In order to ensure power supply, in the next 10 years, each year, the electricity industry needs to invest about US$13-15 billion. In the context of increasing difficulties with the State's investment capital in power projects, clearing barriers to attracting private investment, especially attracting foreign investment, is considered an important solution to help meet huge capital resources in the future.

In the context that the State's investment capital in power projects is increasingly difficult,
the attraction of investment from the private sector plays an important role.
Photo: Nguyen Thanh 

US$130-150 billion needed

In order to ensure the implementation of the goals set out in the Politburo's Resolution 55-NQ/TW on Vietnam's national energy development orientation to 2030, with a vision to 2045, total capacity of power sources by 2030 will reach about 125-130 GW, electricity output will reach about 550-600 billion kWh, so the electricity industry needs to invest on a very large scale.

According to the calculations of the Ministry of Industry and Trade, in the 2021-2030 period, the investment capital demand for the power industry is US$133.3 billion, the 2031-2045 period is more than US$184 billion. In the context that the State's investment capital in power projects is increasingly difficult, the attraction of investment from the private sector plays an important role.

Dang Huy Dong, Director of the Institute of Planning and Development Studies, former Deputy Minister of Planning and Investment, said that, according to calculations, in the next 10 years, Vietnam needs to attract about US$150 billion to invest in power generation projects, which is half of the country's current GDP.

Given the current size of the domestic capital market and for at least the next five years, the endogenous capital flows of the economy cannot meet the capital requirements for the development of the power sector. Since 2015, Vietnam has become a low-middle-income country, so the door to access to ODA which is considered to be preferential is closing.

In the present context, investment from the private sector and FDI will have decisive significance in investment in power projects. However, the problem of mobilizing US$13-15 billion per year is not easy when investors and consulting organizations all affirm that the business environment is still risky.

“The international capital market is very large, which can meet Vietnam's capital needs, but international capital flows are highly competitive, in accordance with the law of supply and demand and operated according to certain standards, requiring market participants to comply," Mr. Dang Huy Dong said.

As for private investment capital, Mr. Nguyen DucHien, Deputy Head of the Central Economic Commission, said that this source of capital is also difficult because the capital market is not yet developed, and it is difficult to meet the issuance requirements to the public. Meanwhile, loans from domestic credit institutions are not feasible, because energy projects require a large amount of capital, while according to the Law on Credit Institutions, the total credit balance of a customer does not exceed 15% of equity capital of commercial banks; total outstanding loans of a customer and related persons must not exceed 25% of equity of the commercial bank.

Besides, banks also have difficulty balancing their loans because short-term mobilization accounts for a large proportion, while lending to energy projects is long-term. At the same time, the interest rate for loans from domestic banks to implement independent power projects (IPP) is still quite high and there is no policy to encourage and support the State for renewable energy projects.This leads to high electricity prices, making it difficult for the project to arrange capital in the current context.

Electricity price mechanism should be attractive

Regarding raising investment capital for the power sector, especially raising foreign capital for IPP power projects, Ms. Maria Goravanchi, Managing Director of the Mekong region, China International Finance and Development Group Ky (DFC), said that in Vietnam, Vietnam Electricity (EVN) is a buyer of electricity and investors are not able to sell electricity to anyone else. Other factors that investors worry about are risks in foreign currency conversion, remittance abroad and the concern over government intervention in the foreign exchange market.

The goal of raising capital of over VND10 billion per year for the development of power projects in Vietnam will not be easy to achieve, said Mr. Hugo Virag, representative of Astris Finance Group (energy consulting firm - PV).Clearly, fundraising is only likely to succeed when Vietnam establishes a fundraising mechanism for IPP power projects.

“Many investors see investment opportunities in Vietnam, but they are still concerned about legal risks, construction, slow operation of the project, the risk of the possibility of limiting EVN purchasing power, risk of business interruption or the factoring party loses its ability to pay," said Mr. Hugo Virag.

Some experts said that mobilizing international capital for IPP power projects requires Vietnam to comply with international rules and requirements. With a total investment of about US$13-15 billion per year, the size of the Vietnamese market is attractive. In order to increase profitability and reduce risks in order to attract international capital flows, on the national level, Vietnam needs to attach importance to the role of national credit rating because it will help the Government and institutions.

When mobilizing loans or issuing bonds to international capital markets, finance and enterprises can reduce the cost of capital mobilization. Besides, the electricity price mechanism also needs to attract investors, thereby ensuring the profitability needed to attract international capital flows.