Capital mobilisation query leads power plan analysis

The third draft of the National Power Development Plan 8 (PDP8) is 843 pages thick but only nine of these cover financial issues, with an average mobilisation of $13 billion per year until 2045.

The capital is allocated to power generation, transmission lines for gas, and wind power sources, among others.

Capital mobilisation query leads power plan analysis
Capital mobilisation query leads power plan analysis.

The draft, however, does not mention where to mobilise capital from, at home or from abroad, while possible solutions to this questions are all burdened with administrative procedures.

“The new PDP8 will be better than its predecessor,” commented Ngo Duc Lam, former deputy director of the Ministry of Industry and Trade’s Institute of Energy.

For the first time, the PDP8 closely adheres to the national development and energy development strategies – the previous plan could stick to Resolution No.55-NQ/TW of the Politburo on the orientation of the National Energy Development Strategy of Vietnam to 2030, with a vision to 2045.

The previous master plan, implemented from 2015 to 2018, failed and could not mobilise enough capital according to Lam. He said that, in mobilising capital for the PDP8, it is necessary to review its predecessor.

“Firstly, the assessment of the socioeconomic situation was not carried out properly, with GDP being forecast too high, so the first three years have to be adjusted which can be quite expensive. Next, the electricity development trend is not in line with the rest of the world. Climate change is making the world switch to renewable energy, but Vietnam is moving in the opposite direction, developing coal-fired power at a higher level,” Lam criticised.

Lam found that borrowing from credit institutions to implement energy projects is also very difficult because many of them introduce technical barriers to environmental protection when lending to power projects. “Thus, the financing for energy investments continues to be a challenge for regulators if there is no change,” Lam said. 

Sufficient structures

Pham Xuan Hoe, former deputy director of the Banking Strategy Institute under the State Bank of Vietnam (SBV) said, “It will be very difficult for Vietnam to mobilise capital as outlined in the PDP8.” Firstly, divesting capital for coal power of all 146 international financial institutions is very difficult, although Japan’s Mitsubishi Corporation has decided to withdraw from the Vinh Tan 3 thermal power plant project in the south-central province of Binh Thuan, where it holds 49 per cent of the shares.

Secondly, if capital is borrowed from China, it is accompanied by loan conditions as well as bonds for government guarantees at high prices. The most obvious experience is that Laos had to cede a partial concession of the national power transmission system to China.

“Here, we do not take into account the structure of capital sources, and how much will be mobilised domestically and abroad. If Vietnam develops six more coal-fired power plants as outlined in new draft, the country will surely have to borrow more from China,” Hoe said.

 

Third is the weak international commitments of the Vietnamese banking system to global standards of governance and environmental and social responsibility. Therefore, local banks certainly cannot lend more to the coal sector in the context of increasing international pressure on banks. Thus, capital for large-scale coal-fired power projects such as Nhon Trach 2 in the central province of Quang Binh, which amounts to VND48 trillion ($2.81 billion), will be complex.

“Policy risks in Vietnam are also high and have shown to be unstable, and the commitment to foreign investors could be better,” Hoe said. “For example, in the solar sector, Vietnam only offered a feed-in tariff for more than a year, and then switched to bidding processes again. Therefore, many investors are reviewing the risks in laid out policies. Unstable commitments certainly cannot mobilise capital.”

Next, the medium- and long-term capital supply of the Vietnamese banking system remains very low, at just over 20 per cent with high interest rates and minimum loans above 10 per cent per year. Furthermore, Vietnam’s green bond market is almost empty. In order to develop a renewable energy market, such as wind or solar power, a green bond market must be developed. This concept was discussed by the government, but so far green public investment and expenditures are still “very fuzzy” in the fiscal balance of the Ministry of Finance (MoF), argued Hoe. Finally, Vietnam has no national agency to access international sources of green growth, especially for renewable energy. 

