Trụ sở: Phòng 315, tầng3, Số nhà 33, ngõ 30, phố Hoa Lâm, phường Việt Hưng, quận Long Biên, thành phố Hà Nội.
Danh mục
    Yen mo English version
    Survey
    How do you known about YenMo Industry Area ?.
    Search Engine
    Friends
    Broadcast System
    Other chanels
    Home pageYenMo News
    Towards market liberalisation
    Update :Wednesday, 6-17-2009

    The government is aware it must plug into power generation solutions.

    VietNamNet Bridge - Vietnam’s economic dynamism over the past two decades has given rise to a swift increase in energy demand. According to the World Bank, power demand is expected to rise by approximately 16 per cent annually from 2008 to 2010 and continue to increase at 11 per cent, per year between 2011 and 2015.

    It is no secret that the Vietnamese government has been struggling to keep up with supply requirements. The country experienced electricity shortages of 1.1 billion kWh in 2006 and 6.6 billion kWh in 2007 with load-shedding during the dry season. Concerns remain as many power projects have been delayed in becoming operational while Electricity of Vietnam (EVN) recently indicated to the government that it would have to delay the implementation of up to 13 power projects due to lack of capital.

    It is expected that Vietnam will increasingly have to rely on foreign financing and expertise in addressing the situation and foreign-financed independent power producers (IPPs) will be required. Unlike in China, where surging demand in the 1990s was met with large amounts of capital invested by domestic players, it is expected that Vietnam will have to rely on a substantially higher degree of foreign investment as EVN and local companies are unable to provide or raise sufficient capital.

    Vietnam’s present capacity comprises electricity generation from hydro and thermal power plants, with the percentage of coal and gas-fired capacity quickly outstripping generation capacity from hydro. Nuclear power plants are being mooted and if they proceed, estimated to be generating electricity by 2020. Renewable energy projects remain at a nascent stage while there has been an increased interest recently in wind power projects.

    Going forward, a greater percentage of capacity is expected to come from IPPs, which are owned primarily by state-owned fuel or construction companies (such as PetroVietnam), as well as those developed through build-operate-transfer (BOT) projects, a number of which are foreign-owned and financed. There are currently some foreign-owned thermal power plants (Phu My and Tra Vinh), and a number of additional projects are in the pipeline.

    Out of necessity, the Vietnamese government is promoting independent production of power. Domestic and foreign-owned IPPs accounted for as much as 24 per cent of installed capacity in 2006 and this is expected to grow quickly. The World Bank expects new wholly foreign-owned and financed IPPs to be the largest area of development in Vietnam’s power sector over the medium term.

    EVN owns or is the majority shareholder of most generation capacity, the transmission system and the main distribution companies. There are also low voltage distribution networks owned by independent companies running power to rural and distant areas of the country.

    The Electricity Law

    Under Vietnam’s Electricity Law effective July 1, 2005, the Ministry of Industry and Trade (MoIT) is in charge of developing and restructuring the power market and creating the necessary infrastructure. The most important aspect of the Electricity Law is its provision for a gradual three-stage transition towards full power market liberalisation as per the “roadmap”.

    The Electricity Regulatory Authority of Vietnam (ERAV) was set up in late 2005 to perform the following functions:

    (i) issue and enforce electricity licences; (ii) advise the MoIT on market structure and policy; (iii) propose the market design and develop the necessary regulatory framework; (iv) oversee the operation of the electricity market; and (v) ensure balance between long and short term energy balance in Vietnam.
    The jury is still out on how ERAV is handling its regulatory role in the Vietnam power reform process. The scope of its authority is still being determined and its enforcement powers are still being defined.

    Power Development Master Plan VI

    The Electricity Law also requires national power development master plans to be formulated for each 10-year period and include a notional view towards the following 10-year period. The Vietnamese government set out its most recent vision for the power sector in its Power Development Master Plan VI (“Master Plan”). The Master Plan covers 2006 to 2015 and provides an ambitious strategy to bring the country’s electricity market in line with more liberalised competitive market standards.

    The BOT Decree

    Under Vietnam’s 2007 BOT Decree, the government expressly “encourages” investment in infrastructure facilities including roads, rail, air and sea ports, water and waste plants, power plants and transmission. Key provisions under the BOT Decree include:

    (i) the “preferred” method of selection of an investor for a BOT contract is that of an international or domestic tender. However, the direct appointment of an investor is still permitted in certain circumstances, including where a project is proposed directly by an investor and where there is only one investor who satisfies the requirements of pre-qualification; (ii) the minimum equity requirements range from 10 to 30 per cent of the total investment capital, depending on the amount of total investment capital; (iii) clearer provisions on “step-in” rights than its predecessor, although “step-in” rights remain subject to approval by the government.

