As it has been in recent years, Vietnam is going through a dry summer and prolonged power shortages are once again a headache for authorities, enterprises and your average person on the street. Enterprises and households have been hit hard by daily electricity cuts as power supply struggles to cope with growing demand. Authorities appreciate the situation and can even foresee the severe impacts of an electricity crunch in advance. But it seems that they are still unable to take the necessary steps to address it.

Vietnam’s electricity production more often than not struggles to keep up with the pace of the country’s economic development. According to the Ministry of Industry and Trade (MoIT), the total capacity of the national electric grid is about 14,000 -15,000 MW/year, but this is insufficient to meet the growing level of demand. It’s calculated that the country still lacks about 3,000-5,000 MW each year, but the implementation of most power projects is slow. 

Since 1981 seven national electricity master plans, one after the other, have been introduced to outline the development scheme for the electricity sector. Typically, a master plan forecasts annual electricity demand growth of the country for a five-year timeframe and provides a comprehensive list of power plants for construction and the scheduled completion date. Yet the question of electricity supply has not been answered thoroughly, even though the seventh such master plan is now being compiled.

When asked about the shortcomings in electricity master plans, Mr Doan Van Binh, Deputy Director of the Institute of Energy Science, which was involved in the appraisal of the sixth electricity master plan, told VET that the master plan should not be blamed for electricity shortages. “The master plan is unable to forecast exactly the feasibility and progress of power plant projects,” he said. “We should review the sixth master plan and apply the lessons learned from it. In my opinion, the master plan itself should move carefully in the subsequent steps. After calculating growing demand and outlining electricity supply plans, the master plan should include solutions to ensure its feasibility.”

The sluggishness of many power plant projects has indeed resulted in less electricity being generated to the national electricity grid. An examination of the facts and figures from MoIT on 35 on-going projects in the sixth master plan appear to show that only five projects (14 per cent) are on schedule, while the remainder are behind by two to six months. According to Mr Tran Anh Thai, General Director of Vietnam Power Resource Partners Corporation, the three main reasons behind the slow going are prolonged site clearance procedures, insufficient corresponding capital from main investors, and a lack of ability among bidders.

Such reasons are not new. The Hai Phong thermal power plant, for example, was delayed due to a hitch with the Chinese bidder. The plant was constructed in the EPC mode (Engineering - Procurement - Construction) and the main bidder was Dong Feng Corporation from China, with total investment capital of nearly $1 billion. Recently, the bidder asked the investor to fund $100 million, due to increases in the price of equipment, but the proposal was turned down. Meanwhile, the investor complains that the bidder did not have enough workers to carry out construction. 

Whatever the reasons, it now seems fairly clear that that the shortcomings of both investors and bidders are one of the root causes of the slow going. Mr Thai, in explaining why many Chinese bidders won the bids, said that “Vietnam tends to lean too much towards the price criterion, and Chinese bidders often submit a bid with prices lower than others.”

While there is a clear need to increase total investment in power plant projects, resources from the State Budget are limited. In this context, one such option is investing in the BOT (build-operate-transfer) form, as Vietnam is currently doing in some hydroelectricity projects. According to Mr Stanley Boots, a consultant with the law firm Hogan Lovells Hong Kong, who works as an advisor to MoIT on the Mong Duong 2 project, a key factor limiting the pace of implementing the current list of BOT power projects is the government’s limited resources, both human and financial, for actually implementing the deals. “Power deals are complex and require skills in negotiation, technical development, financial analysis and legal analysis to be implemented quickly and effectively,” he said. “Ideally, MoIT would have several in-house teams of trained negotiators (with members holding technical, financial and legal training) to run several deals simultaneously.”

He also recommended that Vietnam develop a standard BOT contract and power purchase agreement (PPA) based on bankable international standards. “It is rather inefficient to negotiate anew the BOT contract and PPA for each power project,” he said. “This is akin to reinventing the wheel for each deal.” 

He added that well drafted standardised agreements would speed up project negotiations by clearly setting out the commercial deal and all risk allocation elements. In his view, this will give certainty to potential bidders and their lenders, who can then propose from the outset the most economical and innovative solutions to meet the requirements set out in the standardised agreements.

The electricity sector is clearly an important part of Vietnam’s economic development. Whether now or in the time to come, failed power projects incur losses for the economy and although measures to restructure the electricity sector have been discussed for a long time, problems persist. 

Overall, analysts believe that Vietnam’s electricity sale price is too low and is the reason why the power sector is facing capital shortages for development. Mr Thai is of the opinion that the sector is operating outside of the law of supply and demand, and the sale price of just 5 -5.5 cents/kWh paves way for consumers to use electricity wastefully and inefficiently. “Moreover, when the sale price is too low the electricity supply will fall, as the sector is not attractive to investors,” Mr Thai said. 

The solution for the long-standing problem is to raise the electricity price; a point agreed upon by almost all experts contacted by VET. Mr Binh from the Institute of Energy Science recommends that the price should be from 7-8 cents/kWh. “This would encourage investors to become involved,” he said. Of a similar mind, Mr Thai believes that the current price should be increased to 10 cents/kWh to encourage enterprises and households to monitor their power consumption.

Few could question the decision to increase power prices but how and when remains a major concern for authorities. Whatever the timeframe, public opposition to high power prices is high and proposals by Electricity of Vietnam to increase the price have already been delayed several times in the past due to fear of high inflation. Given the current situation, it is up to the government to decide on a response. But without decisive and drastic action, electricity supply will continue to have difficulty keeping up with demand and the summer months will always be accompanied by electricity woes.