Resolution 55 not concretised

The new plan is being promoted for early submission to the government. Hoe said that the plan “has been calculated very carefully”. If capital is mobilised from state corporations, it will amount to only about $3 billion per year, because all these groups have debt ratios of over 2 per cent. Currently, the debt ratio of Electricity of Vietnam (EVN) has reached 2.25 per cent. Another $4 billion will be mobilised from the population and $4 billion from the domestic businesses. If there are good policies, Vietnam can also mobilise $6-7 billion per year from foreign direct investment.

Two important directions of Resolution 55 that cover green public expenditures and the green fiscal year have not been specified in Chapter 14 of the PDP8. “Winning green public investment for renewable energies, especially in transmission, should be clearly stated in Chapter 14 of the PDP8,” added Hoe.

Vietnam’s green finance policy, he said, is so far “at an incentive level”. In the 5-year plan, “the MoF has never balanced a single source of capital for green public investment.”

Resolution 55 states that green credit policies must be concretised to support investments in renewable energies. But when EVN stopped receiving connection requests and signed a power purchase agreement for rooftop solar systems developed after December 31, banks, despite their very good retail sales, immediately stopped providing loans. According to Hoe, such a plan should be stated in Chapter 14, with the SBV directing the banking system to promote retail credits for renewable energy, using lower refinancing interest rates for credit loan records, and reducing the required reserve ratio for loans.

VIR

Vietnam leaps on carbon credit craze

Vietnam leaps on carbon credit craze

Once a policy to apply forest environmental and CO2 indicators is officially approved, Vietnam may participate more actively in the sale and purchase of carbon credits for both enterprises and localities.

WB approves credit to support Vietnam's effective policymaking for climate action

WB approves credit to support Vietnam's effective policymaking for climate action

The World Bank Board of Executive Directors on June 5 approved a US$84.4 million IDA credit to support multi-sectoral policy reforms by the Government of Vietnam to promote climate-resilient landscapes and green transport and energy systems.

  • Tags :
 
 

Other News

.
Debt burden risks budget stability
Debt burden risks budget stability
BUSINESSicon  29/05/2021 

Vietnam has had outstanding economic development in recent decades, even through the pandemic so far. 

Paint makers’ fresh coat of progress
Paint makers’ fresh coat of progress
BUSINESSicon  29/05/2021 

Having one of the fastest-growing paint and coating industries in the Southeast Asian region, Vietnam is mainly dominated by international paint and coating groups, but it is now witnessing a refresh as local makers attempt to gain some traction.

'Black-credit' lenders pose serious threat to borrowers
'Black-credit' lenders pose serious threat to borrowers
FEATUREicon  28/05/2021 

Experts have repeatedly rung the alarm bell over black credit, which is causing serious consequences to families and society.

PDP8 delay to unlock more cost-effective renewables
PDP8 delay to unlock more cost-effective renewables
BUSINESSicon  28/05/2021 

The past 12 months have been a period of intense activity for Vietnam’s power sector.

Inefficient State-invested projects must be removed from list: PM
Inefficient State-invested projects must be removed from list: PM
BUSINESSicon  27/05/2021 

The Cabinet leader recently issued a directive urging relevant agencies and localities to accelerate public investment disbursement and improve the quality of the mid-term public investment plan between 2021 and 2025.

Great investment opportunities in cold storage
Great investment opportunities in cold storage
BUSINESSicon  27/05/2021 

The rise of online shopping is driving demand for cold storage facilities, a segment that is severely short of supply around the world.

Vietnam to spend $124.5 billion on public investment over next five years
Vietnam to spend $124.5 billion on public investment over next five years
BUSINESSicon  27/05/2021 

Vietnam plans to outlay 2.87 quadrillion VND (124.5 billion USD) on public investment in the 2021-2025 period, up 120 trillion VND compared to the previous estimate.