    There are various incentives for investors undertaking a BOT project. These include exemption from applicable land use fees or land rent, exemption from import duties on goods imported to implement the project, as well as significantly reduced corporate income tax and tax holidays. It may be possible for investors to negotiate additional incentives for a particular project.

    The status of the BOT Decree is currently being revisited and the government is in the process of issuing a number of amendments to the BOT Decree. At the same time, the Ministry of Planning and Investment has been charged with adopting the implementing guidelines for the BOT Decree. Both legal documents are still under consideration although there seems to be a risk that the further the discussions concerning the amendments to the BOT Decree are delayed, the longer it will take to issue the highly relevant implementing regulations.

    Equitisation of EVN-owned generation capacity

    Equitisation of generation and distribution companies owned by EVN or its subsidiaries is a key priority of the electricity market reform drive. The Vietnamese government is pushing to restructure state-owned monopolies such as EVN into shareholding companies separate from the government to increase competition, investment and efficiency.

    Under Vietnam’s equitisation scheme, EVN-owned SOEs with power assets are corporatised and their shares are subsequently sold to private investors. This will typically involve an IPO on the Ho Chi Minh City or Hanoi stock exchanges. Government policy dictates that EVN retains at least 51 per cent of the newly-equitised joint-stock power companies. These companies then enter into power purchase agreements (PPAs) with EVN to sell their generated power into the wholesale and, eventually, retail electricity market.

    Strategic generation capacity, including multipurpose hydroelectric generation facilities and any future nuclear plants, will remain fully owned by EVN. To date, EVN has equitised several power plants and a distribution company and this process should accelerate in coming years.

    Structuring investments

    Foreign investment in Vietnam’s power sector can be mainly structured in one of three ways:

    (i) through a BOT contract with the MoIT which is implemented through a wholly-owned foreign enterprise,

    (ii) through a BOT contract with the MoIT which is implemented through a joint venture with a Vietnamese entity (usually including EVN, but it is also possible with a private domestic IPP), or

    (iii) through the purchase of shares in either an EVN subsidiary being or having been equitised or a private IPP holding power assets.
    Further, Vietnamese law permits a foreign investor to obtain an investment certificate for an IPP outside the BOT structure (and thus without the requirement to transfer the power plant at the end of a specified term), although there has been no precedent to date of a stand-alone foreign-owned non-BOT project in Vietnam.

    The BOT structure has been used successfully in the Phu My 2.2 and Phu My 3 IPPs (see below). This structure provides for a project company to be set up to enter into a BOT contract with the MoIT and a PPA directly with EVN.

    Coal-fired power projects

    The majority of Vietnam’s coal-fired plants are situated in the north of the country. A third IPP project in BOT form has been approved and AES and Vinacomin, the main state-owned coal, minerals and mining conglomerate of Vietnam, intend to establish the 1,200 megawatt (MW) Mong Duong II thermal power plant at an estimated investment cost of about $1.4 billion.

    This project has apparently been subject to tendering problems which are still being settled. One of the larger domestic projects is the 4,400MW Kien Luong coal-fired plant to be built by local Tan Tao Group, a diversified infrastructure group. At an estimated total investment cost of $6.7 billion, Tan Tao has already indicated that it is looking for foreign investors to participate in the project.

    It has also been reported that Vinacomin plans to have seven or eight new coal-fired power stations generating electricity by 2010, which will add 2,900MW to Vietnam’s generation capacity. Other coal-fired power plants are being expanded. Coal-generated power is expected to rise by 20 per cent during the same period.

    Gas-fired power projects

    Electricity generated from natural gas is bound to increase moving forward for both supply and environmental reasons. Vietnam has an estimated 400 billion cubic metres of gas reserves.

    EVN itself is pushing ahead with development of the O Mon complex with gas supply from Chevron’s blocks in the South West Basin gas field. Total increased capacity is expected to be 2,700MW. PetroVietnam has also invested heavily in the Ca Mau power project, which includes two 720MW gas-fired combined-cycle turbines supplied with gas from the South West Basin.

    Participants in new IPPs in Vietnam can look to the Phu My projects for guidance and a foundation of experience. Two of the Phu My power projects are foreign-owned IPPs structured as BOT projects: Phu My 2.2 and Phu My 3.

    Phu My 2.2 is a 715MW power plant developed through a 20-year BOT contract between the project company Mekong Energy Company and the MoIT. The principal sponsor is Electricité de France (EDF) and its consortium includes Sumitomo and Tokyo Electric Power Company. The project required a capital investment of $410 million. The financing process, from due diligence to signing, was completed in just over 12 months.

    The gas-fired combined-cycle generation facility’s fuel is supplied by PetroVietnam from the Nam Con Son pipeline linking the Lan Tay and Lan Do undersea gas fields just off the southeast coast.

