Vietnam’s Power Industry: A Growing Industry for Investment
As Vietnam’s economy begins to emerge, one thing is becoming clear: the energy demand is not meeting the energy supply. Over the last twenty-five years, Vietnam’s power demand has more than doubled its 6% economic growth. To sustain current growth, Vietnam is committed to importing energy and developing new sources of power. However, funding is proving to be an issue.
One of OnFrontiers’ experts, Nguyen Thanh Nam is the General Director of Vietnam MW Co., Ltd. He has over 16 years of experience in various aspects of Vietnam’s power industry including dealing with governmental agencies, Vietnam Electricity (EVN), and many technical aspects of the power industry.
The issue, according to Nam is fairly obvious. While there is an apparent energy shortage in Vietnam, there just isn’t enough money that the government can provide to make electricity more available across the country. This is an issue considering Vietnam is currently experiencing a shift away from agriculture and toward industrialization.
That being said, the government has been making plans to ensure a consistent growth in energy availability. Vietnam’s a long-term plan for power development (Master Plan) is a vision for the next 20 to 25 years. Along with that, Vietnam also has medium-term and short-term plans that last only 10 years and 5 years. In 2011, Prime Minister signed decision 1208/QD-TTg approving the 7th National Power Development Master Plan (PMP VII) in period 2011–2020 to be fulfilled in vision 2030. On March 18, 2016, Vietnam passed the revision of PMP VII that lays out a fourteen-year plan to diversify and improve its power supply system. The expectation is that somewhere between $4-$6 billion will be spent each year to develop Vietnam’s growing power needs, and this growth in the power sector will in turn grow the industrial sector.
The government’s plan for energy production largely relies on coal, one of the largest suppliers of energy in Vietnam. Nam expects coal production and consumption to rise over the coming years. Unfortunately, renewable energy isn’t an option for the Vietnamese government at this moment. While they currently have hydropower plants and plan to build more in the future, the government simply doesn’t have the available funding to spearhead more renewable energy projects. Instead, the government would rather spend their money fixing the energy problem in the short term and switch to alternative energy sources in the future, when they have breathing room.
The government is also required to think of short term solutions to their energy problems beyond production. One solution has been importing energy resources from other nations, a practice that the government would like to minimize. Vietnam has the natural resources necessary to provide energy to their nation. However, they don’t have the power plants or infrastructure to make full use of these natural resources. On its own, the Vietnamese government has essentially done all it can at the moment.
Perhaps the most viable solution to the energy issues in Vietnam would be privatized power plants, owned by foreign investors. However, Nam says that this is trickier than it sounds. While investors can definitely profit from producing energy, getting the power plant up and running would be a long, arduous process.
Normally, international companies want to build Build — Operate — Transfer (BOT) power plants, so they must negotiate BOT contracts with the Ministry of Industry and Trade (MOIT), and Power Purchasing Agreements (PPA) with EVN. If the MOIT realizes that a company has no experience on power sector and no experience working in Vietnam, it becomes quite difficult to negotiate. Nam recommends that if an international company is considering building BOT power plants in Vietnam, it should hire local experts who know the laws and regulations to deal BOT contract with the MOIT and to negotiate the PPA with EVN so that the investing company gets the best deal and does not get bogged under the red tape. The local expert will also help build healthy relationships with other government entities such as the Ministry of Finance (MOF), Ministry of Planning and Investment (MPI, MOIT, and EVN also.
Nam also suggests that an international company build a power plant in Vietnam with the proper help, which usually means involving locals in the company to interact with key government officials. Besides having to negotiate for permits to build, the company will need to deal with the provincial government entities for the rights to lease or use land. Additional contracts must be negotiated with the National Power Transmission Corporation (NPT) for the transmission connection.
Investors looking to open a power plant in Vietnam shouldn’t be deterred by government regulations because of the potential for growth. Currently, most energy is produced in the North, and it is then transferred to the Center, and afterward South, through 500 kV transmission systems. Because the energy is being transferred across the entire nation, a lot of energy is lost by the time it reaches the South. This makes the area prone to power outages, an issue the government wants to remedy.
The shortage of energy in the South, and sometimes Center, could end up attracting a number of private investors. There’s clearly a demand for energy, but there’s little to no energy production occurring in the area. A new power plant would be mutually beneficial for both Vietnam and the investor.
The future for Vietnam’s energy is bright, though. Currently, there are multiple nuclear power reactors being built, and they will provide a much needed energy boost to a country looking for answers. Also, the government is willing to dig deep into their pockets to make energy more available. The energy problem in Vietnam is serious, and Nam believes it is one of the most serious issues in the nation at this moment. Investors, both foreign and domestic, may end up being the best solution to the energy issues. Vietnam’s energy demands are only going to continue to grow, and any viable power plant is bound to profit.
With the aid of experts in the field, privately owned power plants can be opened in Vietnam. If investors can get around the difficult bureaucratic system, they might find that Vietnam is a nation ripe for an economic upturn. Eventually, energy issues will be a thing of the past for Vietnam, and the people there will have unrestricted access to energy.
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Featured image was taken by Arian Zwegers in Vietnam.
This article was jointly written by Ms. Stacey Mattish and Mr. Thomas Short.
Originally published at OnFrontiers Blog.