Moody's affirms credit ratings for four Vietnamese banks
Moody's affirms credit ratings for four Vietnamese banks
BUSINESSicon  27/05/2021 

Credit rating agency Moody's on May 26 affirmed its long-term domestic and foreign currency deposit and issuer ratings of four Vietnamese banks.

Vietnam’s energy giant sets ambitious revenue of $1.2 billion
Vietnam’s energy giant sets ambitious revenue of $1.2 billion
BUSINESSicon  28/05/2021 

The PetroVietnam Power Corporation (PV Power) aims to earn VND28.4 trillion of revenue (US$1.2 billion) and pre-tax profit of nearly VND1.55 trillion this year.

Tax tweak puts strain on apparel makers
Tax tweak puts strain on apparel makers
BUSINESSicon  27/05/2021 

On-spot exports are now not subject to duty exemption, possibly derailing the recovery of textile and footwear companies.

Electricity prices still not falling despite oversupply
Electricity prices still not falling despite oversupply
FEATUREicon  27/05/2021 

The Electricity of Vietnam’s (EVN) latest report showed that the Covid-19 pandemic has led to a decrease in electricity demand. The real electricity output in 2020 was 247 billion kwh and the additional charge growth rate was 3 percent.

Goods face strict customs inspections as smugglers continue to violate laws
Goods face strict customs inspections as smugglers continue to violate laws
FEATUREicon  27/05/2021 

The General Department of Customs (GDC) said that risks in transit services continue to exist as smugglers try to carry prohibited goods into Vietnam.

Economist proposes measures to support enterprises in tough times
Economist proposes measures to support enterprises in tough times
FEATUREicon  28/05/2021 

Pham The Anh, chief economist at the Vietnam Institute for Economic Policy Research (VEPR), believes that social security support must be given to people who have had to shut down their business or have lost jobs because of lockdowns.

San Diu ethnic farmer grows the most expensive litchis in Vietnam
San Diu ethnic farmer grows the most expensive litchis in Vietnam
FEATUREicon  28/05/2021 

Tran Van Hanh, who lives in Chao hamlet, Luc Ngan district, Bac Giang province, one of the two largest litchi growing areas in Vietnam, owns an orchard that grows the most expensive litchis in the country.

Vietnam's post-pandemic economy
Vietnam's post-pandemic economy
FEATUREicon  27/05/2021 

As the Covid-19 pandemic persists, Vietnam's economy will still face many difficulties, but the country has the potential to increase productivity and develop at a higher rate than many other countries.

Oddest bank in Vietnam: No CEO, chairman takes office for two hours
Oddest bank in Vietnam: No CEO, chairman takes office for two hours
BUSINESSicon  27/05/2021 

The nearly decade-long war for power at the Vietnam Export Import Commercial Joint Stock Bank (Eximbank) may be coming to an end. 

VIETNAM BUSINESS NEWS MAY 28
VIETNAM BUSINESS NEWS MAY 28
BUSINESSicon  28/05/2021 

Food companies pressured by soaring raw material prices

Share prices rise, strong cash flow emerges
Share prices rise, strong cash flow emerges
FEATUREicon  26/05/2021 

Vietnam’s stock market made a spectacular breakthrough in the first months of the year with the VN Index staying at the 1,200 point threshold and some blue-chip prices strongly increasing.

Taxing unoccupied villas: one solution for creating fair housing market
Taxing unoccupied villas: one solution for creating fair housing market
FEATUREicon  26/05/2021 

A reasonable taxation policy is expected to help settle several problems, including excessive investment in high-end apartment and villa projects, and speculation buying.

Media tycoon has no way out after suffering losses
Media tycoon has no way out after suffering losses
BUSINESSicon  26/05/2021 

The VN-Index has been in the top of the world's strongest stock indexes since the beginning of the year with an increase of more than 16%. Over the past year, the index has increased by nearly 50% despite the Covid-19 pandemic.

 
 
 
Leave your comment on an article

OR QUICK LOGIN