    Commercial banks, including lead arrangers ANZ Investment Bank, SMBC and Societe Generale, chipped in $100 million, with IDA and ADB providing $75 million and $25 million political risk guarantees respectively. ADB entered into a back-to-back arrangement for Sovereign Risk Insurance to cover its guarantee.

    The Phu My 2.2 project was the first BOT project in Vietnam to reach financial close. The project also achieved notoriety for being the first financing in Vietnam with loan tenors of up to 16 years, and for having the first limited recourse financing package of such a significant size.

    The more recent $412 million Phu My 3 BOT Project, which started commercial operation in March 2004, was the first IPP to operate in Vietnam. Project sponsors include a consortium of Kyuden International Corporation and Sojitz for 33.3 per cent, BP for 33.3 per cent and SembCorp Utilities Pte Ltd. for 33.3 per cent, using a 3:1 debt to equity ratio. Phu My 3 power plant provides southern Vietnam with 716,800KW of electricity.

    Interestingly, Phu My 3 sponsors retained the project’s construction and delivery risks. It will be interesting to see if this aspect will repeat itself in future IPP projects, such as Nghi Son 2. The PPA between the project company and EVN has an offtake term of 20 years while the BOT contract between the Ministry of Industry (now the MoIT) and the project company is for 23 years.

    Direct agreements with the state participants followed a very structured format and effectively bound the Vietnamese parties, which included the State Bank, EVN, Vietcombank and the provincial peoples’ committee, to a single agreement.

    The Vietnamese government provided a foreign law-governed sovereign guarantee to ensure the financing went forward for Phu My 3. Since the Phu My 3 Project, however, the government has been reluctant to issue further guarantees apart from those covering only a small portion of the investment risk.

    Together with the government’s reform process and liberalisation of the electricity market, the Phu My projects potentially serve as benchmarks and contribute to a more attractive investment environment in Vietnam’s power sector. Based on the Phu My experience, the Vietnamese government, international commercial banks and developers will certainly be much more comfortable with the use of similar BOT structures for foreign investments in IPPs. Phu My 3 was entirely offshore-financed, whereas future projects will likely include a domestic component.

    The legal regime in place for taking security in Vietnam has since been upgraded and some international banks now have been approved for onshore banking licences. Mortgaging of land use rights by a foreign-invested enterprise to a foreign lender is permitted where the mortgage is made to the lender’s branch in Vietnam (for credit institutions only), but is not permitted where the foreign lender does not have a foreign bank branch in Vietnam.

    According to the World Bank, the government appears to be pursuing an aggressive IPP development strategy to get more capacity in the system. Given the perceived opportunities for foreign IPPs, Vietnam has attracted substantial attention from industry players in recent years.

    It has been reported that Sumitomo Corporation is planning to build a 2,640MW plant in Khanh Hoa province and that SembCorp Utilities intends to develop a 700MW plant in Ho Chi Minh City. Other industry players, including EDF, International Power, Hong Kong Electric and others, all appear to be looking at the market.

    Despite keen interest, the main issue to date has been that the MoIT has so far been slow to license any new wholly foreign-owned IPPs to operate in Vietnam and has been slow in implementing the seemingly aggressive strategy contemplated under the Master Plan.

    This is despite the fact that a number of projects have received support at the local level. Future foreign-invested power projects include Mong Duong 2, a 1,200MW coal-fired power plant to be developed by US-based AES Corporation in the form of a joint venture with state-owned Vinacomin and might be approved as early as the second quarter of 2009 and Nghi Son 2, a 2x600MW coal-fired plant under the BOT form.

    As recently indicated, the MoIT intends to cooperate closely with IFC and World Bank to develop certain standard documentation for the bidding procedures of Vietnam’s proposed international tender IPP projects which would include standard form tender invitations, BOT contracts and so forth.

    Continued political will, streamlining of the bureaucratic hurdles to foreign investment, and appropriate progress towards greater transparency, competition and privatisation of SOEs will be necessary to achieve Vietnam’s ambitious objectives for meeting its surging power demand.

    VietNamNet/VIR

    More news
    Digital prophecies (Wednesday, 6-17-2009 )

    Các tin đã đưa ngày:   

    Industry Area
    Web Link

    Công ty TNHH Luật An Phú

    Trụ sở: Phòng 315, tầng3, Số nhà 33, ngõ 30, phố Hoa Lâm, phường Việt Hưng, quận Long Biên, thành phố Hà Nội.

    Website: http://anphulaw.com  - Email: luatanphu@gmail.com

    (04).62570713 – Fax: 62570715

    2009 © Copyright by: Công ty Luật An Phú, inc. All right reserved.