Vietnam makes a big push for coal, while pledging to curb emissions

Vietnam makes a big push for coal, while pledging to curb emissions

Electricity of Vietnam - is the state power company. It succeeded
brilliantly in the 1990's when ordered to light up thousands of villages.
With Russian help, EVN has done a fair job of building some big dams. In the
new millennium, however, EVN has gone from failure to failure.

The economy is performing well overall, but EVN has been notoriously slow to
change. Current leadership has acknowledged EVN is bloated and inefficient,
wedded to old methods and overly fond of yesterday's technologies, and has
vowed to catch up with the company's ASEAN peers.

Vietnam's "doi moi" reforms made room for capitalism thirty years ago. For
long afterward, however, Soviet-style industrial planning survived at EVN,
and to a considerable extent also at the coal and minerals monopoly
Vinacomin and the oil and gas monopoly, PetroVietnam (PVN).

These three state companies and their nominal supervisors in the Ministry of
Industry's Energy Directorate wield considerable influence in the
institutions and councils of Vietnam's Communist Party.

Until recently, all have been dominated by people who cut their teeth on
five-year plans for heavy industry and were taught that resources exist to
be exploited and that externalities are costless.

EVN, Vinacomin and PVN aren't typical of modern Vietnam, or even of the
state-owned large enterprise sector. In digital telecommunications, for
example, state companies display striking capability to embrace, master and
deploy new technologies.

Nor is the public shy of change. Mobile phones are ubiquitous. In cities and
towns, rooftop solar water heaters have become common. A quarter of a
million rural families have built biodigesters to recycle farm waste into
methane for cooking and heating and fertilizer for their crops.

Up to now In the energy sector, however, Vietnam does not have a
comprehensive, reliable energy database. One consequence is that it is
virtually impossible to calculate the energy-savings impact of any project.
Nor, noted the Asia Development Bank (ADB) late in 2015, is there an
integrated master plan for energy resource development.

EVN has struggled to meet the nation's surging demand for electricity.
Brown-outs are endemic during the dry season. Because it's forbidden to cut
power to foreign-invested factories, households and domestic small business
bear the brunt of cuts, and incidentally pay higher tariffs than industrial
users.

As sites for big hydro were used up, Hanoi's attention turned to coal. In
2011, it announced plans to construct 90 new coal-fired power plants by
2025. That forecast has been revised to zero out a plan to build several
nuclear power plants and, after Vietnam signed on to the Paris Agreement on
CO2 emissions reductions, to promise a substantial role for wind and solar
power.

However, there's little doubt that Vietnam will stick to a coal-centered
strategy thru 2030 (when coal will supply more than 50 pe rcent of nation's
electric power) and probably beyond.

Coal is relatively abundant in Vietnam. Exploiting fields in the nation's
northeast corner, Vinacomin can produce about 50 million tons of high-BTU
coal annually, or roughly 40 percent of estimated demand in 2030.

The rest of the coal Vietnam will need then is likely to be lower BTU coal
from Indonesia or Australia. Leaving externalities aside, coal is cheap and
likely to remain so.

Further, provided they like the price they're offered per
kilowatt-hour,investors will front the entire cost of new coal-fired power
plants.

Vietnam can also count on financial support from aid donors for features of
its energy plan that aim at improving efficiency (even of coal plants) and
lowering overall dependence on coal-fired power. Now that it's reached the
lower middle income rung, Vietnam no longer qualifies automatically for
grant aid.

However, it's one of the nations most vulnerable to climate change. On that
account, Hanoi is in line for a goodly share of the $100 billion annually
that the richest countries have pledged to steer the most challenged toward
a lower carbon future.

Hanoi won't succeed without energy price reform, however. Carrying out its
recently revised power development plan, or indeed any coherent strategy,
depends absolutely on Vietnam's getting power prices right. There are
several reasons for believing that's going to happen at last.

First, EVN is tottering, and notwithstanding its faults and huge debts, the
company's collapse would be catastrophic. It won't get well on a starvation
diet.

Though retail electricity tariffs in Vietnam are among the lowest in
Southeast Asia, the state has been curiously reluctant to raise power
prices. It's said, and may be true, that Hanoi's Communist leaders view
cheap power as "an essential component of the party's social contract."
Insofar as can be discerned, they've preferred to cover EVN's budgetary
shortfalls mainly by shuffling funds around within the national budget and
guaranteeing payments on EVN's ever-growing debt burden.

Second, when power prices are low, there's no incentive to use energy more
efficiently. Vietnam's energy intensity (the amount of energy needed to
produce a dollar's worth of goods or services) is among the highest in the
world. It's no surprise that in the business-as-usual scenario, Vietnam's
energy use is projected to grow far faster than GNP. Will the populace rise
up to protest realistic power prices?

Probably not. In fact, residential consumers as well as investors might
willingly pay more for reliable electricity supply.

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com