markets. Especially sustainable capital. And given its position as one of the larger and more established capital markets in the region, the stakes for Malaysia might be higher than it realises.
It might be wise to reconsider its involvement in the deal.
Charting a Sustainable Future for Southeast Asia
The decision of a financially troubled Malaysian ink company to invest in a coal-fired power plant in Vietnam, backed by Malaysia’s Exim Bank, underscores the gap between public climate commitments and actual investment practices, and reveals puzzling strategic corporate decision-making in the region. This inconsistency jeopardizes global efforts to combat climate change and calls into question the credibility of environmental pledges made by both Malaysia and Vietnam.
Meeting regional climate targets hinges on consistent, strategic policies and concerted efforts that align with sustainability commitments, crucial for attracting and retaining investments that drive economic growth and energy transition.
Let’s hope this deal does not derail the region’s progress.
Christina Ng is managing director of the Energy Shift Institute
The Energy Shift Institute is an independent non-profit energy finance think-tank driving context, clarity and credibility for Asia’s energy transition pathways.