Vietnam: Domestic private sector barred from power market

Vietnam: Domestic private sector barred from power market

Currently, complicated procedures and regulations have become a barrier
preventing domestic private investment from pouring into large-scale power
plants.

Time-consuming procedures and policies

According to Ngo Quoc Hoi, general director of An Khanh Thermal Power Joint
Stock Company, the procedures of basic construction investment and
investment policies for power plants overlap.

In particular, the National Power Development Plan for the period 2011-2020
with vision to 2030 (Power Development Plan 7 - PDP 7), which was updated
and called the adjusted PDP 7, contains the names of power plant projects,
as well as their locations and developers. However, before implementing
these projects, developers must submit the feasibility reports for
evaluation by the relevant ministries, and then resubmit them to the
government for in-principle approval.

"Although the projects are mentioned in the PDP 7, developers still have to
submit feasibility reports for in-principle approval. This takes developers
about six to eight months on average," Hoi said.

Also, he wished that the Ministry of Industry and Trade (MoIT) would propose
to the government to authorise the projects mentioned in PDP 7 to skip the
step of in-principle approval. This step is time-consuming.

Admitting to this problem, Hoang Quoc Vuong, Deputy Minister of Industry and
Trade, agreed that the feasibility reports are not necessary for projects
mentioned in the PDP 7.

"MoIT proposed the prime minister (PM) a mechanism allowing urgent projects
to skip the feasibility report stage. We are currently waiting for the final
decision," Vuong said.

Aside from being annoyed with this time-consuming step, numerous developers
complained of unfair treatment between independent power producers (IPPs)
with domestic investment and BOT power plants with foreign investment.

In particular, BOT projects receive preferential treatment when converting
foreign currency and guarantees for power sales and purchases. However,
domestic IPPs do not have access to these policies. Domestic developers who
want to convert foreign currency to pay off debts must register their
sources of debt via the State Bank of Vietnam (SBV) and face the exchange
rate risk themselves.

Capital out of reach

Currently, the Bac Giang Thermal Plant project assigned to be developed by
An Khanh Thermal Power Joint Stock Company has a capacity of 650MW. It is
estimated that this project needs over $1 billion to be fully implemented.
But borrowing from domestic commercial banks is not easy.

According to the current regulations of SBV, a credit institution's total
outstanding loans for a client cannot exceed 15 per cent of the
institution's equity. A big commercial bank like BIDV can provide a maximum
loan of VND7.3 trillion ($316.8 million) for a project, while the minimum
cost of an EPC package is VND22 trillion ($968 million).

Thus, domestic borrowers need the contribution of many commercial banks,
which is not easy to arrange. "I propose loosening the loan ceiling from the
current 15 to 25 per cent, otherwise, it will be difficult for developers to
implement new projects," Hoi said.

Moreover, as governmental debts are at a high level, developers cannot take
up international commercial loans.

Besides, domestic developers want guarantees that Electricity of Vietnam
(EVN) will pay them when purchasing their power, otherwise they will be
confronted with a lot of obstacles when raising capital for power plant
projects.

Vuong said that the reason for the different treatments of BOT projects and
IPPs is that Vietnamese private companies are small. A 650-MW power plant
needs over $1 billion of investment, but there are few domestic developers
able to command such capital. Besides, the practical scale of each plant is
about 1000-1,200MW, propelling the needed investment to over $2 billion.
Therefore, the government offers preferential policies to call for foreign
investment and IPPs are not as encouraged as BOT projects.

However, Vuong said that in the upcoming period, power plant projects will
not lure in as much investment as at the present, and if domestic developers
become stronger, there will be no different policies between BOT power
plants and IPPs with domestic investment.

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Link to Original Article:
http://english.vietnamnet.vn/fms/business/178195/domestic-private-sector-bar
red-from-power-market.html

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com