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State-run PetroVietnam has awarded two contracts worth a combined $1.2 billion to two subsidiaries to build a 1,200-megawatt coal-fired power plant, which will boost its thermal coal imports from Indonesia and Australia, the government said.

It has also licensed Malaysia’s Jaks Resources to invest $2.25 billion to build a coal-fired power plant in northern Vietnam, a state newspaper reported on Friday.

The moves come as coal is expected to take over from hydropower as the leading fuel for new electricity generation in Vietnam in the next five years, a period when annual power consumption is set to rise by 15 percent. Supply had lagged demand by 3 percent in the past five years.

The contract signing for the first project in central Vietnam followed the country’s first import of nearly 10,000 tons of Indonesian thermal coal this year, as it also continues to buy electricity from southern China to avoid outages.

It also came as Vietnam took the initial steps toward opening up its power sector by launching a pilot competitive generation market last week to encourage private power generators to boost supply.

Bob Kamandanu, a commissioner at Indonesia’s Berau Coal, said high demand from Vietnam’s growing economy was a potential boon for Indonesia.

“They are seeking more coal, and Indonesia is one of their destinations,” he said.

Kamandanu, who is also the chairman of the Indonesian Coal Mining Association (APBI), would not confirm whether Berau Coal was in talks with any Vietnamese companies.

The contracts for the Quang Trach 1 plant were signed with PetroVietnam Construction Corp. (PVC) and PetroVietnam Investment Consultancy and Engineering Corp. (PVE). Construction will start on July 19, the government said in a statement.

PVE said the contract was valued at $17.6 million, the largest in Vietnam so far for a designing deal. The plant would use coal imported from Indonesia and Australia, the statement said, adding that its use of pulverized coal-fired technology would be environmentally friendly.

Vietnam, a net coal exporter, is expected to import 6.5 million tons of the fuel annually by 2015, from around half a million tons a year in recent years, as domestic supply declines, a minister was quoted on Thursday as saying.

The government said PVE would take the designing role and PVC would buy, install and test-run equipment, including two generators, at the plant in Quang Binh province’s Quang Trach district, 410 kilometers south of Hanoi.

The first generator is slated to start operation in June 2015 and the second in December 2015, with a combined annual output expected at around 8.4 billion kilowatt hours, the government’s statement said.

In December, PetroVietnam said it would use its funds to meet 30 percent of the investment need to build the $1.2 billion Long Phu 1 power plant in the country’s south, also using Indonesian and Australian coal, while taking export credit assistance funds for the remaining 70 percent.

The country’s electricity consumption will nearly double to 175 gigawatt hours in 2015 from 98 gigawatt hours this year, state utility Vietnam Electricity has said.

Reuters