Foreign investors deterred by low electricity prices

Director of Vinacapital William Lean, during a recent conference on investment in the power sector, told a story to illustrate Vietnam’s need for power.  

According to friends of the director, in Binh Duong province, electricity is cut weekly on Thursdays, while in Dong Nai, electricity is cut on Tuesdays. Therefore, the bank holiday is not Sunday in those localities. 

Mr Lean said that the decision to raise the electricity price by 15-20% in 2009 and the fact that the Electricity of Vietnam (EVN) is now seeking diversified capital sources to develop power projects now mean that foreign investors can jump into the power sector, which was once considered the field of Vietnamese state-owned enterprises only. 

He said that Vinacapital has received an invitation from EVN to make a capital contribution in power projects. 

Vietnam now really needs to build up power projects to develop its economy. However, it still cannot attract big investments due the lack of a competitive power market, while investment procedures prove to be very complicated. 

Nguyen Huu Canh, Director of the foreign-invested Phy My 3 Power Plant, said that it took 10 years, from 1994 to 2004, to put the plant into operation. 

According to Tran Van Thinh, Chairman of Power Construction Joint Stock Corporation No 2, from now to 2015, Vietnam needs to create 250bil KWH, which means the country needs $4bil in capital each year. 

The current low electricity price in Vietnam proves to be the biggest obstacle for foreign investors. A thermopower plant which runs with imported coal will need to sell electricity at no less than UScent5/KWH. If the electricity price does not increase in Vietnam, the country will not be able to attract investment in the power sector. 

Thinh said that foreign investors now can think of making investment in power projects under different modes: making direct investment, under the mode of BOT (build-operation-transfer), or purchasing stakes of power plants developed by EVN. EVN has been trying to reduce its capital contribution in power projects by selling stakes. 10 power plants have been equitised.