Capital Solutions for Power Industry

According to experts, electricity is a special economic sector that plays an important role in national economic development and is branded “the bread of industry." In Vietnam, power demand increases by 15 percent annually, resulting in the generation of new power sources to offset the new demand. However, mobilising a huge capital source for this job seems to be an excess for the economy of Vietnam, according to experts. So, guaranteeing national energy security with capital viability is a challenge to Vietnam.

 

Mr Tran Viet Ngai, Chairman of the Vietnam Energy Association (VEA), said the power sector is estimated to need US$123.8 billion of investment capital in the 2011 - 2030 period, including US$48.8 billion in the 2011 - 2020 period and US$75 billion in the 2021 - 2030 period. However, the progress of underway projects is sluggish. There are a lot of reasons but capital shortage is a primary cause.

 

Also according to the conference, each year, the Vietnamese power sector will need US$4.9 billion for construction. Electricity requires a huge capital investment while the payback period is long and slow, thus there are a lot of potential risks. For that reason, most of domestic and international financial institutions often refuse lending. That difficulty has caused many planned power projects to be trapped in capital shortage.

 

Mr Cap Duong Quang, Head of Credit Department under the State Bank of Vietnam (SBV), said that electricity is one of key economic sectors of the country. To achieve the goal of industrialisation and modernisation, the electricity industry must go one step ahead. Hence, SBV has directed four State-owned commercial banks to arrange enough capital for key national projects. For the Son La hydropower project - the largest hydropower project in Vietnam and Southeast Asia, after being approved by the lawmaking National Assembly, the SBV gave special directions for concerned lenders. Agribank, BIDV, Vietcombank and Vietinbank pledged to lend VND17.5 trillion in combination. In addition, the central bank supported foreign currencies for power projects to import equipment and work closely with line ministries to advise the Prime Minister to issue specific mechanisms for Son La hydropower plant. When this project was carried out, banks always ensured enough capital for it to keep the schedule even though they faced a lot of difficulties in mobilising deposits. For Lai Chau hydropower project, the central bank directed Vietcombank to arrange VND14.5 trillion. These two projects alone borrowed VND32 trillion (US$1.55 billion) from banks.

 

Dr Nguyen Minh Due, Standing Member of the Executive Committee for the Vietnam Energy Association and Vice President of Energy Science Council, said, according to Electricity Planning VII submitted to the Government, the electricity sector will need VND2,359 trillion (US$123.8 billion) from now till in 2030, or US$6.19 billion year on average.

 

Faced with unsatisfactory fundraising results, the Electricity of Vietnam Group (EVN), which plays decisive roles in power projects, has confronted numerous difficulties in finance while its profitability was limited. EVN advocated a solution that resulted in power price hike and borrowing. However, this solution seemed to be unfeasible because financial capacity of people and businesses is not strong enough.

 

He said the Ministry of Industry and Trade needs to review and tune up the Electricity Planning VII on load forecasting, power sources and power grid; identify capital demand, balance the investment process of power projects nationwide consistent with the financial capacity and feasibility, avoid spreading investment and stop inefficient projects, especially in 2014 - 2020 stage. The lead investor EVN and other power investors must have scientific investment plans to reduce production costs and minimise losses in the course of transmission and distribution. State agencies must issue rational and transparent electricity pricing policies, issue public and unified power pricing bracket for the power market. This is a specially important solution to create more capital sources and development investment. Besides, to guarantee credit sources, the government facilitates power investors to access international capital markets, particularly multilateral and bilateral ODA (official development assistance), and domestic banks to arrange capital for power sources and grids for EVN and the power sector to generate and supply electricity. Borrowers must respect terms and conditions of loan agreements, and pay principal and interest on time.

 

Another scientific solution Mr Due puts forth is the necessary formation of real competitive electricity market to encourage domestic and foreign investors to spend their capital on power source projects. Accordingly, Vietnam's power market will be formed and developed in three levels: competitive electricity market, competitive wholesale market and competitive retail market. At the same time, EVN needs to be restructured to focus on power production business, improve business efficiency and healthy competition and eliminate monopoly to ensure power supply for socioeconomic development. To create a level playing field to attract power investment and projects and develop competitive power market, the power industry must be immediately restructured, especially EVN.

 

To help EVN have enough capital for power source investment projects in accordance with the Electricity Planning VII, EVN proposed: Consistently implementing the electricity pricing roadmap on the basis of market mechanism as per the Decision 69/2013/QD-TTg of Prime Minister dated November 19, 2013 on mechanism for adjusting retail electricity prices to ensure EVN’s balanced finance to supplement capital for investment and encourage all economic sectors in the country and abroad to invest in power projects; Continuing to use, on priority principle, government bonds and ODA capital for power projects and guarantee foreign loans contracts of EVEN and its member units; continuing to allow commercial banks to lend EVN without being subjected the ceiling limit of 15 percent of equity capital for a customer and 25 percent of equity capital for a group of customers; allowing power projects to borrow domestic soft loans to fund residential resettlement and domestic equipment manufacturing; having special mechanisms on domestic and international bond issue for EVN; and shortening the process and procedures for negotiating power source projects implemented in the form of BOT with foreign investors.

 

I still remembered that in 2003, with Resolution 26, the Politburo mentioned and planned to gradually apply market mechanism to electricity industry. Apparently, the idea of forming a competitive electricity market took shape 10 years ago. Some proposed separating and making electricity transmission a public utility in order to generate competitive electricity as well as strengthen wholesale and retail markets. In addition, we must unlock competitive price issue to shift to use renewable energy. Currently, the State has policies on use of this energy source. However, policies are not strong enough to encourage investment in renewable energy. The State should have policies and mechanisms to use renewable energy as quickly as possible and accept support, that is to say, taking non-renewable electricity to assist renewable electricity. By doing so, we can develop electricity industry and make the electricity industry greener, cleaner and more beautiful.