Econ
It’s time for Vietnam to lure private capital into energy: World Bank
Private capital is important in the context of upper limit of public debts and double-digit growth in energy demand.
Vietnam, which requires new investments of about US$10 billion annually frontloaded through 2030, should address comprehensively the constraints currently impeding the flows of domestic and cross border private capital into energy sector, the World Bank (WB) has said in a report.
“Given the limited fiscal space and the reduction of concessional financing available going forward, it will be important for Vietnam to step up mobilizing alternative capital resources for the electricity and gas sectors,” said Ousmane Dione, the World Bank country director for Vietnam.
The vast majority of new gas and electricity investments will need to come from private players besides Electricity of Vietnam (EVN) – the country’s sole power distributor, and the two other state-owned power developers namely PetroVietnam (PVN) and Vinacomin, according to the WB report.
“We observe a large interest from private investors to participate in the vast growing energy market in Vietnam, especially in renewables and LNG development. They are willing to invest as long as the projects are well-structured and bankable,” said the WB’s Lead Energy Economist Franz Gerner.
Necessary move
Vietnam needs an additional amount of US$20 billion between 2015 and 2035 for the envisaged expansion of the gas sector.
Relying mostly on public investment by state-owned enterprises is unviable. It requires an action plan on how to unlock new sources of finance, especially from the private sector.
Vietnam’s public debt ceiling is approaching the statutory limit of 65% of GDP. This means that for some years to come there will be limited fiscal space available for either direct public borrowing or government guaranteed borrowing.
At the same time, Vietnam’s middle-income status is reducing the availability of highly concessional financing.
Moreover, the current power sector reform and liberalization process, the scaling up of renewables, and the privatization and divestiture of EVN’s generation subsidiaries creates opportunities to explore new approaches to financing the energy sector.
Transparent and stable environment required
To remove constraints and maximize financing available for electricity and gas investments in Vietnam, the WB made a report title “Maximizing Finance for Development in Vietnam’s energy sector” which proposes a well-coordinated policy effort around three pillars.
The pillars include (i) develop a major PPP/IPP program for new power generation as part of the development of Power System Development Plan 8 to build investor confidence, (ii) enhance the financial standing and credit worthiness of EVN and PVN to enable them to access commercial finance without government support, (iii) increase the availability of local currency financing which is critical for both project finance and corporate project finance.
“What investors need is a transparent and stable regulatory environment which incorporates a proper risk-sharing mechanism among all parties,” Franz Gerner noted.
In order to draw private capital, Vietnam should addresss the five constraints to unlock new sources of financing for the energy sector.
The first is ambiguous and changing legal framework. The second is risk allocation as several projects have yet to reach financial closure due to protracted negotiations over risk allocation, including suitable government supports. The third is government support. The fourth is foreign exchange convertibility with the longterm availability of foreign exchange and usually require government convertibility undertakings. The last but not least is alignment of electricity and gas.
The report is necessary in the context that Vietnam has experienced double-digit growth in energy demand and the country is calling for continued high levels of investment in the electricity and gas sectors.
Illustrative photo
|
The vast majority of new gas and electricity investments will need to come from private players besides Electricity of Vietnam (EVN) – the country’s sole power distributor, and the two other state-owned power developers namely PetroVietnam (PVN) and Vinacomin, according to the WB report.
“We observe a large interest from private investors to participate in the vast growing energy market in Vietnam, especially in renewables and LNG development. They are willing to invest as long as the projects are well-structured and bankable,” said the WB’s Lead Energy Economist Franz Gerner.
Necessary move
Vietnam's demand for energy. Photo: Vncold
|
Relying mostly on public investment by state-owned enterprises is unviable. It requires an action plan on how to unlock new sources of finance, especially from the private sector.
Vietnam’s public debt ceiling is approaching the statutory limit of 65% of GDP. This means that for some years to come there will be limited fiscal space available for either direct public borrowing or government guaranteed borrowing.
At the same time, Vietnam’s middle-income status is reducing the availability of highly concessional financing.
Energy ratio in Vietnam in 2020 and 2030. Photo: Prof. Luu Duc Hai from Vietnam National University
|
Transparent and stable environment required
To remove constraints and maximize financing available for electricity and gas investments in Vietnam, the WB made a report title “Maximizing Finance for Development in Vietnam’s energy sector” which proposes a well-coordinated policy effort around three pillars.
The pillars include (i) develop a major PPP/IPP program for new power generation as part of the development of Power System Development Plan 8 to build investor confidence, (ii) enhance the financial standing and credit worthiness of EVN and PVN to enable them to access commercial finance without government support, (iii) increase the availability of local currency financing which is critical for both project finance and corporate project finance.
“What investors need is a transparent and stable regulatory environment which incorporates a proper risk-sharing mechanism among all parties,” Franz Gerner noted.
In order to draw private capital, Vietnam should addresss the five constraints to unlock new sources of financing for the energy sector.
The first is ambiguous and changing legal framework. The second is risk allocation as several projects have yet to reach financial closure due to protracted negotiations over risk allocation, including suitable government supports. The third is government support. The fourth is foreign exchange convertibility with the longterm availability of foreign exchange and usually require government convertibility undertakings. The last but not least is alignment of electricity and gas.
The report is necessary in the context that Vietnam has experienced double-digit growth in energy demand and the country is calling for continued high levels of investment in the electricity and gas sectors.
