Domestic private sector barred from power market

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Time-consuming procedures and policies

According to Ngo Quoc Hoi, general director of An Khanh Thermal Power Joint Stock Company, the procedures of basic construction investment and investment policies for power plants overlap.

In particular, the National Power Development Plan for the period 2011-2020 with vision to 2030 (Power Development Plan 7 – PDP 7), which was updated and called the adjusted PDP 7, contains the names of power plant projects, as well as their locations and developers. However, before implementing these projects, developers must submit the feasibility reports for evaluation by the relevant ministries, and then resubmit them to the government for in-principle approval.

“Although the projects are mentioned in the PDP 7, developers still have to submit feasibility reports for in-principle approval. This takes developers about six to eight months on average,” Hoi said.

Also, he wished that the Ministry of Industry and Trade (MoIT) would propose to the government to authorise the projects mentioned in PDP 7 to skip the step of in-principle approval. This step is time-consuming.

Admitting to this problem, Hoang Quoc Vuong, Deputy Minister of Industry and Trade, agreed that the feasibility reports are not necessary for projects mentioned in the PDP 7.

“MoIT proposed the prime minister (PM) a mechanism allowing urgent projects to skip the feasibility report stage. We are currently waiting for the final decision,” Vuong said.

Aside from being annoyed with this time-consuming step, numerous developers complained of unfair treatment between independent power producers (IPPs) with domestic investment and BOT power plants with foreign investment.

In particular, BOT projects receive preferential treatment when converting foreign currency and guarantees for power sales and purchases. However, domestic IPPs do not have access to these policies. Domestic developers who want to convert foreign currency to pay off debts must register their sources of debt via the State Bank of Vietnam (SBV) and face the exchange rate risk themselves.

Capital out of reach

Currently, the Bac Giang Thermal Plant project assigned to be developed by An Khanh Thermal Power Joint Stock Company has a capacity of 650MW. It is estimated that this project needs over $1 billion to be fully implemented. But borrowing from domestic commercial banks is not easy.

According to the current regulations of SBV, a credit institution’s total outstanding loans for a client cannot exceed 15 per cent of the institution’s equity. A big commercial bank like BIDV can provide a maximum loan of VND7.3 trillion ($316.8 million) for a project, while the minimum cost of an EPC package is VND22 trillion ($968 million).

Thus, domestic borrowers need the contribution of many commercial banks, which is not easy to arrange. “I propose loosening the loan ceiling from the current 15 to 25 per cent, otherwise, it will be difficult for developers to implement new projects,” Hoi said.

Moreover, as governmental debts are at a high level, developers cannot take up international commercial loans.

Besides, domestic developers want guarantees that Electricity of Vietnam (EVN) will pay them when purchasing their power, otherwise they will be confronted with a lot of obstacles when raising capital for power plant projects.

Vuong said that the reason for the different treatments of BOT projects and IPPs is that Vietnamese private companies are small. A 650-MW power plant needs over $1 billion of investment, but there are few domestic developers able to command such capital. Besides, the practical scale of each plant is about 1000-1,200MW, propelling the needed investment to over $2 billion. Therefore, the government offers preferential policies to call for foreign investment and IPPs are not as encouraged as BOT projects.

However, Vuong said that in the upcoming period, power plant projects will not lure in as much investment as at the present, and if domestic developers become stronger, there will be no different policies between BOT power plants and IPPs with domestic investment.