Energy sector under pressure

The electricity sector is under great financial pressure due to the nation's fast pace of development and rapidly growing hunger for energy, according to industry experts, who say stepping up the equitisation of companies in the sector may be the only feasible way to alleviate the problem.

Current estimates place growth on the load of the nation's electrical grid a 13-15 percent per year, at which rate the sector would have to invest in the next seven years an amount equivalent to what it has invested in the past 50 years in order to keep pace.

According to Electricity of Vietnam (EVN), in order to meet annual demand by 2015 of about 190 billion kWh, nearly four times higher than today's electrical consumption, the total capacity of EVN power plants would need to grow to over 42,000 MW.

On average, according to EVN, it costs $ 1million to produce each 1 MW, not to mention investment in expanding the power grids. In total, the sector will need $ 45 billion over the next ten years to develop capacity.

In this context, equitisation has become increasingly urgent as a means to generate capital.
The Electricity Law, Investment Law, Construction Law and a ministerial-level regulation on independent power producers have laid the groundwork for encouraging private investment in electrical generation and distribution, while the State is committed to continue its monopoly over power transmission.

Power generation by private investors has been increasing accordingly. In addition to big thermo-power projects set up by major economic groups such as PetroVietnam and Vinacomin, the number of IPPs to register projects over the past five years has reached 190 with a total capacity of nearly 3,200 MW.

By December 2006, 17 of these projects were generating power, 40 had begun construction, and 78 had had feasibility studies approved.
"To diversify investment in the power sector, power generated by IPPs and joint stock plants has increased from two percent in 2002 to more than 13 percent in 2004 and about 40 percent in 2006," said Tran Anh Thai, director of the Vietnam Power Resource Partners Corporation.
Increasing equitisation of the power sector has also helped the sector increase its ability to attract funds for developing power infrastructure, according to experts.

EVN revealed that it would earn more than VND 11 trillion ($688 million) by 2008 by selling shares in its subsidiary enterprises, about half of EVN's total capital requirements to this period.
To hasten equitisation, EVN will establish joint stock companies to manage power plants under-construction power plants and draw funds from the market by selling minority interests in these companies.

While the time has come to step up privatisation of power sources, many experts have warned that the sector needs to overcome a spate of challenges in managing capital, operations, and planning as many new investors lack experience and professionalism.

Experts suggest coordinated solutions such as improved State management, better planning to ensure the feasibility of projects, open selection of potential investors, incentives to draw investors to unattractive projects, and policies encouraging direct and indirect investment through equitisation and the stock market.

Source: VNE Equity Vietnam Mekong Capital